<PAGE>
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-13355
SECURITY CAPITAL GROUP INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 36-3692698
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 LINCOLN AVENUE, SANTA FE, NEW MEXICO 87501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(505) 982-9292
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing for the past 90 days.
Yes X No____
The number of shares outstanding of the Registrant's common stock as of May 8,
1998 was:
Class A Common Shares, $.01 par value - 1,606,021 shares
Class B Common Shares, $.01 par value - 44,648,701 shares
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
INDEX
PAGE
NUMBER(S)
---------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1998 (unaudited) and
December 31,1997.......................................... 1
Consolidated Statements of Operations - Three months
ended March 31, 1998 and 1997 (unaudited)................. 2
Consolidated Statement of Shareholders' Equity - Three months
ended March 31, 1998 (unaudited).......................... 3
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1997 (unaudited)....................... 4-5
Notes to Consolidated Financial Statements (unaudited)........ 6-20
Report of Independent Public Accountants...................... 21
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22-30
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 31
Item 6. Exhibits and Reports on Form 8-K.............................. 32
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Investments, at equity:
Security Capital Industrial Trust $ 657,553 $ 660,078
Security Capital Pacific Trust 435,165 432,364
Security Capital Atlantic Incorporated 397,210 399,210
Security Capital U.S. Realty 897,036 909,581
Strategic Hotel Capital Incorporated 272,361 196,694
Security Capital Preferred Growth Incorporated 85,731 60,821
----------- ----------
2,745,056 2,658,748
Real estate, less accumulated depreciation, held by
Homestead Village Incorporated 831,526 709,229
Investments in publicly traded real estate securities, at market value 131,329 129,334
----------- ----------
Total real estate investments 3,707,911 3,497,311
Cash and cash equivalents 34,889 11,454
Other assets 193,019 105,474
----------- ----------
Total assets $ 3,935,819 $3,614,239
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Lines of credit $ 438,200 $ 172,808
Mortgage notes payable 306,058 301,606
Convertible debt 323,024 323,024
Accrued interest on convertible debt 5,249 --
Accounts payable and accrued expenses 86,536 73,543
Deferred income taxes 88,085 87,250
----------- ----------
Total liabilities 1,247,152 958,231
Minority interests 135,097 107,135
Shareholders' Equity:
Class A Shares, $.01 par value; 20,000,000 shares authorized; 1,741,042
and 2,045,601 shares issued and outstanding in
1998 and 1997, respectively 17 20
Class B Shares, $.01 par value; 229,861,000 shares authorized;
37,889,536 and 22,627,541 shares issued and outstanding in
1998 and 1997, respectively 379 226
Series A Preferred Shares, $.01 par value; 139,000 shares
issued and outstanding in 1998 and 1997; stated liquidation
preference of $1,000 per share 139,000 139,000
Additional paid-in capital 2,509,695 2,509,175
Accumulated deficit (95,521) (99,548)
----------- -----------
Total shareholders' equity 2,553,570 2,548,873
----------- ----------
Total liabilities and shareholders' equity $ 3,935,819 $3,614,239
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
INCOME:
Equity in earnings (loss) of:
Security Capital Industrial Trust $ 11,699 $ 7,510
Security Capital Pacific Trust 13,234 14,624
Security Capital Atlantic Incorporated 7,541 5,787
Security Capital U.S. Realty (17,950) 16,901
Strategic Hotel Capital Incorporated 667 --
Security Capital Preferred Growth Incorporated 458 --
Room revenue 27,171 10,952
Services Division revenues from related parties 17,787 27,279
Other income, net 5,824 1,117
------------- -------------
66,431 84,170
------------- -------------
EXPENSES:
Rental expenses 12,253 5,902
Services Division expenses 12,347 21,324
Depreciation and amortization 6,847 2,695
Interest expense--convertible debt 5,249 26,665
Interest expense--other obligations 7,550 1,412
General, administrative and other 11,560 11,179
------------- -------------
55,806 69,177
------------- -------------
Earnings before income taxes and minority interests 10,625 14,993
Provision for income taxes:
Current 2,698 --
Deferred 835 8,445
------------- -------------
Total income taxes 3,533 8,445
------------- -------------
Minority interests in net earnings of subsidiaries 459 593
------------- -------------
Net earnings 6,633 5,955
Less Series A Preferred Share dividends 2,606 2,606
------------- -------------
Net earnings attributable to common
shares and common equivalent shares $ 4,027 $ 3,349
============= =============
EARNINGS PER SHARE:
Weighted-average Class B Shares outstanding 123,402,412 61,290,250
============= =============
Basic earnings per Class B Share $ .03 $ .05
============= =============
Diluted weighted-average Class B Shares outstanding 126,812,791 66,277,750
============= =============
Diluted earnings per Class B Share $ .03 $ .05
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK SERIES A
------------------------------------------------------ PREFERRED
CLASS A CLASS B SHARES AT
------------------------ ------------------------- AGGREGATE
SHARES SHARES AT SHARES SHARES AT LIQUIDATION
OUTSTANDING PAR VALUE OUTSTANDING PAR VALUE PREFERENCE
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 2,045,601 $ 20.455 22,627,541 $ 226.275 $ 139,000
Conversion of Class A shares to Class B
shares (304,674) (3.046) 15,233,711 152.338 --
Exercise of stock options and warrants 301 .003 28,284 .283 --
Repurchase of Class A shares (197) (.002) -- -- --
Issuance of Class A shares 11 -- -- -- --
Cost of raising capital -- -- -- -- --
Net earnings -- -- -- -- --
Series A Preferred Share dividends -- -- -- -- --
--------- --------- ----------- --------- ---------
Balances at March 31, 1998 1,741,042 $ 17.41 37,889,536 $ 378.896 $ 139,000
========= ========= =========== ========= =========
ADDITIONAL TOTAL
PAID-IN ACCUMULATED SHAREHOLDERS'
CAPITAL DEFICIT EQUITY
----------- ------------ -----------
<S> <C> <C> <C>
Balances at December 31, 1997 $2,509,175 $ (99,548) $2,548,873
Conversion of Class A shares to Class B
shares (149) -- --
Exercise of stock options and warrants 971 -- 972
Repurchase of Class A shares (228) -- (228)
Issuance of Class A shares 8 -- 8
Cost of raising capital (82) -- (82)
Net earnings -- 6,633 6,633
Series A Preferred Share dividends -- (2,606) (2,606)
---------- ------------ -----------
Balances at March 31, 1998 $2,509,695 $ (95,521) $2,553,570
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Operating Activities:
Net earnings $ 6,633 $ 5,955
Adjustments to reconcile net earnings to cash flows
provided by operating activities:
Provision for deferred income taxes 835 8,445
Minority interests 459 593
Equity in earnings of unconsolidated investees (15,649) (44,822)
Distributions from unconsolidated investees 34,744 20,426
Change in unrealized appreciation on investments 834 (671)
Depreciation and amortization 6,847 2,695
Other 930 584
Decrease (increase) in other assets (16,156) 396
Increase in accrued interest on convertible debt 5,249 26,665
Increase (decrease) in accounts payable and accrued expenses 11,892 (8,321)
-------------- --------------
Net cash flows provided by operating activities 36,618 11,945
-------------- -------------
Investing Activities:
Real estate properties (125,571) (51,794)
Investment in shares of:
Security Capital U.S. Realty (5,405) (54,845)
Strategic Hotel Capital Incorporated (37,500)
Security Capital Preferred Growth Incorporated (25,000)
Purchases of publicly traded real estate securities, net (2,901) (64,934)
Purchase of Strategic Hotel Capital Incorporated
convertible debt (37,500) --
Purchase of Homestead Village Incorporated warrants -- (10,714)
Advances on notes receivable from affiliate (67,800) --
Other (5,953) (4,684)
-------------- --------------
Net cash flows used in investing activities $ (307,630) $ (186,971)
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------- -------------
<S> <C> <C>
Financing Activities:
Proceeds from lines of credit $ 379,392 $ 141,000
Payments on lines of credit (114,000) (175,000)
Proceeds from mortgage notes payable 4,000 36,250
Proceeds from issuance of convertible debt -- 96,515
Proceeds from issuance of common shares, net of expenses 897 96,532
Repurchase of common shares (228) --
Proceeds from issuance of common shares to minority interest
holders 27,134 210
Preferred dividends paid (2,606) (2,606)
Other (142) 207
------------- -------------
Net cash flows provided by financing activities 294,447 193,108
------------- -------------
Net increase in cash and cash equivalents 23,435 18,082
Cash and cash equivalents, beginning of period 11,454 19,323
------------- -------------
Cash and cash equivalents, end of period $ 34,889 $ 37,405
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
Security Capital Group Incorporated (Security Capital) is a real estate
research, investment and operating management company. Its strategy is to
create the optimal organization to lead and profit from global real estate
securitization. Security Capital has invested in various operating and other
entities (the Capital Division) (see note 2) and provides various capital
management and financial services through a Services Division (see note 3).
The Capital Division invests in real estate-related companies with the
objective of generating capital appreciation and growing dividends. The
Services Division provides research, operational and capital deployment
oversight, capital management, capital markets, accounting and administrative
services for the companies in which Security Capital and its affiliates have
invested. Security Capital is a Maryland corporation.
The accompanying consolidated financial statements include the results of
Security Capital, its majority-owned Capital Division investees (Homestead
Village Incorporated (Homestead), Security Capital U.S. Real Estate Shares
Incorporated (SC-US) and Security Capital European Real Estate Shares
Incorporated (SC-E) 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
Homestead and SC-US. Security Capital accounts for its 20% or greater (but not
more than 50%) owned investees, and those over which it has substantial
influence as the manager or advisor, by the equity method. For an investee
accounted for under the equity method, Security Capital's share of net
earnings or losses of the investee is reflected in income as earned and
dividends are credited against the investment as received.
The consolidated financial statements of Security Capital as of March 31, 1998
are unaudited and, pursuant to the rules of the Securities and Exchange
Commission (SEC), certain information and footnote disclosures normally
included in financial statements have been omitted. While management of
Security Capital believes that the disclosures presented are adequate, these
interim consolidated financial statements should be read in conjunction with
Security Capital's 1997 consolidated financial statements.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of Security Capital's consolidated financial
statements for the interim periods presented. Certain reclassifications have
been made in the 1997 consolidated financial statements and notes to
consolidated financial statements for the interim periods presented in order
to conform to the 1998 presentation. The results of operations for the
three-month period ended March 31, 1998 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.
6
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(2) REAL ESTATE INVESTMENTS
Security Capital holds investments at March 31, 1998 through its wholly-owned
subsidiary, SC Realty Incorporated ("SC Realty"), as follows:
* Security Capital Industrial Trust (SCI), a publicly held real estate
investment trust (REIT), acquires, develops, operates and owns
distribution facilities throughout the United States and in Mexico and
Europe. At March 31, 1998 and December 31, 1997, Security Capital owned
41.1% and 42.5%, respectively, of the issued and outstanding common
shares of SCI. Security Capital accounts for its investment in SCI by the
equity method.
* Security Capital Pacific Trust (PTR), a publicly held REIT, owns,
develops, acquires and operates income-producing multifamily properties
in the western United States. At March 31, 1998 and December 31, 1997,
Security Capital owned 33.0% and 33.1%, respectively, of the issued and
outstanding common shares of PTR. Security Capital accounts for its
investment in PTR by the equity method.
* Security Capital Atlantic Incorporated (ATLANTIC), a publicly held REIT,
owns, acquires, develops and operates income-producing multifamily
properties in the southeastern and near mid-western United States. At
March 31, 1998 and December 31, 1997, Security Capital owned 49.9% of the
issued and outstanding common shares of ATLANTIC. Security Capital
accounts for its investment in ATLANTIC by the equity method as Security
Capital's ownership in ATLANTIC fell below 50% upon completion of
ATLANTIC's registered offering in October 1997.
* Security Capital U.S. Realty (SC-USREALTY) is a Luxembourg real estate
corporation formed with the sponsorship of Security Capital with the
objective of becoming one of Europe's preeminent publicly held real
estate entities. It principally owns real estate through strategic
positions in both public and private real estate operating companies in
the United States. During the quarter ended March 31, 1998, Security
Capital purchased additional common shares of SC-USREALTY at a total cost
of $5,405,000. At March 31, 1998 and December 31, 1997, Security Capital
owned 33.1% and 32.9%, respectively, of the issued and outstanding common
shares of SC-USREALTY. Security Capital accounts for its investment in
SC-USREALTY by the equity method.
* Homestead, a publicly held corporation, is a developer, owner and
operator of moderate priced, extended-stay lodging properties throughout
the United States. During January 1998, Security Capital purchased common
shares, in a Homestead rights offering, at a total cost of $126,438,000.
In addition, Security Capital purchased Homestead shares in the open
market totaling $2,670,000. At March 31, 1998 and December 31, 1997,
Security Capital owned 69.8% and 65.0%, respectively, of the issued and
outstanding common shares of Homestead. Security Capital consolidates
Homestead's accounts in the accompanying consolidated financial
statements.
* SC-US is an investment fund that invests in securities of publicly traded
real estate companies in the United States. Security Capital's ownership
of SC-US's outstanding common shares as of March 31, 1998 and December
31, 1997 was 96.6% and 98.3%, respectively. Security Capital consolidates
SC-US's accounts in the accompanying consolidated financial statements.
7
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
* Strategic Hotel Capital Incorporated (SHC), a privately held corporation
formed in March 1997, is focused on becoming the preeminent owner of
upscale hotel properties on a global basis. Security Capital has committed
to invest $300,000,000 of capital in SHC. As of March 31, 1998, Security
Capital had invested a total of $275,000,000 ($200,000,000 at December 31,
1998) consisting of $150,000,000 in common shares and $125,000,000 in
convertible subordinated debentures. Security Capital owned 39.5% of SHC's
outstanding common shares as of March 31, 1998 and December 31, 1997.
Security Capital accounts for its investment in SHC by the equity method.
* Security Capital Preferred Growth Incorporated (SC-PG), a private real
estate company formed in January 1997, makes intermediate-term
investments in real estate operating companies primarily through
convertible securities. On February 25, 1998, Security Capital invested
$25,000,000 in SC-PG's private offering. Security Capital's ownership of
SC-PG's common shares as of March 31, 1998 and December 31, 1997 was
13.3% and 12.9%, respectively. Security Capital accounts for its
investment in SC-PG by the equity method.
* SC-E is an investment fund that invests in securities of publicly-traded
companies which are engaged in real estate activities in Europe. Security
Capital's ownership of SC-E's common shares as of March 31, 1998 and
December 31, 1997 was 100%. Security Capital consolidates SC-E's accounts
in the accompanying consolidated financial statements.
* Security Capital Global Realty (SC-GR) is a newly formed European based
company which has the objective of becoming the preeminent publicly
traded real estate operating company that will own strategic control
positions in highly focused, fully integrated real estate operating
companies mainly in Europe or the Asia-Pacific region. Prior to
completing its initial subscription offering, SC-GR borrowed from
Security Capital to fund SC-GR's initial investments. As of March 31,
1998 Security Capital had outstanding notes receivable from SC-GR
totaling $67,800,000 and accrued interest totaling $214,000. On March
30, 1998, SC-GR completed a $1.5 billion equity subscription offering, of
which Security Capital and its subsidiaries subscribed for $518,000,000
of common shares. On April 8, 1998, 7.5% of the subscription capital was
funded, which included $37,145,093 of the note plus accrued interest
which was converted into 1,858,304 shares of SC-GR common shares. The
remaining outstanding note balance was paid in full on April 17, 1998,
using proceeds from the first funding of the subscription offering.
Security Capital will account for its investment in SC-GR by the equity
method.
MERGER PROPOSAL
On April 2, 1998, PTR and ATLANTIC announced their intent to merge.
Pursuant to the proposed merger transaction (the Merger), ATLANTIC will be
merged with and into PTR, which will continue its existence under the name
"Archstone Communities Trust" (ARCHSTONE) and will be traded on the NYSE under
the symbol "ASN". In accordance with the terms of the Merger, each outstanding
ATLANTIC common share will be converted into the right to receive one PTR
Common Share and each outstanding ATLANTIC Series A preferred share will be
converted into the right to receive one comparable PTR Series C preferred
share. In addition, PTR will assume all of ATLANTIC's debt as well as other
liabilities upon consummation of the Merger. The transaction has been
structured as a tax-free merger and will be accounted for under the purchase
method.
8
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Both PTR's Board and ATLANTIC's Board have approved the merger. The Merger,
which is expected to be completed in August 1998, is subject to the approval of
shareholders of both companies (a two-thirds majority of PTR's outstanding
common shares and a majority of ATLANTIC's outstanding common shares). Security
Capital owns approximately 49.9% of the ATLANTIC common shares and 33% of the
PTR common shares and has agreed to vote these shares in favor of the Merger,
subject to certain conditions. Upon consummation of the Merger, Security Capital
would own approximately 38.7% of Archstone's common shares and would be
Archstone's largest shareholder.
Security Capital received dividends from its investees for the three months
ended March 31, 1998 and 1997 as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
SCI $ 14,223 $ 11,525
PTR 10,434 8,901
ATLANTIC 9,541 8,404
SC-US 3,764 --
SC-PG 547 --
---------- ----------
$ 38,509 $ 28,830
========== ==========
</TABLE>
The following summarizes real estate investments of Security Capital's
consolidated investee (Homestead) as of March 31, 1998 and December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Extended-stay lodging properties:
Operating properties $ 575,305 $ 472,669
Developments under construction 214,946 213,283
Developments in planning 62,220 32,984
Land held for future development - 6,654
Land held for sale 2,505 1,463
---------- ----------
Total real estate, at cost 854,976 727,053
Less accumulated depreciation 23,450 17,824
---------- ----------
Total real estate $ 831,526 $ 709,229
========== ==========
</TABLE>
Presented below is the summary balance sheet information for SCI as of March
31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net real estate investments $2,919,450 $2,834,711
Cash and other assets 428,507 199,242
---------- ----------
Total assets $3,347,957 $3,033,953
========== ==========
Total liabilities $1,194,961 $1,003,912
Minority interest 52,500 53,304
Total shareholders' equity 2,100,496 1,976,737
---------- ----------
Total liabilities and shareholders' equity $3,347,957 $3,033,953
========== ==========
</TABLE>
9
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Presented below is summary earnings information for SCI for the three months
ended March 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Rental and other income, net $ 92,417 $ 69,231
Expenses 54,837 42,775
---------- ----------
Net earnings before minority interest 37,580 26,456
Minority interest share in net earnings 979 895
---------- ----------
Net earnings 36,601 25,561
Less preferred share dividends 8,799 8,829
---------- ----------
Net earnings attributable to common shares $ 27,802 $ 16,732
========== ==========
Security Capital share of net earnings $ 11,699 $ 7,510
========== ==========
</TABLE>
Presented below is the summary balance sheet information for PTR as of March
31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net real estate investments $2,794,880 $2,760,439
Cash and other assets 69,270 45,247
--------- ----------
Total assets $2,864,150 $2,805,686
========== ==========
Total liabilities $1,281,172 $1,265,250
Total shareholders' equity 1,582,978 1,540,436
---------- ----------
Total liabilities and shareholders' equity $2,864,150 $2,805,686
========== ==========
</TABLE>
Presented below is summary earnings information for PTR for the three months
ended March 31, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Rental and other income $ 95,611 $ 83,494
Expenses 66,312 63,218
---------- ----------
Earnings from operations 29,299 20,276
Gain on dispositions of depreciated real estate 15,484 25,335
---------- ----------
Net earnings 44,783 45,611
Less preferred share dividends 4,712 5,035
---------- ----------
Net earnings attributable to common shares $ 40,071 $ 40,576
========== ==========
Security Capital share of net earnings $ 13,234 $ 14,624
========== ==========
</TABLE>
Presented below is the summary balance sheet information for ATLANTIC as of
March 31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net real estate investments $1,353,535 $1,298,946
Cash and other assets 148,202 142,465
---------- ----------
Total assets $1,501,737 $1,441,411
========== ==========
Total liabilities $ 595,014 $ 550,430
Total shareholders' equity 906,723 890,981
---------- ----------
Total liabilities and shareholders' equity $1,501,737 $1,441,411
========== ==========
</TABLE>
10
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Presented below is summary earnings information for ATLANTIC for the three
months ended March 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Rental and other income, net $ 48,306 $ 39,957
Expenses 32,131 29,779
---------- ----------
Net earnings 16,175 10,178
Less preferred share dividends 1,078 --
---------- ----------
Net earnings attributable to common shares $ 15,097 $ 10,178
========== ==========
Security Capital share of net earnings $ 7,541 $ 5,787
========== ==========
</TABLE>
Presented below is the summary balance sheet information for SC-USREALTY as of
March 31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Investments in common shares of real estate operating
companies, at fair value $2,831,802 $2,728,054
Investment in common shares and debentures of Security
Capital, at cost 165,000 165,000
Cash and other assets 22,470 8,767
---------- ----------
Total assets $3,019,272 $2,901,821
========== ==========
Total liabilities $ 315,544 $ 143,400
Total shareholders' equity 2,703,728 2,758,421
---------- ----------
Total liabilities and shareholders' equity $3,019,272 $2,901,821
========== ==========
</TABLE>
Presented below is summary earnings information for SC-USREALTY for the three
months ended March 31, 1998, and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net investment income $ 20,964 $ 6,828
Realized gains on publicly traded investments 17,186 9,292
Increase (decrease) in appreciation on investments (92,837) 27,106
---------- ----------
Net earnings (loss) $ (54,687) $ 43,226
========== ==========
Security Capital share of net earnings (loss) $ (17,950) $ 16,901
========== ==========
</TABLE>
Presented below is the summary balance sheet information for SHC as of March
31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net real estate investments $1,533,332 $ 814,489
Cash and other assets 113,626 203,803
---------- ----------
Total assets $1,646,958 $1,018,292
========== ==========
Total liabilities $1,052,935 $ 638,013
Minority interests 225,732 108,030
Total shareholders' equity 368,291 272,249
---------- ----------
Total liabilities and shareholders' equity $1,646,958 $1,018,292
========== ==========
</TABLE>
11
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Presented below is summary earnings information for SHC for the three months
ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Room revenue and other income $ 105,984
Expenses 103,266
----------
Net earnings before minority interests 2,718
Minority interests share of net earnings 1,080
----------
Net earnings $ 1,638
==========
Security Capital share of net earnings $ 667
==========
</TABLE>
Presented below is the summary balance sheet information for SC-PG as of March
31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Investments in real estate operating companies $ 695,869 $ 521,697
Cash and other assets 267,284 76,050
---------- ----------
Total assets $ 963,153 $ 597,747
========== ==========
Total liabilities $ 83,651 $ 52,836
Total shareholders' equity 879,502 544,911
---------- ----------
Total liabilities and shareholders' equity $ 963,153 $ 597,747
========== ==========
</TABLE>
Presented below is summary earnings information for SC-PG for the three months
ended March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Net investment income $ 4,108
Decrease in appreciation on investments (919)
----------
Net earnings $ 3,189
==========
Security Capital share of net earnings $ 458
==========
</TABLE>
12
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
A condensed consolidating balance sheet of Security Capital as of March 31,
1998 follows (in thousands):
<TABLE>
<CAPTION>
SC-US
SECURITY CAPITAL(a) HOMESTEAD(b) AND SC-E(b) CONSOLIDATED(c)
------------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Investments, at equity $ 3,245,878 $ -- $ -- $ 2,745,056
Net real estate investments -- 837,794 -- 831,526
Investments in publicly traded real estate
securities, at market value -- -- 113,732 113,732
Cash and other assets 159,690 90,103 21,590 245,505
--------------- --------------- -------------- ---------------
Total assets $ 3,405,568 $ 927,897 $ 135,322 $ 3,935,819
=============== =============== ============== ===============
Long-term debt $ 323,024 $ 306,058 $ -- $ 629,082
Lines of credit 367,000 71,200 -- 438,200
Other liabilities 157,480 65,326 1,826 179,870
--------------- --------------- -------------- ---------------
Total liabilities 847,504 442,584 1,826 1,247,152
Minority interests -- -- -- 135,097
Shareholders' equity 2,558,064 485,313 133,496 2,553,570
--------------- --------------- -------------- ---------------
Total liabilities and
shareholders' equity $ 3,405,568 $ 927,897 $ 135,322 $ 3,935,819
=============== =============== ============== ===============
</TABLE>
- ----------------------
(a) Includes Homestead, SC-US and SC-E on the equity method.
(b) Reflects the carrying amount prior to elimination entries.
(c) Consolidated amounts include effect of elimination entries.
13
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
A condensed consolidating statement of operations for Security Capital for the
three months ended March 31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
SECURITY CAPITAL HOMESTEAD
GROUP VILLAGE SC-US
INCORPORATED(a) INCORPORATED(b) AND SC-E(b) CONSOLIDATED(c)
-------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Equity in earnings of investees $ 18,915 $ -- $ -- $ 15,649
Room revenue -- 27,171 -- 27,171
Services Division revenues from related parties 18,845 -- -- 17,787
Other income 3,022 906 2,486 5,824
-------------- ------------- ------------- ----------------
40,782 28,077 2,486 66,431
-------------- ------------- ------------- ----------------
Rental expenses -- 12,253 -- 12,253
Services Division expenses 12,347 -- -- 12,347
Depreciation and amortization 882 6,387 -- 6,847
Interest expense 9,829 2,970 -- 12,799
General, administrative and other 7,253 4,779 391 11,560
-------------- ------------- ------------- ----------------
30,311 26,389 391 55,806
-------------- ------------- ------------- ----------------
Earning before income taxes and minority interests 10,471 1,688 2,095 10,625
Provision for income taxes 3,533 -- -- 3,533
Minority interests -- -- -- 459
-------------- ------------- ------------- ----------------
Net earnings 6,938 1,688 2,095 6,633
Less Series A Preferred Share dividends 2,606 -- -- 2,606
-------------- ------------- ------------- ----------------
Net earnings attributable to common shares $ 4,332 $ 1,688 $ 2,095 $ 4,027
============== ============= ============= ================
</TABLE>
- ----------------------
(a) Includes Homestead, SC-US and SC-E on the equity method.
(b) Reflects the carrying amount prior to elimination entries.
(c) Consolidated amounts include effect of elimination entries.
(3) SERVICES DIVISION
GLOBAL CAPITAL MANAGEMENT GROUP
The Global Capital Management Group provides oversight, guidance and/or
management to various entities which own real estate securities on a strategic,
intermediate-term or short-term basis. The customer entities include closed-end
and open-end companies, U.S. operating companies and non-U.S. operating
companies.
14
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Operating Advisors
A Services Division subsidiary domiciled in Luxembourg (USREALTY Advisor)
advises on all investment and operational activities of SC-USREALTY. The
USREALTY Advisor is paid an operating advisor fee of 1.25% of SC-USREALTY's
average monthly investments at fair value (other than liquid short-term
investments and investments in Security Capital). Another Services Division
subsidiary, domiciled in Luxembourg, has been formed to serve as the operating
advisor to SC-GR. The operating advisor to SC-GR will be paid an operating
advisor fee of 1.25% of SC-GR's average monthly investments at fair value.
Management Company
A U.S. subsidiary headquartered in Chicago manages SC-PG, a closed-end company
which makes intermediate-term investments in convertible securities issued by
real estate companies. This subsidiary also manages SC-US and SC-E, which are
open-end mutual funds. The management fees earned by this subsidiary range from
0.62% to 1.00% of assets under management.
FINANCIAL SERVICES GROUP
Two services division subsidiaries provide capital markets services and
accounting and administrative services, respectively, to Security Capital
affiliates. These services are provided at negotiated rates, based on market
terms. Accounting and administrative services focus on centralized services
where economies of scale and volume purchasing power are expected to generate
cost efficiencies.
Services Division fees for the three months ended March 31, 1998 and 1997 were
earned from the following sources (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
REIT management fees:
SCI $ - $ 6,606
PTR - 4,617
ATLANTIC - 3,029
--------------- ----------------
- 14,252
--------------- ----------------
Property management fees:
SCI - 4,129
PTR - 2,689
ATLANTIC - 1,280
--------------- ----------------
- 8,098
--------------- ----------------
SC-USREALTY advisory fee 8,665 4,813
Other advisory fees 1,442 -
Security Capital Markets Group Incorporated fees 4,638 42
Administrative Services and Real Estate Research fees 4,100 599
--------------- ----------------
Total Services Division revenues 18,845 27,804
Less amounts eliminated in consolidation 1,058 525
--------------- ----------------
Consolidated Services Division revenues $ 17,787 $ 27,279
=============== ================
</TABLE>
15
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Services Division expenses in the accompanying Consolidated Statements of
Operations represent direct operating expenses consisting primarily of payroll,
occupancy and related costs.
SALE OF REIT AND PROPERTY MANAGERS
Prior to September 1997, certain Security Capital Services Division subsidiaries
managed the operations (REIT Managers) of and provided property management
services (Property Managers) to various REITs (SCI, PTR and ATLANTIC) in which
the Capital Division is a principal owner. Effective September 9, 1997, Security
Capital exchanged the REIT and Property managers for additional shares of SCI
(3,692,024 shares), PTR (3,295,533 shares) and ATLANTIC (2,306,591 shares).
(4) INDEBTEDNESS
Lines of Credit:
Borrowings outstanding on Security Capital's and Homestead's revolving bank
lines of credit at March 31, 1998 totaled $367,000,000 and $71,200,000,
respectively.
Security Capital has a $700,000,000 revolving line of credit with Wells Fargo
Realty Advisors, Incorporated (Wells Fargo), as agent for a group of lenders.
The line was increased from $400,000,000 to $700,000,000 on April 6, 1998. The
agreement is effective through April 5, 2000, with an option to renew for
successive one-year periods with the approval of Wells Fargo and participating
lenders. Borrowings bear interest at the LIBOR rate plus 1.00% to 1.25% per
annum, depending upon the ratio of the facility commitment amount to the
aggregate value of pledged qualifying securities. Interest is payable monthly in
arrears. Prior to April 6, 1998, the rate was defined as LIBOR plus 1.50% or a
Base Rate (defined as the higher of Wells Fargo prime rate or the Federal Funds
rate plus .50%). Commitment fees range from 0.125% to 0.20% per annum based on
the average unfunded line of credit balance (such fees ranged from 0.125% to
0.25% prior to April 6, 1998).
The new agreement also provides for "Swing Line" advances. Swing Line advances
provide for same day funding. Any Swing Line advance will reduce availability
under the Facility on a dollar-for-dollar basis. Swing Line advances will not be
outstanding more than ten business days and will be charged at a rate equal to
the Base Rate minus 1.60%.
Security Capital's line is secured by its holdings in SCI, PTR, ATLANTIC,
SC-USREALTY and Homestead. Security Capital has commenced negotiations with the
group of lenders to have the line become an unsecured line, but successful
completion can not be assured.
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.
16
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Distributions, excluding all dividends paid on Security Capital's issued 139,000
Series A Convertible Redeemable Voting Preferred Stock (Series A Preferred
Shares), are limited to 50% of Security Capital's cash flow available for
distribution if no event of default has occurred and is continuing. During a
non-monetary default, no such payments other than dividends paid on Security
Capital's Series A Preferred Shares may be made. In the event of a monetary
default, no dividends on either preferred or common shares shall be permitted.
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 April 24, 1998 Homestead renewed its existing revolving line of credit
facility for a one-year term, with an increase in total borrowing capacity to
$150,000,000, subject to collateral requirements. Borrowings will bear interest
at the Eurodollar rate plus 1.5% to 2.5% per annum, depending upon the
percentage leverage of borrowings outstanding to the amount of qualifying
collateral. Alternatively, borrowings will bear interest at the base rate
defined as the higher of prime rate plus a margin of 0.5% to 1.5% or the federal
funds rate plus a margin of 1% to 2%, with the margin dependent on the
percentage leverage of borrowings outstanding to the amount of qualifying
collateral. Additionally, a commitment fee of 0.375% of the average unfunded
balance will be owed.
Also, on April 24, 1998 Homestead entered into a separate $50,000,000 one-year
revolving line of credit facility of which $20,000,000 is available for
borrowings on a secured basis and $30,000,000 is available for borrowing on an
unsecured basis. The unsecured portion of the line is required to be
collateralized by September 30, 1998 or such unsecured borrowings must be
repaid. Borrowings will bear interest at the Eurodollar rate plus 2.75% per
annum or, alternatively, at a base rate defined as the higher of prime rate plus
1.75% or the Federal Funds rate plus 2.25%. Average unfunded balances bear a
commitment fee of 0.5%.
In connection with the renewal and expansion of Homestead's line of credit,
Security Capital has committed, during the one-year term of the credit
facilities, to retain its ownership in Homestead common stock and to purchase
Homestead common stock to fund, if necessary, capital needs of up to
$150,000,000.
Each line requires maintenance of certain financial covenants. Security Capital,
SC Realty and Homestead were in compliance with all such covenants at March 31,
1998.
Interest:
Security Capital capitalizes interest of its consolidated subsidiaries as part
of the cost of real estate projects under development. Security Capital incurred
total interest cost of $19,303,000 and $71,400,000 for the three months ended
March 31, 1998 and 1997, respectively, of which $6,504,000 and $43,323,000,
respectively, was capitalized. Interest paid in cash for the three months ended
March 31, 1998 and 1997 was $3,266,000 and $1,559,000, respectively. 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, 1998 and 1997 was $1,264,000 and $642,000,
respectively.
17
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(5) SHAREHOLDERS' EQUITY
Conversion of Shares:
As of January 1, 1998, at the option of the holder, each Class A Share can be
converted into 50 Class B Shares. Class B Shares are not convertible into Class
A Shares. As of March 31, 1998 304,674 Class A Shares have been converted into
15,233,711 Class B Shares.
Warrants:
Security Capital issued registered warrants to acquire $250 million of Class B
shares (8,928,572 warrants) to the common and convertible preferred shareholders
of SCI, PTR and ATLANTIC, and limited partnership unit holders of SCI as of
September 16, 1997. The exercise price of a Warrant is $28 per Class B Share,
and the Warrants will expire on September 18, 1998. As of March 31, 1998 86,115
Warrants have been exercised.
Series A and Series B Preferred Shares:
On April 1, 1996 Security Capital issued 139,000 Series A Preferred Shares. The
Series A Preferred Shares had 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 was entitled to voting rights, equal
to the number of Class B 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 Class B
Shares on other matters submitted to a vote of the common shareholders. Each
Series A Preferred Share was convertible, at the option of the holder at any
time, into 0.76184 Class A Shares (a conversion price of $1,312.61 per share).
In February 1998, the holder of the Series A Preferred Shares agreed upon
conversion to convert its Series A Preferred Shares directly into Class B Shares
and to vote its Series A Preferred Shares on an as converted basis in Class B
Shares. The Series A Preferred Shares were convertible at March 31, 1998 into an
aggregate of 5,294,788 Class B shares. Holders of the Series A Preferred Shares
were 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 were
cumulative from the date of original issue and were 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
were redeemable, at the option of Security Capital, after March 31, 1999.
On May 12, 1998, pursuant to an Exchange Agreement, dated as of May 7, 1998,
Security Capital issued 257,642 shares of a new class of Series B Cumulative
Convertible Redeemable Voting Preferred Stock, par value $.01 per share (the
"Series B Preferred Shares"), to Commerzbank Aktiengesellshaft, Grand Cayman
Branch ("Commerzbank"), in exchange for 139,000 Series A Preferred Shares and
3,293,288 Class B Common Shares held by Commerzbank. Also pursuant to the
Exchange Agreement, Security Capital paid a cash dividend to Commerzbank on all
the Series A Preferred Shares for the period from April 1, 1998, to May 12,
1998, of $1,216,250. In addition, Security Capital entered into a Registration
Rights Agreement with Commerzbank granting Commerzbank certain registration
rights with respect to the Class B Common Shares into which the Series B
Preferred Shares are convertible. The Series B Preferred Shares were issued to
Commerzbank under an exemption from the registration requirements provided by
Section 4(2) of the Securities Act of 1933, as amended. The exchange of the
Series A Preferred Shares and the Class B Common Shares for the Series A
Preferred Shares was structured as a tax free recapitalization.
The Series B Preferred Shares have a liquidation preference of $1,000 per share
for an aggregate preference of $257,642,000 plus any accrued and unpaid
dividends. The holder of the Series B Preferred Shares is entitled to voting
rights equal to the number of Class B Common Shares into which the Series B
Preferred Shares are convertible, on any amendments of Security Capital's
charter or a merger of Security Capital, a sale of substantially all its assets
or liquidation or dissolution, and one-half of such number of Class B Common
Shares on all other matters submitted to a vote of the common shareholders.
Each Series B Preferred Share is convertible, at the option of the holder at any
time, into 25.641026 Class B Common Shares (a conversion price of $39.00 per
share). The conversion price and the number of Class B shares into which the
Series B Preferred Shares are convertible are subject to certain adjustments.
The Series B Preferred Shares are initially convertible into a total of
6,606,205 Class B Common Shares. The holder 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 7.0% of the liquidation
preference per annum (equivalent to $70.00 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 B Preferred Shares
are redeemable, at the option of Security Capital, after May 12, 2003, at a
redemption price equal to $1,000 per share plus any accrued and unpaid
dividends.
The exchange of the Series B Preferred Shares, which are initially convertible
into 6,606,205 Class B Common Shares, for the Series A Preferred Shares, which
were convertible into 5,294,800 Class B Common Shares, and the 3,293,288 Class B
Common Shares will result in 1,981,883 fewer Class B Common Shares outstanding
on a fully converted basis.
The exchange of the Series B Preferred Shares, which are initially convertible
into 6,606,205 Class B Common Shares, for the Series A Preferred Shares, which
were convertible into 5,294,800 Class B Common Shares, and 3,293,288 Class B
Common Shares was based on the fair value of these securities at the date of the
Exchange Agreement. For financial accounting purposes, the difference between
the fair value of the Series B Preferred Shares issued ($257,642,000) less the
sum of (a) the carrying value of the Series A Preferred Shares ($139,000,000)
and (b) the fair value of the Class B Shares ($98,799,000) will be recorded as a
dividend ($19,843,000) in Security Capital's second quarter financial
statements.
18
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Per Share Data:
Basic earnings per share data is computed based on weighted-average shares of
Class B common stock, par value $.01 per share ("Class B Shares"), outstanding
during the three months ended March 31, 1998. Diluted earnings per share is
computed based on the weighted-average Class B Shares outstanding during the
three months ended March 31, 1998 plus the weighted-average Class B Shares that
would be outstanding assuming the exercise of outstanding options and warrants.
The conversion of 2016 Convertible Debentures and Series A Preferred Shares, par
value $.01 per share, into Class B Shares is not assumed as the effect would be
anti-dilutive.
Security Capital adopted SFAS No. 128, Earnings per Share, effective
December 15, 1997. Previously reported earnings per share data have been
restated to conform to SFAS No. 128.
A reconciliation of the number of shares used in computing basic and
diluted earnings per share as calculated under SFAS 128 follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------- --------------
<S> <C> <C>
Net income attributable to common shares and
common equivalent shares $ 4,027 $ 3,349
============= ==============
Weighted-average Class B Shares outstanding for the quarter 123,402,412 61,290,250
Increase in shares which would result from:
Exercise of warrants 882,251 --
Exercise of options 2,528,128 4,987,500
------------- --------------
Weighted-average Class B Shares, assuming conversion
of the above securities 126,812,791 66,277,750
============= ==============
Diluted earnings per Class B Share $ .03 $ .05
============= ==============
</TABLE>
19
<PAGE>
SECURITY CAPITAL GROUP INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(6) INCOME TAXES
Security Capital accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes (SFAS No. 109).
Security Capital files a consolidated federal income tax return. Homestead also
accounts for income taxes under SFAS No. 109 and its tax effects are included in
Security Capital's consolidated financial statements. Homestead files a separate
Federal income tax return. SC-US and SC-E have complied with the provisions of
the Internal Revenue Code available to regulated investment companies and intend
to distribute investment company net taxable income and net capital gains to
shareholders. Therefore, no provision for federal income taxes has been made in
Security Capital's consolidated financial statements for SC-US or SC-E.
Security Capital had tax net operating loss carryforwards of approximately
$57,300,000 at December 31, 1997. These net operating loss carryforwards are
expected to be utilized during 1998. At December 31, 1997, Homestead had, for
federal income tax reporting purposes, net operating loss carryforwards of
$20,100,000, which expire as follows: $4,200,000 in 2011 and $15,900,000 in
2012.
(7) COMMITMENTS AND CONTINGENCIES
Security Capital and its investees are parties to various claims and routine
litigation arising in the ordinary course of business. Based on discussion with
legal counsel, Security Capital does not believe that the results of all claims
and litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.
Security Capital's investees are subject to environmental and health and safety
laws and regulations related to the ownership, operation, development and
acquisition of real estate. Under such laws and regulations, Security Capital
may be liable for, among other things, the costs of removal or remediation of
certain hazardous substances, including asbestos-related liability. Such laws
and regulations often impose liability without regard to fault.
As part of their due diligence procedures, Security Capital's investees conduct
Phase I environmental assessments on each property prior to acquisition. The
cost of complying with environmental regulations was not material to Security
Capital's results of operations. Security Capital and its investees are not
aware of any environmental condition on any of their properties which is likely
to have a material adverse effect on its financial condition or results of
operations.
At March 31, 1998, Homestead had approximately $213,200,000 of unfunded
commitments for developments under construction.
20
<PAGE>
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, 1998, and the
related consolidated statements of operations for the three-month periods ended
March 31, 1998 and 1997, the statement of shareholders' equity for the
three-month period ended March 31, 1998 and the statements of cash flows for the
three-month periods ended March 31, 1998 and 1997. These financial statements
are the responsibility of the Management of the Company. 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 (March 31, 1997), whose total assets represent
21.1% of the total assets of Security Capital Group Incorporated and
subsidiaries as of March 31, 1998 and whose income represent 24.6% and 29.1% 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, 1998 and 1997, respectively.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review and the reports of other accountants, we are not aware of
any material modifications that should be made to the financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Security Capital Group Incorporated
and subsidiaries as of December 31, 1997, and, in our report dated March 18,
1998, we expressed an unqualified opinion on that statement based on our audit
and reports of other auditors. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1997, 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 12, 1998
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Security Capital's
consolidated financial statements and the notes thereto in Item 1 of this
report. See Security Capital's 1997 Form 10-K for a discussion of various risk
factors associated with forward looking statements made in this document.
OVERVIEW
Security Capital is a real estate research, investment and operating management
company. Security Capital obtains income from four sources: (1) the Capital
Division's share of earnings in its investees; (2) Global Capital Management
Group revenues; (3) Financial Services Group revenues consisting of accounting
and administrative services fees and capital markets fees; and (4) Real Estate
Research Group revenues. Revenues from the Global Capital Management Group, the
Financial Services Group and the Real Estate Research Group are all included in
the Services Division and are only reflected in Security Capital's consolidated
financial statements if they were earned from investees not consolidated in the
financial statements. Services Division revenues earned from consolidated
investees (Homestead, SC-US and SC-E) are eliminated in Security Capital's
consolidated financial statements.
SC-USREALTY, in accordance with generally accepted accounting principles,
accounts for its investments at market value or estimated fair value (depending
on whether the investment is publicly traded) and reflects changes in such
values in its statement of income pursuant to fair value accounting principles.
Security Capital accounts for its investment in SC-USREALTY using the equity
method and, as a consequence, Security Capital's results of operations are
affected by changes in the fair value of SC-USREALTY's investments. SC-USREALTY
values its investments in publicly traded companies at market determined by
using closing market prices as of the relevant balance sheet date. SC-USREALTY
values its investments in private companies at fair value, generally determined
at cost, or an appropriate lower value if the investment is not performing as
expected. If substantial additional capital is raised by an investee from
independent third parties in a private placement, SC-USREALTY values its
investment at the price at which that capital was raised when a substantial
percentage of the new subscriptions have been funded. In addition, a Services
Division subsidiary is the operating advisor to SC-USREALTY and, for its
services, earns advisory fees based on a percentage of the fair value of
SC-USREALTY's investments (not including short-term investments and investments
in Security Capital).
SC-US and SC-E, in accordance with generally accepted accounting principles,
account for their investments at market value and reflect changes in such values
in their statements of income pursuant to fair value accounting principles.
Security Capital consolidates SC-US and SC-E, and as a consequence, Security
Capital's results of operations are affected by changes in the fair value of
their investments.
SC-PG, in accordance with generally accepted accounting principles, accounts for
its investments at market value or estimated fair value (depending on whether
the investment is publicly traded). Security Capital accounts for its investment
in SC-PG using the equity method and, as a consequence, Security Capital's
results of operations are affected by changes in the fair value of SC-PG's
investments. SC-PG makes intermediate-term investments primarily in the
convertible securities of real estate operating companies. SC-PG values its
investments in publicly traded securities at market determined by using closing
market prices as of the relevant balance sheet date. SC-PG values its
investments in privately held securities by using closing market prices, as of
the relevant balance sheet date, of an identical class of publicly traded
securities if it exists. The fair value of other privately held securities is
determined by consistently applying policies and procedures which consider many
factors.
22
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Sale of REIT and Property Managers ("the Mergers")
Prior to September 1997, certain Security Capital Services Division subsidiaries
managed the operations (REIT Managers) of and provided property management
services (Property Managers) to various REITs (SCI, PTR and ATLANTIC) in which
the Capital Division is a principal owner. Effective September 9, 1997, Security
Capital exchanged the REIT and Property Managers for additional shares of SCI
(3,692,024 shares) PTR (3,295,533 shares) and ATLANTIC (2,306,591 shares).
Capital Division Investments
Dividends Received
Security Capital's dividends received increased $9.7 million, or 34%, from $28.8
million for the three months ended March 31, 1997 to $38.5 million for the three
months ended March 31, 1998. The increase results primarily from (a) the
purchase of additional shares in SCI; (b) additional shares received from SCI,
PTR and ATLANTIC in the Mergers; (c) dividends from SC-US and SC-PG of
approximately $3.7 million and $0.5 million, respectively, during the three
months ended March 31, 1998 and (d) an increase in per share dividend rates of
its investees.
Equity in Earnings of Investees
Security Capital's equity in SCI's earnings increased 56% from $7.5 million to
$11.7 million for the three months ended March 31, 1997 and 1998, respectively.
The increase can be attributed to (i) the amount of distribution space owned and
leased by SCI (93.1 million square feet at March 31, 1998 compared to 82.7
million square feet at March 31, 1997) and increased rental rates on renewal
leases for previously occupied space; (ii) an increase in other real estate
income ($8.4 million) primarily related to gains on disposition of undepreciated
property and income from investments in distribution services; and (iii) due to
the Merger, the REIT and property management expenses decreased from $7.5
million for the three months ended March 31, 1997 to zero for the three months
ended March 31, 1998. The decrease in fees were partially offset by an increase
in general and administrative expenses ($4.3 million) due to the actual
personnel and other operating costs associated with the REIT management being
included in general and administrative expenses during the three months ended
March 31, 1998. The increase in SCI's earnings was offset by an increase in
interest expense principally caused by an increase in long-term debt during
1997. At March 31, 1998 and 1997, Security Capital's ownership interest in the
outstanding common shares of SCI was approximately 41% and 44%, respectively.
Security Capital's equity in PTR's earnings decreased 10% from $14.6 million to
$13.2 million for the three months ended March 31, 1997 and 1998, respectively.
The decrease can be attributable to the decrease in gains on dispositions of
real estate from $25.3 million to $15.5 million for the three months ended March
31, 1997 and 1998, respectively, and a decrease in Security Capital's ownership
in PTR; partially offset by an increase in net operating income of $7.8 million
primarily due to an increase in operating units and a decrease in expenses due
to the Merger. At March 31, 1998 and 1997, Security Capital's ownership interest
in the outstanding common shares of PTR was 33% and 36%, respectively.
Security Capital's ownership of ATLANTIC decreased to 49% in September 1997
resulting in the reported earnings of ATLANTIC being based on the equity method.
Security Capital's equity in
23
<PAGE>
ATLANTIC's earnings increased 29% from $5.8 million to $7.5 million for the
three months ended March 31, 1997 and 1998, respectively. The increase is
primarily related to an increase in net operating income of $4.8 million
primarily due to an increase in operating units and a decrease in expenses due
to the Merger. At March 31, 1998 and 1997, Security Capital's ownership
interest in the outstanding common shares of ATLANTIC was 49% and 57%,
respectively.
Security Capital's share of SC-USREALTY's earnings decreased from $16.9 million
to a loss of $18 million for the three months ended March 31, 1997 and 1998,
respectively, primarily due to a decrease in unrealized appreciation on
investments ($92.8 million) due to the declines in the market value of REIT
stocks owned by SC-USREALTY. SC-USREALTY's realized gains on special opportunity
investments amounted to $17.2 million and $9.3 million for the three months
ended March 31, 1998 and 1997, respectively. In addition, SC-USREALTY recorded
net investment income (defined as dividends and other investment income net of
administration expenses, advisor fees, taxes and interest) of $21.0 million and
$6.8 million for the three months ended March 31, 1998 and 1997, respectively.
At March 31, 1998 and 1997, Security Capital's ownership interest in the
outstanding common shares of SC-USREALTY was 33% and 37%, respectively.
Security Capital's share of SHC's earnings was $0.7 million for the three months
ended March 31, 1998. Security Capital began investing in SHC in May of 1997. As
of March 31, 1998, SHC's portfolio consisted of 20 hotels with a total cost of
$1.6 billion. At March 31, 1998, Security Capital's ownership interest in the
outstanding common stock of SHC was 39%.
Security Capital's share of SC-PG's earnings was $0.5 million for the three
months ended March 31, 1998. SC-PG commenced operations in June 1997. During the
quarter ended March 31, 1998 Security Capital invested an additional $25.0
million in SC-PG. At March 31, 1998, SC-PG had investments and investment
commitments at cost and fair value of approximately $646.9 million and $695.9
million, respectively. At March 31, 1998, Security Capital's ownership interest
in the outstanding common stock of SC-PG was 13%.
Room Revenue and Rental Expenses From Greater Than 50% Owned Consolidated
Investee (Homestead)
Room revenue increased $16.2 million, or 147%, to $27.2 million for the three
months ended March 31, 1998 from $11.0 million for the same period in 1997.
Rental expenses were $12.3 million for the three months ended March 31, 1998 and
$5.9 million for the same period in 1997. Homestead's 47 property openings from
the end of the first quarter of 1997 through the end of the first quarter of
1998 was the primary reason for both the increase in room revenue and rental
expenses.
Other Income, net
The $4.7 million increase in other income primarily results from the inclusion
of interest income on SHC debentures ($1.8 million), an increase in SC-US and
SC-E's dividend income (approximately $.4 million) and realized gains on sale of
SC-US and SC-E's investments (approximately $2.2 million).
At March 31, 1998, SC-US had investments at cost and fair market value of
approximately $103.9 million and $113.7 million, respectively. Security Capital
owned 97% and 100% of the outstanding shares of SC-US at March 31, 1998 and
1997, respectively.
24
<PAGE>
At March 31, 1998, SC-E had investments at cost and fair market value of
approximately $16.5 million and $17.6 million, respectively. Security Capital
owned 100% of the outstanding shares of SC-E at March 31, 1998.
Services Division
Revenues
Services Division revenues decreased by 35% from $27.3 million for the
three months ended March 31, 1997 to $17.8 million for the same period in 1998.
The components of Services Division revenues were as follows (dollars in
millions):
<TABLE>
<CAPTION>
CHANGE
-------------------------
1998 1997 $ %
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Global Capital Management $ 9.9 $ 4.8 5.1 106%
Financial Services 7.6 22.4 (14.8) (66%)
Real Estate Research .3 .1 .2 200%
----------- ----------- ----------- -----------
$ 17.8 $ 27.3 (9.5) (35%)
=========== =========== ============ ============
</TABLE>
The decrease of $9.5 million in Services Division revenues for the three months
ended 1998 compared to the same period in 1997 was primarily attributable to the
September 9, 1997 sale of the SCI, ATLANTIC and PTR REIT Managers and Property
Managers ($22.4 million) partially offset by; (i) the increase in Capital
Markets, administrative and real estate research services ($7.8 million) and
(ii) the growth in assets managed by Global Capital Management, generating
increased advisory and management fees ($5.1 million).
Effective September 9, 1997, the Services Division no longer received REIT
management and property management revenues (which were classified as financial
services revenues) and no longer incurred associated operating expenses as a
result of the Mergers. Growth in Services Division revenues is expected to come
primarily from growth in management and advisory revenues earned by the Global
Capital Management Group and, to a lesser extent, fees earned by the Financial
Services Group and the Real Estate Research Group. The Global Capital Management
Group manages and advises with respect to strategic investments and
intermediate-term investments on behalf of its customers, SC-USREALTY, SC-PG,
SC-US and SC-E, as well as new clients. Such assets under management increased
from $3.5 billion at December 31, 1997 to $3.8 billion at March 31, 1998. In
November 1997, a new client, SC-GR, was formed and commenced its initial private
placement. The first funding of that private placement took place in April 1998
(see note 2 to the consolidated financial statements). It seeks to be the
leading publicly-traded European real estate company focused on making strategic
investments in non-US real estate companies.
Expenses
Services Division expenses decreased by $9.0 million, or 42%, for the three
months ended March 31, 1998, to $12.3 million from $21.3 million for the same
period in 1997. The decrease primarily resulted from the sale of the REIT and
property management companies which incurred $21.0 million of expenses for the
three months ended March 31, 1997; this decrease was substantially offset by an
increase in expenses related to additional Global Capital Management, accounting
and administrative services ($12.0 million) for the three months ended March 31,
1998 compared to the three months ended March 31, 1997.
25
<PAGE>
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for Security Capital was $6.9 million and
$2.7 million for the three months ended March 31, 1998 and 1997, respectively.
Of those amounts, $6.0 million and $1.5 million represented depreciation and
amortization from Homestead rental operations for those same periods in 1998 and
1997, respectively. This increase is primarily a result of the 47 Homestead
property openings from the end of the first quarter of 1997 through the end of
the first quarter 1998. The remaining depreciation and amortization of $0.9
million and $1.2 million in 1998 and 1997, respectively, resulted from the
Services Division. The decrease can be partially attributed to $0.6 million in
depreciation expense incurred by the REIT and Property Managers for the three
months ended March 31, 1997 which was not incurred in 1998 due to the sale of
the management companies.
INTEREST EXPENSE
Security Capital's consolidated interest expense consists of interest on the
2014 Convertible Debentures (during 1997) and 2016 Convertible Debentures
(collectively, the "Convertible Debentures"), interest on revolving lines of
credit which are obligations of Security Capital and Homestead and interest on
mortgage notes payable which are obligations of Homestead. Interest expense for
the three months ended March 31, 1998 and 1997 is summarized as follows (dollars
in millions):
<TABLE>
<CAPTION>
SECURITY CAPITAL HOMESTEAD TOTAL
---------------------- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Convertible Debentures $ 5.3 $ 26.7 $ - $ - $ 5.3 $ 26.7
Lines of credit 4.7 1.4 1.7 - 6.4 1.4
Mortgage notes payable - - 7.6 43.3 7.6 43.3
Capitalized interest (0.2) - (6.3) (43.3) (6.5) (43.3)
---------- ---------- ---------- ---------- ---------- ---------
Total $ 9.8 $ 28.1 $ 3.0 $ - $ 12.8 $ 28.1
========== ========== ========== ========== ========== =========
</TABLE>
Interest expense on the Convertible Debentures decreased $21.4 million or 80% to
$5.3 million for the three months ended March 31, 1998 compared to $26.7 million
for the same period in 1997. The decrease is primarily attributable to the
conversion of 2014 Convertible Debentures to Class A Shares in the fourth
quarter of 1997.
Interest expense on other obligations increased by $6.1 million from the first
quarter of 1997 to the same period in 1998 mainly due to the increase in
Security Capital's weighted-average line of credit balance outstanding ($216.8
million in 1998 and $53.3 million in 1997). In addition, Homestead had
borrowings on its line of credit during the three months ended March 31, 1998.
This line was not in existence during the same period in 1997.
General, Administrative and Other
General, administrative and other expenses increased by $0.4 million, or 3%, for
the three months ended March 31, 1998, to $11.6 million from $11.2 million for
the same period 1997. This increase results primarily from additional personnel
and related costs.
26
<PAGE>
Provision for Income Taxes
The effective tax rate for the three months ended March 31, 1998 and 1997 (33%
and 56%, respectively) differs from the U.S. federal statutory tax rate (35%).
The primary reasons for these differences are summarized as follows: benefits of
net operating loss carryforwards of Homestead (1998 and 1997); valuation
allowance applicable to Security Capital's net operating loss carryforward
(1997); and deferred tax assets of consolidated subsidiaries not benefited
(1997).
Preferred Share Dividends
On April 1, 1996, Security Capital issued 139,000 Series A Preferred Shares
($139.0 million) to a single investor. On May 12, 1998, Security Capital issued
257,642 Series B Preferred Shares ($257.6 million) in exchange for 139,000
Series A Preferred Shares and 3,293,288 Class B Common Shares (See Note 5 to the
Consolidated Financial Statements included herein). The Series A Preferred
Shares carried a 7.5% preferential cash dividend rate, payable when and if
authorized by the Board of Directors quarterly in arrears. Security Capital paid
$2.6 million for the three months ended March 31, 1998 and 1997 and a dividend
of $1,216,250 for the period from April 1, 1998 to May 12, 1998. The Series B
Preferred Shares carry a 7.0% preferential cash dividend rate, payable when and
if authorized by the Board of Directors, quarterly in arrears.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Security Capital's investment activities consist primarily of investment in the
common shares of its Capital Division investees and research and capital
expenditures relating to expansion of its Services Division business. The
investment activities of Security Capital's investee operating companies consist
primarily of the acquisition and development of real estate, or strategic
ownership positions in companies which conduct such activities. Other affiliates
make portfolio investments in the securities of publicly traded real estate
companies and/or intermediate-term investments primarily in the convertible
securities of publicly-traded real estate operating companies. Security Capital
has historically financed its investment activities primarily through the sale
of stock and convertible securities and borrowings under its line of credit.
As of April 6, 1998 there was an increase in the available commitments under its
wholly-owned subsidiary's line of credit to $700 million.
As a result of its financing activities, Security Capital has total assets of
$4.3 billion, measured at fair value as of March 31, 1998, with only $690.0
million of outstanding debt. As described below, $323 million of such debt may
be called for redemption (and if called, would likely be converted, based on
current market prices) beginning in the first quarter of 1999. Management
believes Security Capital may incur significant additional leverage, for
investment purposes, while still retaining a conservative balance sheet.
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 expected proceeds from a planned long-term debt
offering and funds currently available under its revolving line of credit will
be sufficient to enable Security Capital to satisfy its anticipated cash
requirements for operations and committed investments
27
<PAGE>
during 1998. Security Capital intends to finance its long-term business
activities (including investments in new business initiatives and additional
investments in existing affiliates) through its subsidiary's expanded line of
credit, the exercise of outstanding Warrants as described below and future
issuances of securities. In addition, Security Capital anticipates that its
operating affiliates will separately finance their activities through cash
flow from operations, sales of equity and debt securities and the incurrence
of mortgage debt or line of credit borrowings. Security Capital does not
guarantee the obligations of its operating affiliates.
Security Capital distributed Warrants to purchase $250 million of Class B Shares
to the shareholders of SCI, PTR and ATLANTIC pursuant to the Mergers. The
exercise price of a Warrant is $28 per Class B Share (compared to a market price
of $30 per share as of May 11, 1998), although no assurance can be given that
Warrants will be exercised. The Warrants will expire on September 18, 1998.
Security Capital's consolidated investee had the following financing activities:
o Homestead plans a development program for its extended-stay lodging
properties which has been financed primarily through its funding commitment
agreements with PTR and ATLANTIC; these agreements provided up to $199
million and $111 million, respectively, in financing, with a remaining
commitment of $7.9 million and $5.1 million, respectively, as of March 31,
1998.
o In January 1998, Homestead completed a rights offering of common shares,
realizing $154.2 million of net proceeds, and expects to issue additional
equity in 1998.
Security Capital recorded investments of $307.6 million during the three months
ended March 31, 1998 consisting primarily of (i) $125.6 million invested by
Homestead for the development of extended-stay lodging properties; (ii) $5.4
million invested by Security Capital for common shares of SC-USREALTY; (iii)
$2.9 million invested by SC-US and SC-E in publicly traded real estate
securities; (iv) $37.5 million, $37.5 million and $25.0 million invested by
Security Capital in common shares of SHC, convertible debt of SHC and common
shares of SC-PG, respectively; and (v) $67.8 million advanced to SC-GR.
Security Capital obtained financing of $294.4 million during the three months
ended March 31, 1998 primarily from (i) net proceeds from the lines of credit
borrowings of $265.4 million; and (ii) proceeds from the sale of common stock to
minority interest holders (Homestead) of $27.1 million.
Line of Credit
Security Capital
SC Realty, a wholly owned subsidiary of Security Capital, has a $700 million
revolving line of credit with Wells Fargo, as agent for a syndicate of lenders.
The line was increased from $400 million to $700 million on April 6, 1998. The
agreement is effective through April 5, 2000, with an option to renew for
successive one-year periods with the approval of Wells Fargo and participating
lenders. Borrowings bear interest at the LIBOR rate plus 1.00% to 1.25% per
annum, depending upon the ratio of facility commitment amount to the aggregate
value of pledged qualifying securities. Interest is payable monthly in arrears.
Commitment fees range from 0.125% to 0.20% per annum based on the average
unfunded line of credit balance. The line of credit is guaranteed by Security
Capital and is secured by shares of PTR, SCI, ATLANTIC, SC-USREALTY and
Homestead owned by SC Realty. Security Capital has commenced negotiations with
the group of lenders to have the line become an unsecured line, but successful
completion cannot be assured.
28
<PAGE>
The line of credit contains a restricted payment covenant which prohibits
dividends and distributions on SC Realty's capital stock in excess of 100% of SC
Realty's cash flow available for distribution (as defined). Security Capital's
guaranty of the line of credit also contains various financial and other
covenants applicable to Security Capital, including a minimum shareholders'
equity test, a total liabilities-to-net-worth ratio and a cash flow/fixed charge
coverage ratio, as well as restrictions on Security Capital's ability to incur
indebtedness and effect consolidations, mergers (other than a consolidation or
merger in which Security Capital is the surviving entity) and sales of assets.
The guaranty also contains a restricted payments covenant. The covenant
generally prohibits distributions, but provides, however, that so long as no
event of default has occurred and is continuing, Security Capital may pay cash
dividends during any period of four consecutive quarters in an aggregate amount
not to exceed 50% of cash flow available for distribution and pay cash dividends
to the holders of the Series A Preferred Shares issued and outstanding and to
the holders of any other securities into which the Series A Preferred Shares may
be exchanged or converted. As of March 31, 1998, there was $367 million
outstanding under this line of credit and Security Capital and SC Realty were in
compliance with all financial covenants.
Homestead's secured revolving line of credit facility with Commerzbank AG
("CAG") entered into May 6, 1997 and amended August 25, 1997 provided for
borrowings of up to $100 million, subject to collateral requirements. At March
31, 1998 borrowings under the revolving line totaled $71.2 million. The line
required maintenance of certain financial covenants and restricted payment of
dividends without lender approval. Homestead was in compliance with all such
covenants as of March 31, 1998.
On April 24, 1998 Homestead renewed its existing revolving line of credit
facility for a one-year term, with an increase in total borrowing capacity to
$150 million, subject to collateral requirements. Borrowings will bear interest
at the Eurodollar rate plus 1.5% to 2.5% per annum, depending upon the
percentage leverage of borrowings outstanding to the amount of qualifying
collateral. Alternatively, borrowings will bear interest at a base rate defined
as the higher of prime rate plus a margin of 0.5% to 1.5% or the Federal Funds
rate plus a margin of 1% to 2%, with the margin dependent on the percentage
leverage of borrowings outstanding to the amount of qualifying collateral.
Additionally, a commitment fee of 0.375% of the average unfunded balance will be
owed. The line requires maintenance of certain financial covenants,
specifically, aggregate indebtedness of no more than 55% of gross asset value,
as defined, or indebtedness secured by a lien of no more than 50% of gross asset
value, as defined. Homestead must also maintain a minimum debt service coverage
ratio of earnings before interest, income taxes, depreciation, amortization and
gains or losses on sales of assets to cash debt service, as defined, of no less
than 1.1 to 1 for the first quarter of 1998 (which Homestead was in compliance
with), no less than 1.25 to 1 for the second quarter of 1998 and no less than
1.75 to 1 thereafter on a quarterly basis, and not allow stockholders equity to
be less than $325 million. The covenants also restrict payment of dividends
without lender approval.
On April 24, 1998 Homestead also entered into a separate $50 million one-year
revolving line of credit facility with CAG of which $20 million is available for
borrowings on a secured basis and $30 million is available for borrowing on an
unsecured basis. The unsecured portion of the line is required to be
collateralized by September 30, 1998 or such unsecured borrowings must be
repaid. Borrowings will bear interest at the Eurodollar rate plus 2.75% per
annum or, alternatively, at a base rate defined as the higher of prime rate plus
1.75% or the federal funds rate plus 2.25%. Average unfunded balances bear a
commitment fee of 0.5%. Covenants are identical to those under the $150 million
credit facility.
In connection with the renewal and expansion of Homestead's line of credit,
Security Capital has committed during the one-year term of the credit facilities
to retain its ownership in Homestead common stock and to purchase Homestead
common stock to fund, if necessary, capital needs of up to $150,000,000.
29
<PAGE>
Mortgage Notes Payable
The Homestead convertible mortgage notes are convertible, at the option of PTR
and ATLANTIC, into shares of Homestead common stock. The conversion price is
equal to one share of Homestead common stock for every $11.50 of principal
amount outstanding.
2016 Convertible Debentures
At March 31, 1998, Security Capital had approximately $323.0 million principal
amount of 2016 Convertible Debentures outstanding. The 2016 Convertible
Debentures accrue interest at an annual rate of 6.5% and require semi-annual
cash interest payments. The principal amount of the 2016 Convertible Debentures
are convertible into Class A Shares at $1,153.90 per share (compared to a March
31, 1998, NYSE closing price of $1,540 per share) at the option of the holder at
any time after September 18, 1998, 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. Security Capital may redeem the 2016 Convertible Debentures
at any time after March 29, 1999, in whole or in part, at par plus accrued and
unpaid interest to the date of redemption.
30
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 12, 1998, pursuant to an Exchange Agreement, dated as of May 7,
1998, Security Capital issued 257,642 shares of a new class of Series B
Cumulative Convertible Redeemable Voting Preferred Stock, par value $0.1 per
share (the "Series B Preferred Shares"), to Commerzbank Aktiengesellshaft, Grand
Cayman Branch ("Commerzbank"), in exchange for 139,000 Series A Preferred Shares
and 3,293,288 Class B Common Shares held by Commerzbank. Also pursuant to the
Exchange Agreement, Security Capital paid a cash dividend to Commerzbank on all
the Series A Preferred Shares for the period from April 1, 1998, to May 12,
1998, of $1,216,250. In addition, Security Capital entered into a Registration
Rights Agreement with Commerzbank granting Commerzbank certain registration
rights with respect to the Class B Common Shares into which the Series B
Preferred Shares are convertible. The Series B Preferred Shares were issued to
Commerzbank under an exemption from the registration requirements provided by
Section 4(2) of the Securities Act of 1933, as amended. The exchange of the
Series A Preferred Shares and the Class B Common Shares for the Series A
Preferred Shares was structured as a tax free recapitalization.
The Series B Preferred Shares have a liquidation preference of $1,000 per
share for an aggregate preference of $257,642,000 plus any accrued and unpaid
dividends. The holder of the Series B Preferred Shares is entitled to voting
rights equal to the number of Class B Common Shares into which the Series B
Preferred Shares are convertible, on any amendments of Security Capital's
charter or a merger of Security Capital, a sale of substantially all its assets
or liquidation or dissolution, and one-half of such number of Class B Common
Shares on all other matters submitted to a vote of the common shareholders. Each
Series B Preferred Share is convertible, at the option of the holder at any
time, into 25.641026 Class B Common Shares (a conversion price of $39.00 per
share). The conversion price and the number of Class B shares into which the
Series B Preferred Shares are convertible are subject to certain adjustments.
The Series B Preferred Shares are initially convertible into a total of
6,606,205 Class B Common Shares. The holder 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 7.0% of the liquidation
preference per annum (equivalent to $70.00 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 B Preferred Shares
are redeemable, at the option of Security Capital, after May 12, 2003, at a
redemption price equal to $1,000 per share plus any accrued and unpaid
dividends.
The exchange of the Series B Preferred Shares, which are initially
convertible into 6,606,205 Class B Common Shares, for the Series A Preferred
Shares, which were convertible into 5,294,800 Class B Common Shares, and the
3,293,288 Class B Common Shares will result in 1,981,883 fewer Class B Common
Shares outstanding on a fully converted basis.
The exchange of the Series B Preferred Shares for the Series A Preferred
Shares and 3,293,288 Class B Common Shares was based on the fair value of these
securities at the date of the Exchange Agreement. For financial accounting
purposes, the difference between the fair value of the Series B Preferred Shares
issued ($257,642,000) less the sum of (a) the carrying value of the Series A
Preferred Shares ($139,000,000) and (b) the fair value of the Class B Shares
($98,799,000) will be recorded as a dividend ($19,843,000) in Security Capital's
second quarter financial statements.
31
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3 Security Capital Articles Supplementary - Series B Cumulative
Convertible Redeemable Voting Preferred Stock
4.1 Exchange Agreement, dated as of May 7, 1998, between Security
Capital and Commerzbank Aktiengesellschaft, Grand Cayman
Branch.
4.2 Registration Rights Agreement, dated as of May 7, 1998, between
Security Capital and Commerzbank Aktiengesellschaft, Grand
Cayman Branch.
10.1 Second Amended and Restated Credit Agreement, dated as of April
6, 1998, by and among SC Realty Incorporated and the financial
institutions identified therein and Wells Fargo Bank, National
Association, as agent.
10.2 Second Amended and Restated Pledge Agreement, dated as of April
6, 1998 by and between SC Realty Incoporated (the "Pledgor")
and Wells Fargo Bank, National Association, successor to Wells
Fargo Realty Advisors Funding, Incorporated, as Agent (the
"Pledgee").
10.3 Second Amended and Restated Guaranty, dated as of April 6,
1998, executed and delivered by Security Capital Group
Incorporated in favor of Wells Fargo Bank, National
Association, as agent.
10.4 Amended and Restated Guarantor Pledge Agreement, dated as of
April 6, 1998, by and between Security Capital group
Incorporated and Wells Fargo Bank, National Association, as
agent.
15 Letter from Arthur Andersen LLP, dated May 12, 1998, regarding
unaudited financial information.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SECURITY CAPITAL GROUP INCORPORATED
/s/ Paul E. Szurek
---------------------------------------
Paul E. Szurek, Chief Financial Officer
(Principal Financial Officer)
/s/ Jayson C. Cyr
---------------------------------------
Jayson C. Cyr, Vice President and
Controller
(Principal Accounting Officer)
Date: May 15, 1998
33
<PAGE>
EXHIBIT 3
SECURITY CAPITAL GROUP INCORPORATED
ARTICLES SUPPLEMENTARY
SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE
VOTING PREFERRED STOCK
Security Capital Group Incorporated, a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation has classified and
designated 257,642 unissued shares of Class B Common Stock, par value $0.01 per
share, of the Corporation as shares of Series B Cumulative Convertible
Redeemable Voting Preferred Stock (the "Series B Preferred Stock"), with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption thereof as follows, which upon any restatement of the Corporation's
charter (the "Charter") shall be made part of Article Fourth thereof, with any
necessary or appropriate changes to the enumeration or lettering of sections or
subsections hereof:
Section 1. Number of Stock and Designation. This class of preferred
stock shall be designated as Series B Cumulative Convertible Redeemable Voting
Preferred Stock (the "Series B Preferred Stock") and the number of shares which
shall constitute such series shall not be more than 257,642 shares, par value
$0.01 per share, which number may be decreased (but not below the number thereof
then outstanding) from time to time by the Board of Directors.
Section 2. Definitions. For purposes of the Series B Preferred Stock,
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by the Board of Directors to
perform any of its responsibilities with respect to the Series B
Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which state or federally chartered banking
institutions in New York City, New York are not required to be open.
"Call Date" shall have the meaning set forth in Section 5(d).
"Class A Common Stock" shall mean the Class A Common Stock of
the Corporation, par value $0.01 per share.
"Class B Common Stock" shall mean the Class B Common Stock of
the Corporation, par value $0.01 per share.
<PAGE>
"Constituent Person" shall have the meaning set forth in
Section 6(i).
"Conversion Price" shall mean the conversion price per share
of Class B Common Stock for which each share of Series B Preferred
Stock is convertible, as such Conversion Price may be adjusted pursuant
to Section 6. The initial conversion price shall be $39.00 (equivalent
to a conversion rate of 25.641026 shares of Class B Common Stock for
each share of Series B Preferred Stock).
"Current Market Price" of publicly traded Class B Common Stock
or Class A Common Stock or any other class of stock or other security
of the Corporation or any other issuer for any day shall mean the last
reported sales price, regular way on such day, or, if no sale takes
place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the
consolidated trading system for securities listed on the New York Stock
Exchange ("NYSE"), or, if such security is not listed or admitted for
trading on the NYSE, on the consolidated trading system for securities
listed on the principal national securities exchange on which such
security is listed or admitted for trading, or, if not listed or
admitted for trading on any national securities exchange, on the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ"), or, if such
security is not quoted on such National Market System, the average of
the closing bid and asked prices on such day in the over-the-counter
market as reported by NASDAQ, or, if bid and asked prices for such
security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected
for such purpose by the Chairman of the Board or the Board of
Directors, or, if no such firm is regularly making a market in such
security, the fair market value as determined by an independent
investment banking firm selected in good faith by the Board of
Directors.
"Dividend Payment Date" shall mean the last calendar day of
March, June, September and December in each year, commencing on the
first Dividend Payment Date following the Issue Date; provided,
however, that if any Dividend Payment Date falls on any day other than
a Business Day, the dividend payment due on such Dividend Payment Date
shall be paid on the Business Day immediately following such Dividend
Payment Date.
"Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next
succeeding Dividend Period (other than the initial Dividend Period,
which shall commence on the Issue Date and end on and include the first
Dividend Payment Date following the Issue Date, and other than the
Dividend Period during which any shares of Series B Preferred Stock
shall be redeemed pursuant to Section 5, which shall end on and include
the Call Date with respect to the shares of Series B Preferred Stock
being redeemed).
-2-
<PAGE>
"Expiration Time" shall have the meaning set forth in Section
6(g)(iv).
"Fair Market Value" shall mean the average of the daily
Current Market Prices of a share of Class B Common Stock or Class A
Common Stock, as applicable, during the five consecutive Trading Days
commencing on a Trading Day selected in good faith by the Corporation,
which Trading Day is not more than 20 Trading Days before, and which
five Trading Days end not later than, the earlier of the day in
question and the day before the "ex date" with respect to the issuance
or distribution requiring such computation. The term "ex date," when
used with respect to any issuance or distribution, means the first day
on which the Class B Common Stock or Class A Common Stock, as
applicable, trades regular way, without the right to receive such
issuance or distribution, on the exchange or in the market, as the case
may be, used to determine that day's Current Market Price.
"Fully Junior Stock" shall mean the Class A Common Stock, the
Class B Common Stock and any other class or series of stock of the
Corporation now or hereafter issued and outstanding over which the
Series B Preferred Stock has preference or priority in both (i) the
payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
"Issue Date" shall mean the date on which the applicable
shares of Series B Preferred Stock were issued by the Corporation.
"Junior Stock" shall mean the Class A Common Stock, the Class
B Common Stock and any other class or series of stock of the
Corporation now or hereafter issued and outstanding over which the
Series B Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in
Section 6(i).
"Parity Stock" shall have the meaning set forth in Section
8(b).
"Person" shall mean any individual, firm, partnership,
corporation, limited liability company, real estate investment trust or
other entity, and shall include any successor (by merger or otherwise)
of such entity.
"Purchased Shares" shall have the meaning set forth in
Section 6(g) (iv).
"Regulated Entity" shall mean (i) any entity that is a "bank
holding company" (as defined in Section 2(a) of the Bank Holding
Company Act of 1956, as amended (the "BHC Act")) or any non-bank
subsidiary of such an entity and (ii) any entity that, pursuant to
Section 8(a) of the International Banking Act of 1978, as amended, is
subject to the provisions of the BHC Act or any non-bank subsidiary of
such an entity.
-3-
<PAGE>
"Securities" and "Security" shall have the meanings set forth
in Section 6(g)(iii).
"Series B Preferred Stock" shall have the meaning set forth in
Section 1.
"set apart for payment" shall be deemed to include, without
any action other than the following, the recording by the Corporation
in its accounting ledgers of any accounting or bookkeeping entry which
indicates, pursuant to a declaration of dividends or other distribution
by the Board of Directors, the allocation of funds to be so paid on any
series or class of stock of the Corporation, which funds are available
to, and may legally be used by, the Corporation for such purpose;
provided, however, that if any funds for any class or series of Junior
Stock or any class or series of stock ranking on a parity with the
Series B Preferred Stock as to the payment of dividends are paid to the
holders thereof or are placed in a separate account of the Corporation
or delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series B Preferred Stock shall
mean placing such funds in a separate account or delivering such funds
to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or, if such securities are not listed
or admitted for trading on the NYSE, on the principal national
securities exchange on which such securities are listed or admitted,
or, if such securities are not listed or admitted for trading on any
national securities exchange, on the National Market System of NASDAQ,
or, if such securities are not quoted on such National Market System,
in the applicable securities market in which the securities are traded,
or, if such securities are not traded in any securities market, any
Business Day.
"Transaction" shall have the meaning set forth in Section
6(i).
"Transfer Agent" means the Corporation, or such agent or
agents of the Corporation as may be designated by the Board of
Directors or their designee, as the transfer agent, registrar and
dividend disbursing agent for the Series B Preferred Stock.
Section 3. Dividends.
(a) The holders of Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative
preferential dividends payable in cash in an amount per share equal to
7.0% of the liquidation preference per annum (equivalent to $70 per
share). Such dividends shall begin to accrue and shall be fully
cumulative from the Issue Date, whether or not in any Dividend Period
or Periods there shall be funds of the Corporation legally available
for the payment of such dividends, and shall be payable quarterly,
when, as and if declared by the Board of Directors, in arrears on
Dividend Payment Dates, commencing on the first Dividend Payment Date
following the Issue
-4-
<PAGE>
Date. Each such dividend shall be payable in arrears to the holders of
record of Series B Preferred Stock as they appear in the records of the
Corporation at the close of business on such record dates, not less
than 10 nor more than 50 days preceding the corresponding Dividend
Payment Dates, as shall be fixed by the Board of Directors. Dividends
paid on the Series B Preferred Stock in an amount less than the total
amount of dividends accumulated and unpaid on the Series B Preferred
Stock shall be declared ratably among all shares of Series B Preferred
Stock then outstanding. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time and for such
interim periods, without reference to any regular Dividend Payment
Date, to holders of record on such date, not less than 10 nor more than
50 days preceding the corresponding payment date, as may be fixed by
the Board of Directors. Any dividend payment made on the Series B
Preferred Stock shall first be credited against the earliest accrued
but unpaid dividend due with respect to the Series B Preferred Stock
which remains payable. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or
payments on the Series B Preferred Stock which may be in arrears.
(b) The amount of dividends payable for each full Dividend
Period on the Series B Preferred Stock shall be computed by dividing by
four the amount per share per annum set forth in Section 3(a). The
amount of dividends payable for the initial Dividend Period, or any
other period shorter than a full Dividend Period (including, in the
case of any redemption, on any Call Date), on the Series B Preferred
Stock shall be computed on the basis of a 360-day year of twelve 30-day
months. Holders of Series B Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of
cumulative dividends, as herein provided, on the Series B Preferred
Stock.
(c) So long as any shares of Series B Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid
solely in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Fully Junior Stock), except as described in the
immediately following sentence, shall be declared or paid or set apart
for payment on any class or series of Parity Stock for any period
unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Series B Preferred Stock for
the then current Dividend Period and for all Dividend Periods
terminating on or prior to the dividend payment date on such class or
series of Parity Stock. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all
dividends declared upon the Series B Preferred Stock and all dividends
declared upon any class or series of Parity Stock shall be declared
ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Parity Stock.
(d) So long as any shares of Series B Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid
solely in shares of, or options, warrants or rights to subscribe for or
purchase shares of, Fully Junior Stock) shall be
-5-
<PAGE>
declared or paid or set apart for payment or other distribution shall
be declared or made or set apart for payment upon Junior Stock, nor
shall any Junior Stock be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any Junior Stock) by the Corporation
or any majority-owned subsidiary of the Corporation, directly or
indirectly (except by conversion into or exchange for Fully Junior
Stock), unless in each case (i) the full cumulative dividends on all
outstanding shares of Series B Preferred Stock and any Parity Stock of
the Corporation shall have been or contemporaneously are declared and
paid or declared and set apart for payment for all past Dividend
Periods with respect to the Series B Preferred Stock and all past
dividend periods with respect to such Parity Stock and (ii) sufficient
funds shall have been or contemporaneously are declared and paid or
declared and set apart for the payment of the dividend for the current
Dividend Period with respect to the Series B Preferred Stock and the
current dividend period with respect to such Parity Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of
Junior Stock, the holders of Series B Preferred Stock shall be entitled
to receive $1,000 per share of Series B Preferred Stock plus an amount
equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders; but
after payment in full of such amounts, such holders in their capacity
as such shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the
holders of Series B Preferred Stock shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments on any
class or series of Parity Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series B Preferred
Stock and any such Parity Stock ratably in accordance with the
respective amounts that would be payable on the Series B Preferred
Stock and any such Parity Stock if all amounts payable thereon were
paid in full. For the purposes of this Section 4, (i) a consolidation
or merger of the Corporation with one or more corporations, real estate
investment trusts or other entities, (ii) a sale, lease or conveyance
of all or substantially all of the Corporation's property or business
or (iii) a statutory share exchange shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of
the Corporation, but Section 6(i) shall apply to any such transaction,
if applicable by its terms.
(b) Subject to the rights of the holders of any series or
class of stock ranking on a parity with or prior to the Series B
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after
payment shall have been made in full to the holders of the Series B
Preferred Stock, as provided in this Section 4, any series or class of
Junior Stock shall, subject to the
-6-
<PAGE>
respective terms and provisions (if any) applying thereto, be entitled
to receive any and all assets remaining to be paid or distributed, and
the holders of Series B Preferred Stock shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series B Preferred Stock shall not be redeemable by
the Corporation prior to the fifth anniversary of the applicable Issue
Date. On and after the fifth anniversary of the applicable Issue Date,
the Corporation, at its option, may redeem the Series B Preferred
Stock, in whole at any time or from time to time in part at the option
of the Corporation:
(i) at a redemption price of $1,000 per share of
Series B Preferred Stock, payable in cash, plus the amounts
indicated in Section 5(b); or
(ii) at the Corporation's option, by issuing and
delivering to each holder of Series B Preferred Stock to be
redeemed the number of fully paid and non-assessable shares of
Class B Common Stock obtained by dividing the aggregate
liquidation preference (excluding any accrued and unpaid
dividends, which shall be paid in cash as provided in Section
5(b)) of the shares of Series B Preferred Stock to be redeemed
from such holder by the Conversion Price (as in effect at the
close of business on the day preceding the Call Date);
provided, however, that the Corporation may redeem Series B
Preferred Stock pursuant to this Section 5(a)(ii) only if for
20 or more Trading Days within the period of 30 consecutive
Trading Days ending on the day prior to the date on which
notice of such redemption is given, the Current Market Price
of the Class B Common Stock on each of such 20 or more Trading
Days equals or exceed the Conversion Price in effect on such
Trading Day; provided, further, that the holders of any shares
of Series B Preferred Stock to be so redeemed shall comply
with the provisions of Section 6 in the same manner as if they
were voluntarily converting such shares pursuant to Section 6
on the Call Date, and the provisions of Section 6 shall govern
such redemption in the same manner as if holders of the shares
of Series B Preferred Stock to be redeemed were voluntarily
converting such shares pursuant to Section 6 on the Call Date;
provided, further, that the Corporation shall not exercise the
option provided in this clause (ii) if a Regulated Entity is
the holder of any Series B Preferred Stock to be redeemed and
the acquisition, holding or ownership of the shares of Class B
Common Stock to be delivered to such holder as provided in
this clause (ii), when aggregated with any and all other
securities of the Corporation held by such holder at the
redemption date, would, in the reasonable judgment of such
holder, result in a violation of, or not otherwise be
consistent with, the BHC Act or any other applicable law.
(b) Upon any redemption of Series B Preferred Stock pursuant
to this Section 5, the Corporation shall pay in cash all accrued and
unpaid dividends, if any,
-7-
<PAGE>
thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of shares of Series B Preferred
Stock at the close of business on such dividend payment record date
shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the redemption of
such shares before such Dividend Payment Date.
(c) If full cumulative dividends on the Series B Preferred
Stock and any class or series of Parity Stock of the Corporation have
not been declared and paid or declared and set apart for payment, the
Series B Preferred Stock may not be redeemed under this Section 5 in
part and the Corporation may not purchase or acquire any Series B
Preferred Stock, otherwise than pursuant to a purchase or exchange
offer made on the same terms to all holders of Series B Preferred
Stock.
(d) Notice of the redemption of any Series B Preferred Stock
under this Section 5 shall be mailed by first-class mail, postage
prepaid, to each holder of record of Series B Preferred Stock to be
redeemed at the address of each such holder as shown on the
Corporation's records, not less than 60 nor more than 90 days prior to
the date fixed for redemption (the "Call Date"). Neither the failure to
mail any notice required by this Section 5(d), nor any defect therein
or in the mailing thereof, to any particular holder, shall affect the
sufficiency of the notice or the validity of the proceedings for
redemption with respect to the other holders. Any notice which was
mailed in the manner herein provided shall be conclusively presumed to
have been duly given on the date mailed whether or not the holder
receives the notice. Each such mailed notice shall state, as
appropriate: (1) the Call Date; (2) the number of shares of Series B
Preferred Stock to be redeemed and, if fewer than all the shares held
by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (3) the redemption price and whether such
redemption price is to be paid in cash or by delivering Class B Common
Stock; (4) the place or places at which certificates for such shares
are to be surrendered (which shall be in the continental United
States); (5) the then-current Conversion Price; and (6) that
dividends on the shares to be redeemed shall cease to accrue on such
Call Date except as otherwise provided herein. Notice having been
mailed as aforesaid, from and after the Call Date (unless the
Corporation shall fail to make available an amount of cash or Class B
Common Stock necessary to effect such redemption), (i) except as
otherwise provided herein, dividends on the shares of Series B
Preferred Stock so called for redemption shall cease to accrue, (ii)
such shares shall no longer be deemed to be outstanding and (iii) all
rights of the holders thereof as holders of Series B Preferred Stock
shall cease (except the rights to convert and to receive cash or Class
B Common Stock payable upon such redemption, without interest thereon,
upon surrender and endorsement of their certificates if so required and
to receive any dividends payable thereon). The Corporation's obligation
to provide cash or Class B Common Stock in accordance with the
preceding sentence shall be deemed fulfilled if, on or before the Call
Date, the Corporation shall deposit with a bank or trust company
located in the continental United States that has capital and surplus
of at least
-8-
<PAGE>
$50,000,000, cash or certificates representing shares of Class B Common
Stock necessary for such redemption, in trust for the pro rata benefit
of the holders of the shares called for redemption, with irrevocable
instructions that such cash or Class B Common Stock be applied to the
redemption of the shares of Series B Preferred Stock so called for
redemption. No interest shall accrue for the benefit of the holders of
shares of Series B Preferred Stock to be redeemed on any cash so set
aside by the Corporation. Subject to applicable escheat laws, any such
cash unclaimed at the end of two years from the Call Date shall revert
to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of such cash.
(e) Against presentation and surrender in accordance with the
notice described in Section 5(d) of the certificates for any shares of
Series B Preferred Stock so redeemed (properly endorsed or assigned for
transfer, if the Corporation shall so require and if the notice shall
so state), such shares shall be redeemed and paid by the Corporation at
the redemption price set forth in Section 5. If fewer than all the
outstanding shares of Series B Preferred Stock are to be redeemed,
shares to be redeemed shall be selected by the Corporation from
outstanding shares of Series B Preferred Stock not previously called
for redemption pro rata (as nearly as may be), by lot or by any other
method determined by the Corporation in its sole discretion to be
equitable. If fewer than all the shares of Series B Preferred Stock
represented by any certificate are redeemed, then new certificates
representing the unredeemed shares shall be issued without cost to the
holder thereof.
Section 6. Conversion. Holders of shares of Series B
Preferred Stock shall have the right to convert all or a portion of
such shares into Class B Common Stock at any time, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6, a holder of shares of Series B Preferred Stock shall have
the right, at his or her option, at any time to convert such shares
into the number of fully paid and non-assessable shares of Class B
Common Stock obtained by dividing the aggregate liquidation preference
of such shares by the Conversion Price (as in effect at the time and on
the date provided for in Section 6(e)) by surrendering such shares to
be converted, such surrender to be made in the manner provided in
Section 6(b); provided, however, that the right to convert shares
called for redemption pursuant to Section 5 shall terminate at the
close of business on the third day prior to the Call Date fixed for
such redemption, unless the Corporation shall default in making payment
of the cash or Class B Common Stock payable upon such redemption under
Section 5.
(b) In order to exercise the conversion right, the holder of
each share of Series B Preferred Stock to be converted shall surrender
the certificate representing such share, duly endorsed or assigned to
the Corporation or in blank, at the office of the Transfer Agent,
accompanied by written notice to the Corporation that the holder
thereof elects
-9-
<PAGE>
to convert such share of Series B Preferred Stock. Unless the shares
issuable on conversion are to be issued in the same name as the name in
which such share of Series B Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
holder or such holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such taxes have been
paid).
(c) Holders of shares of Series B Preferred Stock at the close
of business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the conversion thereof following
such dividend payment record date and prior to such Dividend Payment
Date. However, shares of Series B Preferred Stock surrendered for
conversion during the period between the close of business on any
dividend payment record date and the opening of business on the
corresponding Dividend Payment Date (except shares converted after the
issuance of a notice of redemption with respect to a Call Date during
such period, such shares of Series B Preferred Stock being entitled to
such dividend on the Dividend Payment Date) must be accompanied by
payment of an amount equal to the portion of the dividend payable on
such shares on such Dividend Payment Date with respect to the period
from the date of surrender for conversion to such Dividend Payment
Date. A holder of shares of Series B Preferred Stock on a dividend
payment record date who (or whose transferee) tenders any such shares
for conversion into shares of Class B Common Stock on the corresponding
Dividend Payment Date will receive the dividend payable by the
Corporation on such shares of Series B Preferred Stock on such date,
and the converting holder need not include payment of the amount of
such dividend upon surrender of such shares of Series B Preferred Stock
for conversion. Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears,
on converted shares of Series B Preferred Stock or for dividends on the
Class B Common Stock issued upon such conversion.
(d) As promptly as practicable after the surrender of
certificates for shares of Series B Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such
holder, or on his or her written order, a certificate or certificates
for the number of full shares of Class B Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this
Section 6, and any fractional interest in respect of Class B Common
Stock arising upon such conversion shall be settled as provided in
Section 6(f).
(e) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock shall have been
surrendered and such notice shall have been received by the Corporation
as aforesaid (and if applicable, payment of an amount equal to the
dividend payable on such shares shall have been received by the
Corporation as provided in Section 6(c)), and the person or persons in
whose name or names any certificate or
-10-
<PAGE>
certificates for shares of Class B Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date and
such conversion shall be at the Conversion Price in effect at such time
on such date unless the stock transfer books of the Corporation shall
be closed on that date, in which event such person or persons shall be
deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books
are open, but such conversion shall be at the Conversion Price in
effect on the date on which such shares of Series B Preferred Stock
shall have been surrendered and such notice received by the
Corporation.
(f) No fractional shares or scrip representing fractional
interests in respect of Class B Common Stock shall be issued upon
conversion of Series B Preferred Stock. Instead of any fractional
interest in respect of Class B Common Stock that would otherwise be
deliverable upon the conversion of a share of Series B Preferred Stock,
the Corporation shall pay to the holder of such share an amount in cash
equal to the Current Market Price of the Class B Common Stock on the
Trading Day immediately preceding the date of conversion multiplied by
such fractional interest. If more than one share of Series B Preferred
Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares of Class B Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of shares of Series B Preferred Stock so surrendered.
(g) The Conversion Price shall be adjusted from time to time
as follows:
(i) If the Corporation shall after May 6, 1998 (A)
pay a dividend or make a distribution on the Class B Common
Stock in Class B Common Stock, (B) subdivide the outstanding
Class B Common Stock into a greater number of shares or (C)
combine the outstanding Class B Common Stock into a smaller
number of shares, the Conversion Price in effect at the
opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such
dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision
or combination becomes effective, as the case may be, shall be
adjusted so that the holder of any Series B Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number of shares of Class B Common Stock that such
holder would have owned or have been entitled to receive after
the happening of any of the events described above as if such
Series B Preferred Stock had been converted immediately prior
to the record date in the case of a dividend or distribution
or the effective date in the case of a subdivision or
combination. Adjustments made pursuant to this Section 6(g)(i)
shall be made successively whenever any event listed above
shall occur and shall become effective immediately after the
opening of business on the Business Day next following the
record date (except as provided in Section 6(l)) in the case
of a dividend or distribution and shall
-11-
<PAGE>
become effective immediately after the opening of business on
the Business Day next following the effective date in the case
of a subdivision or combination.
(ii) If the Corporation shall after May 6, 1998 issue
rights, options or warrants to all holders of Class B Common
Stock entitling them (for a period expiring within 45 days
after the record date described below) to subscribe for or
purchase Class B Common Stock at a price per share less than
94% (100% if a stand-by underwriter is used and charges the
Corporation a commission) of the Fair Market Value per share
of Class B Common Stock on the record date for the
determination of stockholders entitled to receive such rights,
options or warrants, then the Conversion Price in effect at
the opening of business on the Business Day next following
such record date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the opening of business on the Business
Day next following the date fixed for such determination by
(B) a fraction, the numerator of which shall be the sum of (x)
the number of shares of Class B Common Stock outstanding at
the close of business on the date fixed for such determination
and (y) the number of shares of Class B Common Stock that the
aggregate proceeds to the Corporation from the exercise of
such rights, options or warrants for Class B Common Stock
would purchase at 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), and the denominator of
which shall be the sum of (x) the number of shares of Class B
Common Stock outstanding at the close of business on the date
fixed for such determination and (y) the number of additional
shares of Class B Common Stock offered for subscription or
purchase pursuant to such rights, options or warrants. Such
adjustments shall be made successively whenever such rights,
options or warrants are issued and shall become effective
immediately after the opening of business on the day next
following such record date (except as provided in Section
6(l)). In the event that all the shares of Class B Common
Stock offered for subscription or purchase are not delivered
upon the exercise of such rights, options or warrants, upon
the expiration of such rights, options or warrants the
Conversion Price shall be readjusted to the Conversion Price
which would have been in effect if the numerator and
denominator of the foregoing fraction and the resulting
adjustment had been based upon the number of shares of Class B
Common Stock actually delivered upon the exercise of such
rights, options or warrants, rather than upon the number of
shares of Class B Common Stock offered for subscription or
purchase. In determining whether any rights, options or
warrants entitle the holders of Class B Common Stock to
subscribe for or purchase Class B Common Stock at less than
94% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), there shall be taken into account any
consideration received by the Corporation upon issuance and
upon exercise of such rights, options or warrants, the value
of such consideration, if other than cash, to be determined in
good faith by the Board of Directors.
-12-
<PAGE>
(iii) If the Corporation shall distribute to all
holders of Class B Common Stock any stock of the Corporation
(other than Class B Common Stock) or assets or evidences of
its indebtedness (excluding cash dividends or distributions
paid with respect to the Class B Common Stock from the
Corporation's retained earnings) or rights, options or
warrants to subscribe for or purchase any of its securities
(excluding those rights, options and warrants issued to all
holders of Class B Common Stock entitling them for a period
expiring within 45 days after the record date referred to in
Section 6(g)(ii) to subscribe for or purchase Class B Common
Stock, which rights and warrants are referred to in and
treated under Section 6(g)(ii)) (any of the foregoing being
referred to collectively as the "Securities" and individually
as a "Security"), then in each such case the Conversion Price
shall be adjusted so that it shall equal the price determined
by multiplying (x) the Conversion Price in effect immediately
prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such
distribution by (y) a fraction, the numerator of which shall
be the Fair Market Value per share of Class B Common Stock on
the record date described below less the then fair market
value (as determined in good faith by the Board of Directors)
of the portion of the stock or assets or evidences of
indebtedness so distributed or of such rights, options or
warrants applicable to one share of Class B Common Stock, and
the denominator of which shall be the Fair Market Value per
share of Class B Common Stock on the record date described
below. Such adjustments shall be made successively whenever
any such distribution is made and shall become effective
immediately at the opening of business on the Business Day
next following the record date for the determination of
stockholders entitled to receive such distribution (except as
provided in Section 6(l)). For the purposes of this Section
6(g)(iii), the distribution of a Security, which is
distributed not only to the holders of Class B Common Stock on
the date fixed for the determination of stockholders entitled
to such distribution of such Security, but also is distributed
with each share of Class B Common Stock delivered to a Person
converting a share of Series B Preferred Stock after such
determination date, shall not require an adjustment of the
Conversion Price pursuant to this Section 6(g)(iii); provided
that on the date, if any, on which a person converting a share
of Series B Preferred Stock would no longer be entitled to
receive such Security with a share of Class B Common Stock
(other than as a result of the termination of all such
Securities or, in the case of a Security that is a right,
option or warrant, the date, if any, on which such right,
option or warrant shall have expired or shall no longer be
exercisable on its original terms, subject to customary anti-
dilution provisions), a distribution of such Securities shall
be deemed to have occurred and the Conversion Price shall be
adjusted as provided in this Section 6(g)(iii) (and such day
shall be deemed to be "the date fixed for the determination of
the stockholders entitled to receive such distribution" and
"the record date" within the meaning of the two preceding
sentences).
-13-
<PAGE>
(iv) In case a tender or exchange offer made by the
Corporation or any subsidiary of the Corporation for all or
any portion of the Class B Common Stock shall expire and such
tender or exchange offer shall involve the payment by the
Corporation or such subsidiary of consideration per share of
Class B Common Stock having a fair market value (as determined
in good faith by the Board of Directors), at the last time
(the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer, that exceeds the
Current Market Price per share of Class B Common Stock on the
Trading Day next succeeding the Expiration Time, the
Conversion Price shall be reduced so that it shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this Section 6(g)(iv) by a fraction,
the numerator of which shall be the number of shares of Class
B Common Stock outstanding (including any tendered or
exchanged shares) at the Expiration Time, multiplied by the
Current Market Price per share of Class B Common Stock on the
Trading Day next succeeding the Expiration Time, and the
denominator of which shall be the sum of (A) the fair market
value (determined as aforesaid) of the aggregate consideration
payable to stockholders based upon the acceptance (up to any
maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of
shares of Class B Common Stock outstanding (less any Purchased
Shares) at the Expiration Time and the Current Market Price
per share of Class B Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the
day following the Expiration Time.
(v) No adjustment in the Conversion Price shall be
required pursuant to this Section 6(g) unless such adjustment
would require a cumulative increase or decrease of at least 1%
in such price; provided, however, that any adjustments that by
reason of this Section 6(g)(v) are not required to be made
shall be carried forward and taken into account in any
subsequent adjustment until made; and provided, further, that
any adjustment shall be required and made in accordance with
the provisions of this Section 6 (other than this Section
6(g)(v)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the
holders of Class B Common Stock. Notwithstanding any other
provisions of this Section 6 (including Section 6(h)), the
Corporation shall not be required to make any adjustment of
the Conversion Price for the issuance of any Class B Common
Stock pursuant to any customary plan providing for the
reinvestment of dividends or interest payable on securities of
the Corporation and the investment of additional optional
amounts in Class B Common Stock under such plan. All
calculations under this Section 6 (including Section 6(h))
shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest one-thousandth of a share (with
.0005 of a share being rounded upward), as the
-14-
<PAGE>
case may be. Anything in this Section 6(g) to the contrary
notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the
Conversion Price, in addition to those required by this
Section 6(g) and Section 6(h), as it in its discretion shall
determine to be advisable in order that any stock dividend,
subdivision of stock, reclassification or combination of
stock, distribution of rights or warrants to purchase stock or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its
stockholders shall not be taxable.
(vi) For purposes of this Section 6(g), shares of
Class B Common Stock held in treasury shall not be deemed
outstanding.
(h) In addition to the adjustments provided in Section 6(g),
if the Corporation shall after May 6, 1998 issue additional shares of
Class B Common Stock (or securities convertible into or exchangeable
for shares of Class B Common Stock or any options, warrants or other
rights to acquire shares of Class B Common Stock) at a price per share
less than the Fair Market Value per share of Class B Common Stock on
the date of such issuance or over a reasonable and customary period
preceding such issuance date or the date such issuance is approved by
the Board of Directors (except as provided in Section 6(g) and except
for (i) options or share awards outstanding on May 6, 1998 or
thereafter issued or granted to directors, officers, employees and
service providers of the Corporation and its affiliates pursuant
to any employee benefit stock offering, plan, agreement or arrangement
approved by the Board of Directors; (ii) shares of Class A Common Stock
(A) outstanding on May 6, 1998, (B) issued upon exercise of options,
share awards or warrants outstanding on May 6, 1998 or thereafter
issued or granted to directors, officers, employees or service
providers of the Corporation and its affiliates pursuant to any
employee benefit stock offering, plan, agreement or arrangement
approved by the Board of Directors, (C) issued upon conversion of
convertible subordinated debentures or other convertible securities of
the Corporation outstanding on May 6, 1998 or (D) issued at any time at
a price per share not less than the Fair Market Value per share of
Class A Common Stock on the date of such issuance or over a reasonable
and customary period preceding such issuance date or the date such
issuance is approved by the Board of Directors; (iii) convertible
subordinated debentures of the Corporation outstanding on May 6, 1998;
(iv) other convertible securities of the Corporation outstanding on May
6, 1998; (v) warrants outstanding on May 6, 1998; and (vi) shares of
Class A Common Stock or Class B Common Stock issued at any time (A) at
a price per share not less than 94% of the Fair Market Value per share
on the date of such issuance or over a reasonable and customary period
preceding such issuance date or the date such issuance is approved by
the Board of Directors, if the Corporation does not incur any
underwriting discounts or commissions in connection with such offering;
or (B) in an offering in which the proceeds per share to the
Corporation from such sale, reduced by any underwriting discounts and
commissions incurred by the Corporation in connection with such
offering (but not reduced by any other expenses), are not less than 94%
of the Fair Market Value per share on the date of such issuance or over
a
-15-
<PAGE>
reasonable and customary period preceding such issuance date or the
date such issuance is approved by the Board of Directors), other than
issuances for which an adjustment is made pursuant to other adjustment
provisions of this Section 6, then the Conversion Price in effect at
the opening of business on the Business Day next following such
issuance date shall be adjusted to equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to the
opening of business on the Business Day next following the date fixed
for such determination by (B) a fraction, the numerator of which shall
be the sum of (x) the number of shares of Class B Common Stock
outstanding at the close of business on the date fixed for such
determination and (y) the number of shares of Class B Common Stock that
the aggregate proceeds to the Corporation from such issuance or from
the conversion, exchange or exercise of such convertible or
exchangeable securities, options, warrants or other rights would
purchase at Fair Market Value, and the denominator of which shall be
the sum of (x) the number of shares of Class B Common Stock outstanding
at the close of business on the date fixed for such determination and
(y) the number of additional shares of Class B Common Stock issued or
the maximum number initially issuable upon conversion, exchange or
exercise of such convertible or exchangeable securities, options,
warrants or other rights; provided that (i) the determination as to
whether an adjustment is required to be made pursuant to this Section
6(h) shall only be made upon the issuance of such shares of Class B
Common Stock or such convertible or exchangeable securities,
options, warrants or other rights and not upon the issuance of the
Class B Common Stock into which such convertible or exchangeable
securities convert or exchange or the Class B Common Stock underlying
such options, warrants or other rights, (ii) all shares of Class B
Common Stock issuable upon conversion, exchange or exercise of
outstanding convertible or exchangeable securities, options, warrants
or other rights shall be deemed outstanding and (iii) if any such
convertible or exchangeable securities, options, warrants or rights
that shall have given rise to an adjustment pursuant to this Section
6(h) shall have expired or terminated without the exercise thereof,
then the Conversion Price shall be readjusted to the Conversion Price
which would have been in effect if the numerator and denominator of the
foregoing fraction and the resulting adjustment had been based upon the
number of shares of Class B Common Stock actually issued upon the
conversion, exchange or exercise thereof, rather than upon the maximum
number of shares of Class B Common Stock initially so issuable. Such
adjustments shall be made successively whenever such additional shares
of Class B Common Stock or convertible or exchangeable securities,
options, warrants or other rights are issued and shall become effective
on the day next following such issuance date (except as provided in
Section 6(l)). In determining whether additional shares are issued or
issuable at less than the Fair Market Value, the consideration received
by the Corporation shall not be reduced by any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation in connection with the issuance thereof and the value of
any consideration other than cash shall be determined in good faith by
the Board of Directors. In determining whether any security
convertible, exchangeable or exercisable into Class B Common Stock has
been issued at a price per share less than the Fair Market Value, there
shall be taken into account any consideration received by the
Corporation upon issuance and upon conversion,
-16-
<PAGE>
exchange or exercise of such security, the value of such consideration,
if other than cash, to be determined in good faith by the Board of
Directors. No adjustment in the Conversion Price shall be required
pursuant to this Section 6(h) unless such adjustment would require a
cumulative decrease of at least 1% in such price; provided, however,
that any adjustments that by reason of this sentence are not required
to be made shall be carried forward and taken into account when any
subsequent adjustment is made. For purposes of this Section 6(h),
shares of Class B Common Stock held in treasury shall not be deemed
outstanding.
(i) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all shares of
Class B Common Stock, sale of all or substantially all of the
Corporation's assets or reorganization, reclassification or
recapitalization of the Class B Common Stock and excluding any
transaction to which Section 6(g)(i) applies) (each of the foregoing
being referred to as a "Transaction"), in each case as a result of
which all or substantially all shares of Class B Common Stock are
converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each share of Series B
Preferred Stock which is not redeemed or converted into the right to
receive stock, securities or other property prior to such Transaction
shall thereafter be convertible into the kind and amount of stock,
securities and other property (including cash or any combination
thereof) receivable upon the consummation of such Transaction by a
holder of that number of shares of Class B Common Stock into which one
share of Series B Preferred Stock was convertible immediately prior to
such Transaction, assuming such holder of Class B Common Stock (i) is
not a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which
such sale or transfer was made, as the case may be (a "Constituent
Person"), or an affiliate of a Constituent Person and (ii) failed to
exercise his rights of election, if any, as to the kind or amount of
stock, securities and other property (including cash) receivable upon
such Transaction (provided that if the kind or amount of stock,
securities and other property (including cash) receivable upon such
Transaction is not the same for each share of Class B Common Stock held
immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such rights of
election shall not have been exercised (a "Non-Electing Share"), then
for the purpose of this Section 6(i) the kind and amount of stock,
securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind
and amount so receivable per share by a plurality of the Non-Electing
Shares). The Corporation shall not be a party to any Transaction unless
the terms of such Transaction are consistent with the provisions of
this Section 6(i), and it shall not consent or agree to the occurrence
of any Transaction until the Corporation has entered into an agreement
with the successor or purchasing entity, as the case may be, for the
benefit of the holders of Series B Preferred Stock that will contain
provisions enabling the holders of the shares of Series B Preferred
Stock that remain outstanding after such Transaction to convert into
the consideration received by holders of Class B Common Stock at the
Conversion Price in effect immediately prior
-17-
<PAGE>
to such Transaction. The provisions of this Section 6(i) shall
similarly apply to successive Transactions.
(j) If:
(i) the Corporation shall declare a dividend
(or any other distribution) on the Class B Common Stock; or
(ii) the Corporation shall authorize the granting to
the holders of Class B Common Stock of rights, options or
warrants to subscribe for or purchase any stock of any class
or any other rights, options or warrants; or
(iii) there shall be any reorganization,
reclassification or recapitalization of the Class B Common
Stock (other than a transaction to which Section 6(g)(i)
applies) or any consolidation or merger to which the
Corporation is a party and for which approval of any
stockholders of the Corporation is required, or a statutory
share exchange, or a self tender offer by the Corporation for
all or substantially all of the outstanding shares of Class
B Common Stock or the sale or transfer of all or substantially
all of the Corporation's assets; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent
and shall cause to be mailed to the holders of record of Series B
Preferred Stock at their addresses as shown on the records of the
Corporation, as promptly as possible, but at least 20 days prior to the
applicable date hereinafter described, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, options or warrants, or, if a
record is not to be taken, the date as of which the holders of Class B
Common Stock of record to be entitled to such dividend, distribution or
rights, options or warrants are to be determined or (B) the date on
which such reorganization, reclassification, recapitalization,
consolidation, merger, statutory share exchange, sale, transfer,
liquidation, dissolution or winding up is expected to become effective,
and the date as of which it is expected that holders of Class B Common
Stock of record shall be entitled to exchange their Class B Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, recapitalization, consolidation,
merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up. Failure to give or receive such notice or
any defect therein shall not affect the legality or validity of the
proceedings described in this Section 6.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly file with the Transfer Agent
an officer's certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the
-18-
<PAGE>
facts requiring such adjustment. As soon as practicable after delivery
of such certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the effective date of such adjustment and shall
mail such notice of such adjustment of the Conversion Price to the
holders of record of Series B Preferred Stock at their addresses as
shown on the records of the Corporation.
(l) In any case in which Section 6(g) provides that an
adjustment shall become effective on the day next following the record
date for an event, the Corporation may defer (but only until the
earlier of five business days following the mailing of the notice
described in Section 6(k) and ten business days following such record
date) (A) issuing to the holder of any Series B Preferred Stock
converted after such record date the additional Class B Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the Class B Common Stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to
such holder any amount of cash in lieu of any fractional interest
pursuant to Section 6(f); and in lieu of the shares the issuance of
which is so deferred, the Corporation shall issue due bills or other
appropriate evidence of the right to receive such shares.
(m) There shall be no adjustment of the Conversion Price in
case of the issuance of any stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action would require
adjustment of the Conversion Price pursuant to more than one paragraph
of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest
absolute value.
(n) If the Corporation shall take any action affecting the
Class B Common Stock, other than action described in this Section 6,
that in the opinion of the Board of Directors would materially and
adversely affect the conversion rights of the holders of Series B
Preferred Stock, the Conversion Price for the Series B Preferred Stock
may be reduced, to the extent permitted by law, in such manner, if any,
and at such time, as the Board of Directors, in its sole discretion,
may determine to be equitable in the circumstances.
(o) (i) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out
of the aggregate of the authorized but unissued shares of
Class B Common Stock, for the purpose of effecting conversion
of the Series B Preferred Stock, the full number of shares of
Class B Common Stock deliverable upon the conversion of all
outstanding shares of Series B Preferred Stock not theretofore
converted. For purposes of this Section 6(o)(i), the number of
shares of Class B Common Stock that shall be deliverable upon
the conversion of all outstanding Series B Preferred Stock
shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
-19-
<PAGE>
(ii) The Corporation covenants that any shares of
Class B Common Stock issued upon conversion of the Series B
Preferred Stock shall be validly issued, fully paid and
non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par
value of the shares of Class B Common Stock deliverable upon
conversion of the Series B Preferred Stock, the Corporation
will take any action that, in the opinion of its counsel, may
be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Class B
Common Stock at such adjusted Conversion Price.
(iii) The Corporation shall use its best efforts to
list the shares of Class B Common Stock required to be
delivered upon conversion of the Series B Preferred Stock,
prior to such delivery, upon each national securities
exchange, if any, upon which the outstanding shares of Class B
Common Stock are listed at the time of such delivery.
(iv) Prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of
the Series B Preferred Stock, the Corporation shall use its
best efforts to comply with all federal and state laws and
regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery
thereof by, any governmental authority.
(p) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Class B Common Stock or other securities or property on
conversion of the Series B Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issue or
delivery of Class B Common Stock or other securities or property in a
name other than that of the holder of the Series B Preferred Stock to
be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the
reasonable satisfaction of the Corporation, that such tax has been
paid.
(q) Notwithstanding any other provision of this Section 6, the
conversion rights of any holder of Series B Preferred Stock that is a
Regulated Entity shall be limited as follows: (i) a Regulated Entity
may not convert a share of Series B Preferred Stock if such conversion
would result in the Regulated Entity owning securities of the
Corporation (including any other securities of the Corporation then
held by such holder) which in the aggregate represent 5% or more of the
votes entitled to be cast in any matter brought for a vote before
shareholders pursuant to and as provided in these Articles
Supplementary (other than a matter brought for a vote as to which the
Series B Preferred Stock has the right to vote as a separate class
under Section 9(a) or applicable law); and (ii) any shares of Series B
Preferred Stock held by such Regulated Entity in excess of the number
of shares which may then be converted as described in clause (i) shall
not be convertible into shares of Class B
-20-
<PAGE>
Common Stock until such time, if any, as (and to the extent that) such
shares may be converted by such holder in accordance with clause (i).
Section 7. Stock To Be Retired. All shares of Series B Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be restored to the status of authorized but unissued shares of Series B
Preferred Stock.
Section 8. Ranking. Any class or series of stock of the
Corporation shall be deemed to rank:
(a) prior to the Series B Preferred Stock, as to the payment
of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall
be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
preference or priority to the holders of Series B Preferred Stock;
(b) on a parity with the Series B Preferred Stock, as to the
payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per
share thereof shall be different from those of the Series B Preferred
Stock, if the holders of such class or series and the Series B
Preferred Stock shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation preferences, without preference or priority
one over the other ("Parity Stock");
(c) junior to the Series B Preferred Stock, as to the payment
of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior
Stock; and
(d) junior to the Series B Preferred Stock, as to the payment
of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully
Junior Stock.
Section 9. Voting.
(a) So long as any shares of Series B Preferred Stock are outstanding,
in addition to any other vote or consent of stockholders required by law or by
the Corporation's Charter, the affirmative vote or consent of at least a
majority of the votes entitled to be cast by the holders of Series B Preferred
Stock at the time outstanding shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of these Articles Supplementary that adversely affects the
powers, rights or preferences of the holders of Series B Preferred
Stock; provided, however, that the amendment of the
-21-
<PAGE>
provisions of the Corporation's Charter so as to authorize or create or
to increase the authorized amount of, any Fully Junior Stock, Junior
Stock that is not senior in any respect to the Series B Preferred
Stock, or any stock of any class ranking on a parity with the Series B
Preferred Stock shall not be deemed to adversely affect the powers,
rights or preferences of the holders of Series B Preferred Stock; or
(ii) The authorization, reclassification or creation of, or
the increase in the authorized amount of, any stock of any class or any
security convertible into stock of any class ranking prior to the
Series B Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation or in the
payment of dividends;
provided, however, that no such vote of the holders of Series B Preferred Stock
shall be required pursuant to Section 9(a)(i) or 9(a)(ii) if, at or prior to the
time when such amendment, alteration or repeal is to take effect, or when the
issuance of any such prior stock or convertible security is to be made, as the
case may be, the Series B Preferred Stock is redeemable and provision is made
for the redemption of all shares of Series B Preferred Stock at the time
outstanding and an amount of cash necessary to effect such redemption is
deposited with a bank or trust company located in the continental United States
that has capital and surplus of at least $50,000,000, in trust for the pro rata
benefit of the holders of the shares called for redemption, with irrevocable
instructions that such cash be applied to the redemption of the shares of Series
B Preferred Stock so called for redemption.
(b) The holders of Series B Preferred Stock shall be entitled to vote
on the matters set forth in this Section (9)(b) (if and only if the holders of
Class B Common Stock are entitled to vote on any such matter), voting together
as a single class with the holders of Class B Common Stock and the holders of
any other class or series of stock having the right to vote together with the
holders of Class B Common Stock on any such matter, except for matters on which
the holders of Series B Preferred Stock are entitled to vote as a separate class
under Section 9(a) or applicable law. The holder of each share of Series B
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Class B Common Stock into which such share of Series B Preferred Stock
could be converted on the record date for determining the stockholders entitled
to vote, rounded to the nearest one-tenth of a vote, on the following matters
(if and only if the holders of Class B Common Stock are entitled to vote on any
such matter):
(i) Any amendment, alteration or repeal of any of the
provisions of the Corporation's Charter; or
(ii) A consolidation with or merger of the Corporation into
another entity, or a consolidation with or merger of another entity
into the Corporation, or a sale or transfer of all or substantially all
of the Corporation's assets, or the liquidation or dissolution of the
Corporation;
-22-
<PAGE>
provided, however, that the holders of Series B Preferred Stock shall not be
entitled to vote on the matters set forth in Section 9(b)(i) if, at or prior to
the time when such amendment, alteration or repeal is to take effect, provision
is made for the redemption of all shares of Series B Preferred Stock at the time
outstanding and an amount of cash necessary to effect such redemption is
deposited with a bank or trust company located in the continental United States
that has capital and surplus of at least $50,000,000, in trust for the pro rata
benefit of the holders of the shares called for redemption, with irrevocable
instructions that such cash be applied to the redemption of the shares of Series
B Preferred Stock so called for redemption.
(c) The holder of each share of Series B Preferred Stock shall be
entitled to a number of votes equal to one-half of the number of shares of Class
B Common Stock into which such share of Series B Preferred Stock could be
converted on the record date for determining the stockholders entitled to vote,
rounded to the nearest one-tenth of a vote, on all matters submitted to a vote
of the stockholders of the Corporation except for those matters set forth in
Section 9(a) or 9(b), voting together as a single class with the holders of
Class B Common Stock and the holders of any other class or series of stock
having the right to vote together with the holders of Class B Common Stock on
any such matter, except for matters on which the holders of Series B Preferred
Stock are entitled to vote as a separate class under Section 9(a) or applicable
law.
(d) For purposes of any matter on which the holders of Series B
Preferred Stock are entitled to vote as a separate class under Section 9(a) or
applicable law, each share of Series B Preferred Stock shall have one vote per
share, except that when any other series of preferred stock shall have the right
to vote together with the Series B Preferred Stock as a single class on any
matter under applicable law (other than on matters specifically set forth in
Section 9(a)), then the Series B Preferred Stock and such other series shall
have with respect to such matters one vote per $1,000 of stated liquidation
preference.
(e) Notwithstanding any other provision of this Section 9, the voting
rights of any holder of Series B Preferred Stock that is a Regulated Entity
shall be limited as follows: (i) a Regulated Entity may not vote a share of
Series B Preferred Stock if such vote would result in the Regulated Entity
controlling 5% or more of the votes entitled to be cast in any matter brought
for a vote before shareholders pursuant to and as provided in these Articles
Supplementary (other than a matter brought for a vote as to which the Series B
Preferred Stock has the right to vote as a separate class under Section 9(a) or
applicable law); and (ii) any shares of Series B Preferred Stock held by such
Regulated Entity in excess of the number of shares which may then be voted as
described in clause (i) shall not be entitled to vote (except as set forth in
Section 9(a) or under applicable law) until such time, if any, as (and to the
extent that) such shares may be voted by such holder in accordance with clause
(i).
(f) Notice of any matter which will be submitted to a vote of the
stockholders of the Corporation shall be mailed by first-class mail to each
holder of record of Series B Preferred Stock at the address of each such holder
as shown on the Corporation's records, not less than
-23-
<PAGE>
10 nor more than 90 days prior to the record date for determining the
stockholders entitled to vote on such matter.
Section 10. Transferability. Notwithstanding any other provision
contained in these Articles Supplementary, if a holder of the Series B Preferred
Stock is a Regulated Entity, such holder may transfer the Series B Preferred
Stock only under the following circumstances: (i) in a transfer to one or more
underwriters or dealers in connection with, and in order to effect, a broad and
dispersed public distribution of such shares of Series B Preferred Stock (or of
the shares of Class B Common Stock into which such shares of Series B Preferred
Stock may be converted); (ii) in a transfer to a vendee, assignee or other
transferee in one or more transactions exempt from the registration requirements
of Section 5 of the Securities Act of 1933; provided, however, that the
aggregate number of shares of Series B Preferred Stock transferred to any single
vendee, assignee or other transferee (including their respective affiliates, as
the case may be) in any such transaction or transactions shall be limited to
that number of shares which would not, whether before or after the conversion
thereof into shares of Class B Common Stock in accordance with the terms of
these Articles Supplementary, permit the acquisition of shares of Series B
Preferred Stock (and/or Class B Common Stock, as the case may be) entitled to
cast, in the aggregate, as of the time of such transfer, more than 2% of the
aggregate number of votes entitled to be cast on any matter submitted to a vote
before shareholders pursuant to and as provided in these Articles Supplementary
(other than a matter brought for a vote as to which the Series B Preferred Stock
has the right to vote as a separate class under Section 9(a) or applicable law);
(iii) in a transfer to a person if such person already owns or has negotiated to
purchase at least a majority of the Class B Common Stock (not including the sale
of such Series B Preferred Stock by the Regulated Entity); (iv) in a transfer to
the Corporation; (v) in a transfer to an affiliate of such holder or to any
other Regulated Entity; or (vi) in any method of transfer permitted by the Board
of Governors of the Federal Reserve System.
Section 11. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any shares of Series B Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Corporation
nor the Transfer Agent shall be affected by any notice to the contrary.
Section 12. Sinking Fund. The Series B Preferred Stock shall not be
entitled to the benefits of any retirement or sinking fund.
SECOND: The Series B Preferred Stock has been classified and designated
by the Board of Directors under the authority contained in Article Fourth of the
Corporation's Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned duly authorized officer acknowledges these
Articles Supplementary to be the act of the Corporation and as to all other
matters or facts required to be verified under oath, acknowledges that to the
best of his knowledge, information and belief,
-24-
<PAGE>
these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed in its name and on its behalf by the undersigned
duly authorized officer and attested to by its Secretary on this 6th day of May,
1998
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ William D. Sanders
------------------------------------------
Name: William D. Sanders
----------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
ATTEST:
By: /s/ Jeffrey A. Klopf
--------------------------
Jeffrey A. Klopf
Secretary
<PAGE>
EXHIBIT 4.1
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement") is entered into as of the
7th day of May, 1998 between Commerzbank Aktiengesellschaft, Grand Cayman Branch
(the "Investor"), and Security Capital Group Incorporated, a Maryland
corporation ("Security Capital").
WHEREAS, the Investor has purchased (i) shares of Security Capital's
Series A Cumulative Convertible Redeemable Voting Preferred Stock, par value
$.01 per share (the "Series A Preferred Shares"), from Security Capital and (ii)
shares of Security Capital's Class A Common Stock, par value $0.01 per share
(the "Class A Shares"), and Security Capital's Class B Common Stock, par value
$0.01 per share (the "Class B Shares"), in the open market or in negotiated
transactions with third parties and wishes to exchange those shares (or, in the
case of Class A Shares, the Class B Shares into which they were converted) for
shares of Security Capital's Series B Cumulative Convertible Redeemable Voting
Preferred Stock, par value $.01 per share (the "Series B Preferred Shares"), the
terms of which shall be as set forth in Articles Supplementary in the form of
Exhibit A (the "Articles Supplementary"); and
WHEREAS, Security Capital is willing to issue to the Investor Series B
Preferred Shares upon exchange of Series A Preferred Shares and Class B Shares
in accordance with and subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and warranties herein contained, the parties hereby agree
as follows:
1. EXCHANGE OF SHARES.
(A) EXCHANGE. The Investor and Security Capital agree that the Investor
shall exchange all of its Series A Preferred Shares and 3,293,288 Class B Shares
(the Series A Preferred Shares and Class B Shares exchanged pursuant to this
Agreement are collectively referred to herein as the "Exchange Shares") for
Series B Preferred Shares in accordance with and subject to the terms and
conditions set forth herein.
(B) CLOSING OF EXCHANGE. The closing (the "Closing") of the exchange of
the Exchange Shares for Series B Preferred Shares shall take place at Security
Capital Group Incorporated, 125 Lincoln Avenue, Santa Fe, New Mexico 87501 at
9:00 a.m., Mountain time, on May 12, or at such other location, date and time as
may be agreed on by Security Capital and the Investor, but not later than May
15, 1998 (such date and time being hereinafter referred to as the "Closing
Date").
(C) NUMBER OF SERIES B PREFERRED SHARES ISSUABLE UPON EXCHANGE. The
number of Series B Preferred Shares issuable to the Investor upon exchange of
the Exchange Shares shall
equal the aggregate Fair Market Value of the Exchange Shares divided by $1,000.
The Fair Market Value of the Exchange Shares shall equal $257,642,000 as of the
date hereof.
<PAGE>
(D) SURRENDER OF EXCHANGE SHARES. At the Closing, the Investor shall
surrender the certificates representing the Exchange Shares, duly endorsed or
assigned to Security Capital or in blank.
(E) ISSUANCE OF SERIES B PREFERRED SHARES. At the Closing, Security
Capital shall issue and shall deliver to the Investor, or on its written order,
a certificate or certificates for the number of full Series B Preferred Shares
issuable upon the exchange of the Exchange Shares in accordance with the
provisions of this Agreement. No fractional shares or scrip representing
fractional interests in respect of Series B Preferred Shares shall be issued
upon exchange of the Exchange Shares. Instead of any fractional interest in
respect of Series B Preferred Shares that would otherwise be deliverable upon
the exchange of the Exchange Shares, Security Capital shall pay to the Investor
an amount in cash based on the Fair Market Value of the Exchange Shares not so
exchanged.
(F) SPECIAL DIVIDEND. At the Closing, Security Capital shall pay a
special dividend on the Series A Preferred Shares exchanged at the rate provided
for therein for the portion of the Dividend Period (as defined in Security
Capital's Charter) from the prior Dividend Payment Date (as defined in Security
Capital's Charter) to and including the Closing Date.
(G) STOCKHOLDER AGREEMENT. The Stockholder Agreement between Security
Capital and the Investor, dated as of February 20, 1998, shall automatically
terminate upon the consummation of the Closing.
(H) SETTLEMENT. Without admitting that any claim would arise, or any
liability would exist, under Section 16(b) of the Securities Exchange Act of
1934, as amended ("Section 16(b)"), as a result of this Agreement and the
transactions contemplated hereby, at the Closing, the Investor shall deliver to
Security Capital certificates representing 3,352 Class B Shares, duly endorsed
or assigned to Security Capital or in blank, in full settlement of any such
claim, or any liability in connection therewith, which may arise under Section
16(b) as a result of this Agreement and the transactions contemplated hereby.
The Investor and Security Capital agree that such Class B Shares have a value of
$30.00 per share as of the date hereof, representing $100,560 in the aggregate.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SECURITY
CAPITAL.
Security Capital represents, warrants and covenants, as of the date of
this Agreement and as of the Closing Date, that:
<PAGE>
2
(A) ORGANIZATION. Security Capital has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Maryland with full power and authority to own, lease and operate its
properties and conduct its business as now being conducted.
(B) POWER AND AUTHORITY. Security Capital has all requisite power and
authority and has taken all required action necessary to execute, deliver and
perform this Agreement, to receive the Exchange Shares and to issue the Series B
Preferred Shares as herein provided.
(C) ENFORCEABILITY. This Agreement has been duly executed and delivered
by Security Capital and constitutes the legal, valid and binding obligation of
Security Capital enforceable against Security Capital in accordance with its
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
(D) VALID ISSUANCE OF SERIES B PREFERRED SHARES. Any Series B Preferred
Shares issued upon exchange of the Exchange Shares as described above to the
Investor hereunder, when issued and delivered in accordance with the terms
hereof for the consideration expressed herein, shall be duly and validly issued,
fully paid and nonassessable and, assuming the accuracy of the Investor's
representations set forth in Section 3, shall be issued in compliance with all
applicable federal and state laws.
(E) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement by Security Capital and the consummation by
Security Capital of the transactions contemplated hereby do not and will not (i)
result in a violation of Security Capital's charter (the "Charter") or Bylaws or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which Security Capital is a party, or
result in a violation of any law, rule, regulation, order, judgment or decree
applicable to Security Capital or by which any property or asset of Security
Capital is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not impair
Security Capital's ability to perform in all material respects its obligations
under this Agreement).
(F) NO REGISTRATION UNDER THE SECURITIES ACT. Assuming the accuracy of
the Investor's representations set forth in Section 3, it is not necessary in
connection with the issuance and delivery of the Series B Preferred Shares in
the manner contemplated by this Agreement to register the Series B Preferred
Shares under the Securities Act of 1933, as amended (the "Securities Act").
(G) LIMITED EXEMPTION FROM OWNERSHIP LIMIT. Security Capital's Board of
Directors has duly adopted a resolution substantially in the form of Exhibit B,
thereby exempting
3
<PAGE>
the Investor from the Ownership Limit contained in Article FIFTH of Security
Capital's Charter to the extent provided therein.
(H) FILING OF ARTICLES SUPPLEMENTARY. Security Capital shall adopt and
file the Articles Supplementary with the State Department of Assessments and
Taxation of Maryland (the "SDAT") on or before the Closing Date.
(I) NO DILUTIVE TRANSACTIONS. Since January 1, 1998, Security Capital
has not engaged in any transaction, or approved or set a record date for any
transaction, which would require any adjustment to the Conversion Price (as
defined in Security Capital's Charter) of the Series A Preferred Shares or the
Conversion Price (as defined in the Articles Supplementary) of the Series B
Preferred Shares, if outstanding at such time, or would have required an
adjustment in the absence of paragraph (g)(v) of Article FOURTH, C, Section 6 of
the Charter or paragraph (g)(v) of Article FIRST, Section 6 of the Articles
Supplementary and the last sentence of paragraph (h) of Article FOURTH, C,
Section 6 of the Charter or the next to the last sentence of paragraph (h) of
Article FIRST, Section 6 of the Articles Supplementary.
(J) SETTLEMENT. Security Capital has reviewed the terms of the
settlement of any claim or liability which may arise pursuant to Section 16(b)
set forth in Section 1(h), and has made a finding that the terms of the
settlement are fair, reasonable and adequate and were arrived at as a result of
good faith negotiations between Security Capital and the Investor.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.
The Investor represents, warrants and covenants, as of the date of this
Agreement and as of the Closing Date, that:
(A) ORGANIZATION. The Investor has been duly licensed as a branch of
Commerzbank Aktiengesellschaft, a bank duly organized and validly existing under
the laws of Germany, with full power and authority to conduct its business as
now being conducted.
(B) POWER AND AUTHORITY. The Investor has the requisite power and
authority, and has taken all required action necessary, to execute, deliver and
perform this Agreement, to deliver the Exchange Shares and to acquire any Series
B Preferred Shares acquired hereunder.
(C) ENFORCEABILITY. This Agreement has been duly executed and delivered
by the Investor and constitutes the legal, valid and binding obligation of the
Investor enforceable in accordance with its terms, except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally and
(ii) laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4
<PAGE>
(D) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement by the Investor and the consummation by the
Investor of the transactions contemplated hereby do not (i) result in a
violation of the Investor's constituent documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Investor is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree applicable to the Investor
(including, without limitation, the Bank Holding Company Act of 1956, as
amended, and the International Banking Act of 1978, as amended) or by which any
property or asset of the Investor is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not impair the Investor's ability to perform in all material
respects its obligations under this Agreement).
(E) TITLE TO EXCHANGE SHARES. The Investor will own any Exchange Shares
exchanged pursuant to this Agreement free and clear of all liens, encumbrances,
security interests and adverse claims and will convey the Exchange Shares to
Security Capital on the Closing Date free and clear of all liens, encumbrances,
security interests and adverse claims.
(F) OWNERSHIP LIMITATIONS. The Investor has received a copy of the
Charter and understands the restrictions on transfer and ownership of Security
Capital's stock included therein.
(G) SOPHISTICATED INVESTOR. In the normal course of its business or its
investing activities, the Investor invests in or purchases securities similar to
the Series B Preferred Shares and the Class B Shares and it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of acquiring the Series B Preferred Shares or
the Class B Shares into which the Series B Preferred Shares are convertible. The
Investor is aware that it may be required to bear the economic risk of an
investment in the Series B Preferred Shares or the Class B Shares into which the
Series B Preferred Shares are convertible for an indefinite period of time and
it is able to bear such risk for an indefinite period.
(H) UNREGISTERED SECURITIES. The Investor understands and acknowledges
and agrees that neither the Series B Preferred Shares nor the Class B Shares
into which the Series B Preferred Shares are convertible have been registered
under the Securities Act or any other applicable securities law and, unless so
registered, may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any other
applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto. The Investor acknowledges that the Series B
Preferred Shares received by it pursuant to this Agreement shall be in the form
of physical certificates and that, unless and until the Series B Preferred
Shares have been registered under the Securities Act or the Investor shall have
furnished an opinion of counsel, in form and substance satisfactory to Security
Capital, to the effect that such legend may be deleted, the certificates shall
bear a legend to the following effect:
5
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION
OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY, IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT. THESE SECURITIES MAY NOT BE TRANSFERRED IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
(I) ACCESS TO INFORMATION. The Investor has had access to such
financial and other information concerning Security Capital or any of its
affiliates and the Series B Preferred Shares and the Class B Shares as it deemed
necessary in connection with the transactions contemplated by this Agreement,
including an opportunity to ask questions and request information from Security
Capital.
(J) ACQUIRING FOR OWN ACCOUNT. The Investor will acquire any Series B
Preferred Shares acquired pursuant to this Agreement for its own account and not
with any view toward the resale or distribution thereof or with any present
intention of selling or distributing any of the Series B Preferred Shares, but
subject nevertheless to the disposition of the Series B Preferred Shares being
at all times within the Investor's control subject to the instruments
constituting and governing the Series B Preferred Shares.
4. MISCELLANEOUS
(A) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding on the respective successors and assigns of the parties hereto, provided
that no rights set forth in or under this Agreement may be assigned by either
party without the prior written consent of the other party.
(B) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without giving effect to the
conflict of law provisions thereof.
(C) 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.
(D) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6
<PAGE>
(E) NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
on the fifth business day after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, (iii) on the next business day
after dispatch via nationally recognized overnight courier or (iv) upon
confirmation of transmission by facsimile, all addressed to the party to be
notified at the address indicated for such party below or at such other address
as such party may designate by ten days' advance written notice to the other
parties. Notices should be provided in accordance with this Section at the
following addresses:
if to the Investor, to
Commerzbank Aktiengesellschaft, Grand Cayman Branch
c/o Commerzbank Aktiengesellschaft, New York Branch
Two World Financial Center
New York, New York 10281
Attention: James Henry
Facsimile: (212) 266-7530
with a copy to:
Robert L. Tortoriello
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Facsimile: (212) 225-3999
if to Security Capital, to:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
with a copy to:
Edward J. Schneidman
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Facsimile: (312) 701-7711
7
<PAGE>
(F) EXPENSES. Each party shall pay all costs and expenses which it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement or the Articles Supplementary, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
(G) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended,
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Security Capital and the Investor.
(H) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(I) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and no party shall
be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein.
(J) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ C. Ronald Blankenship
----------------------------------
Name: C. Ronald Blankenship
--------------------------------
Title: Managing Director
-------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH
By: /s/ James J. Henry
----------------------------------
Name: James J. Henry
--------------------------------
Title: Senior Vice President
-------------------------------
By: /s/ Anne M. Swope
----------------------------------
Name: Anne M. Swope
--------------------------------
Title: Vice President
-------------------------------
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of May 7, 1998, between Security Capital Group Incorporated, a
Maryland corporation ("Security Capital"), and Commerzbank Aktiengesellschaft,
Grand Cayman Branch (the "Investor").
Security Capital and the Investor have entered into an Exchange
Agreement of even date herewith (the "Exchange Agreement"). In order to induce
the Investor to enter into the transactions contemplated by the Exchange
Agreement, Security Capital has agreed to provide the rights set forth in this
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate": with regard to a Person, a Person that controls, is
controlled by, or is under common control with, such original Person. For
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement": as defined in the preamble.
"Class B Shares": Security Capital's Class B Common Stock, par value
$.01 per share.
"Closing Price": the reported last sale price of a unit of a security
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, in each case on the New York Stock
Exchange Composite Tape, or, if the security is not listed or admitted to
trading on such exchange, on the American Stock Exchange Composite Tape, or, if
the security is not listed or admitted to trading on such exchange, the
principal national securities exchange on which the security is listed or
admitted to trading, or, if the security is not listed or admitted to trading on
any national securities exchange, the closing sales price, or, if there is no
closing sales price, the average of the closing bid and asked prices, in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), or, if not so reported, as
reported by the National Quotation Bureau, Incorporated, or any successor
thereof, or, if not so reported, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by Security Capital for that purpose, or, if
<PAGE>
no such prices are furnished, the fair market value of the security as
determined in good faith by the Board of Directors of Security Capital;
provided, however, that any determination of the "Closing Price"of any security
hereunder shall be based on the assumption that such security is freely
transferable without registration under the Securities Act.
"Commission": the Securities and Exchange Commission or any other
applicable Federal agency at the time administering the Securities Act.
"Demand Registration": an effective registration pursuant to a
request made by the Investor pursuant to Section 3.1.
"Exchange Act": the Securities Exchange Act of 1934, as amended.
"Exchange Agreement": as defined in the preamble.
"First Effective Date": the effective date of the First Registration
Statement in the event of a Proration.
"First Registration Statement": in the event of a Proration, the
registration statement initially filed in which all securities sought to be
included were not so included.
"Forms": as defined in Section 4.3.
"Investor": as defined in the preamble.
"Overhang Risk": a substantial risk that the sale of some or all
securities sought to be sold will substantially reduce the proceeds or price
per unit to be derived from a registration by the Person on whose behalf a
registration statement shall be filed.
"Person": an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Proration": any reduction pursuant to Section 2.1(d) in the number
of securities to be included in a Demand Registration.
"Registrable Security": Class B Shares or other securities issued to
the Investor upon conversion of Series B Preferred Stock acquired by the
Investor pursuant to the Exchange Agreement, including, (i) any securities which
may subsequently be issued with respect to such Class B Shares as a result of a
stock split or dividend and (ii) any securities resulting from any sale,
transfer, assignment or other transaction involving such Class B Shares
(including any securities into which such Class B Shares may thereafter be
changed as a result of merger, consolidation, recapitalization or otherwise);
provided that Class B Shares held by the Investor will cease to be Registrable
Securities in the event that the Investor is able to resell all Class B
-2-
<PAGE>
Shares owned by it pursuant to the Resale Rules without being subject to the
volume limitations thereof.
"Resale Rules": as defined in Section 4.3.
"Saleable Amount": the greatest number of securities which would not
create an Overhang Risk.
"Security Capital": as defined in the preamble.
"Securities Act": the Securities Act of 1933, as amended.
"Selling Period": for purposes of a Proration pursuant to a Demand
Registration, the period beginning on the First Effective Date and ending on the
earlier of: (i) 90 days after the First Effective Date or (ii) one day after any
date on which the Closing Price shall be at least 110% of the offering price
listed in the prospectus included in the First Registration Statement (or, if no
offering price is listed in the prospectus included in the First Registration
Statement, the Closing Price on the First Effective Date).
"Shelf Registration": an effective registration under Rule 415 of the
Securities Act pursuant to Rule 3.1.
"Unincluded Securities": any securities sought to be registered but
which are not registered due to a Proration.
"Violation": as defined in Section 4.2(a).
2. DEMAND REGISTRATION.
2.1. Demand Registration.
(a) Demand. Beginning on six months after the closing date of the
Exchange Agreement, the Investor may request one registration of all or any
portion of its Registrable Securities. The request shall state that the Investor
intends to dispose of such Class B Shares through a registered public offering
and shall state the price range per Class B Share at which the Investor proposes
to sell such shares in such offering, provided that the Registrable Securities
requested to be registered equal or exceed $100 million of Class B Shares (based
on the Closing Price), and Security Capital will effect the registration of such
Registrable Securities under the Securities Act in accordance with the following
provisions of this Article 2.
(b) Effecting Registration. Whenever Security Capital shall be
requested by the Investor pursuant to paragraph (a) of this Section 2.1 to
effect the registration of any of its Registrable Securities under the
Securities Act, Security Capital shall:
-3-
<PAGE>
(i) within 30 days of delivery of Investor's request, file a
registration statement under the Securities Act with respect to those
Registrable Securities which Security Capital has been requested to
register pursuant to paragraph (a) of this Section 2.1; and
(ii) use its reasonable efforts to effect such registration as
quickly as practicable.
(c) Security Capital's Ability to Postpone. Security Capital may
postpone the filing of a registration statement under this Section 2.1 for a
reasonable period of time (not exceeding 60 days) if Security Capital furnishes
the Investor with a certificate signed by the Chairman of the Board or a
Managing Director of Security Capital stating that, in its good faith judgment,
Security Capital's Board of Directors has determined that effecting the
registration at such time would require Security Capital to make public
disclosure of information not otherwise required to be publicly disclosed at
such time, the public disclosure of which would have a material adverse effect
upon Security Capital or would adversely affect the ability of Security Capital
to consummate a material financing, acquisition, disposition of assets or stock,
merger or other comparable transaction. Security Capital may also postpone for
up to 60 days the filing of a registration statement under this Section 2.1 if a
registration of Security Capital's securities is in progress or imminent (to be
evidenced by presentations or discussions with proposed underwriters in
connection with an offering of securities) and the distribution pursuant thereto
not yet completed. In the event of any postponement under this Section 2.1(c),
the Investor may withdraw the demand, in which event the Investor shall
thereafter have all rights under this Agreement (including Section 2.1(a)) as if
it had not made such demand.
(d) Overhang Risk. If the managing underwriter for the Demand
Registration advises that the amount of Class B Shares sought to be included in
such Demand Registration by the Investor would create an Overhang Risk, then the
amount of Class B Shares to be registered by the Investor may be reduced as
determined by the managing underwriter to the extent necessary to reduce the
amount of Class B Shares to be registered to the amount recommended by the
managing underwriter.
(e) Selection of Underwriters. In the case of an underwritten Demand
Registration, the Investor will have the right to select the investment
banker(s) and manager(s), subject to Security Capital's approval, which will not
be unreasonably withheld or delayed, to administer the offering.
(f) Agreement with Underwriters. The Investor shall (together with
Security Capital as provided in Section 2.2(f)) enter into an underwriting
agreement in customary and usual form with the underwriter or underwriters
selected for such underwriting as provided in Section 2.1(e).
(g) Number of Demand Registrations. The Investor shall be entitled to
one Demand Registration, subject to Section 2.1(c) and subject to the provisions
for one additional registration
-4-
<PAGE>
in the event of a Proration as provided in Section 4.6 (which additional
registration shall in all other respects be subject to this Article 2).
2.2. Registration Procedures. If and whenever Security Capital is
required by any of the provisions of this Article 2 to use its reasonable
efforts to effect the registration of any of the Registrable Securities under
the Securities Act, Security Capital will (except as otherwise provided in this
Agreement), as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its reasonable efforts to cause
such registration statement to become effective and remain effective for as long
as shall be necessary (up to a maximum of 90 days) to complete the distribution
of the Registrable Securities so registered;
(b) prepare and file with the Commission such amendments and
supplements as soon as practicable to such registration statement and the
prospectus contained therein as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
registration statement whenever the Investor shall desire to sell or otherwise
dispose of the same;
(c) furnish to the Investor such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus contained in
such registration statement, including any preliminary prospectus and any
amendment or supplement thereto, in conformity with the requirements of the
Securities Act, and such other documents, as the Investor may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by the Investor;
(d) use its reasonable efforts to register and qualify, or perfect
exemptions for, the securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Investor shall
reasonably request, and do any and all other acts and things reasonably
requested by the Investor to assist the Investor to consummate the public sale
or other disposition in such jurisdictions of the Registrable Securities owned
by the Investor, except that Security Capital shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;
(e) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months, beginning with the first fiscal quarter
beginning after the effective date of the registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
-5-
-5-
<PAGE>
(f) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering, including, without limitation, to obtain an opinion of counsel to
Security Capital and a "comfort letter" from the independent public accountants
to Security Capital in the usual and customary form for such underwritten
offering;
(g) permit the Investor and the managing underwriters and their
representatives to perform customary due diligence;
(h) notify the Investor, at any time when a prospectus is required to
be delivered under the Securities Act, of the happening of any event of which
Security Capital has knowledge as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
circumstances then existing; and
(i) upon the request of the Investor, take any and all other actions
which may be reasonably necessary to complete the registration and thereafter to
complete the distribution of the Registrable Securities so registered.
3. SHELF REGISTRATION.
3.1. Shelf Registration.
(a) Shelf Registration. Instead of requesting a Demand Registration
pursuant to Section 2, beginning on six months after closing date of Exchange
Agreement, the Investor may request that Security Capital file a Shelf
Registration sufficient to permit the Investor to sell all or any part of its
Registrable Securities pursuant to Rule 415 under the Securities Act by
delivering written notice to Security Capital specifying the number of Class B
Shares the Investor desires to sell.
(b) Effecting Registration. Whenever Security Capital shall be
requested by the Investor pursuant to paragraph (a) of this Section 3.1 to
effect the registration of any of its Registrable Securities under the
Securities Act, Security Capital shall:
(i) within 30 days of delivery of Investors' request, file a
registration statement under the Securities Act with respect to those
Registrable Securities which Security Capital has been requested to
register pursuant to paragraph (a) of this Section 3.1; and
(ii) use its reasonable efforts to effect such registration as
quickly as practicable.
-6-
-6-
<PAGE>
(c) Security Capital's Ability to Postpone. Security Capital may
postpone the filing of a registration statement under this Section 3.1 and each
proposed sale of Class B Shares by the Investor under an effective Shelf
Registration for a reasonable period of time (not exceeding 60 days) if Security
Capital furnishes the Investor with a certificate signed by the Chairman of the
Board or a Managing Director of Security Capital stating that, in its good faith
judgment, Security Capital's Board of Directors has determined that effecting
the registration at such time would require Security Capital to make public
disclosure of information not otherwise required to be publicly disclosed at
such time, the public disclosure of which would have a material adverse effect
upon Security Capital or would adversely affect the ability of Security Capital
to consummate a material financing, acquisition, disposition of assets or stock,
merger or other comparable transaction. Security Capital may also postpone for
up to 60 days the filing of a registration statement under this Section 3.1 if a
registration of Security Capital's securities is in progress or imminent (to be
evidenced by presentations or discussions with proposed underwriters in
connection with an offering of securities) and the distribution pursuant thereto
not yet completed.
(d) Selection of Underwriters. In the case of an underwritten offering
from a Shelf Registration, the Investor will have the right to select the
investment banker(s) and manager(s), subject to Security Capital's approval,
which will not be unreasonably withheld or delayed, to administer the offering.
(e) Agreement With Underwriters. The Investor shall (together with
Security Capital as provided in Section 3.2(f)) enter into an underwriting
agreement in customary and usual form with the underwriter or underwriters
selected for such underwriting as provided in Section 3.1(d).
(f) Number of Shelf Registrations. The Investor shall be entitled to
one Shelf Registration.
3.2. Registration Procedures. If and whenever Security Capital is
required by any of the provisions of this Article 3 to use its reasonable
efforts to effect the registration of any of the Registrable Securities pursuant
to Rule 415 under the Securities Act, Security Capital will (except as otherwise
provided in this Agreement), use its reasonable efforts to as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its reasonable efforts to cause
such registration statement to become effective and remain effective for as long
as shall be necessary to complete the distribution of the Class B Shares so
registered;
(b) prepare and file with the Commission such amendments and
supplements as soon as practicable to such registration statement and the
prospectus contained therein as may be necessary to keep such registration
statement effective for so long as shall be necessary to complete the
distribution of the Registrable Securities so registered and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities
-7-
-7-
<PAGE>
covered by such registration statement whenever the Investor shall desire to
sell or otherwise dispose of the same;
(c) furnish to the Investor such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement, including any preliminary prospectus, and any
amendments or supplement thereto, in conformity with the requirements of the
Securities Act, and such other documents, as the Investor may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by the Investor;
(d) use its reasonable efforts to register and qualify, or perfect
exemptions for, the securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as the Investor shall
reasonably request, and do any and all other acts and things reasonably
requested by the Investor to assist the Investor to consummate the sale or other
disposition in such jurisdictions of the Registrable Securities owned by the
Investor, except that Security Capital shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;
(e) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months, beginning with the first fiscal quarter
beginning after the effective date of the registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(f) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering, including, without limitation, to obtain an opinion of counsel to
Security Capital and a "comfort letter" from the independent public accountants
to Security Capital in the usual and customary form for such underwritten
offering;
(g) permit the Investor and the managing underwriters and their
representatives to perform customary due diligence;
(h) notify the Investor, at any time when a prospectus relating to such
registration statement is required to be delivered under the Securities Act, of
the happening of any event of which it has knowledge as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(i) upon the request of the Investor, take any and all other actions
which may be reasonably necessary to complete the registration and thereafter to
complete the distribution of the Registrable Securities so registered.
-8-
-8-
<PAGE>
4. PROVISIONS APPLICABLE TO REGISTRATION RIGHTS.
4.1. Expenses.
(a) Except as set forth in Section 4.1(b), the expenses specified in
the following sentence incurred in a Shelf Registration or Demand Registration
(or any attempted Shelf Registration or Demand Registration that is not
consummated) of the Investor's Registrable Securities under this Agreement shall
be paid by the Investor. The expenses referred to in the preceding sentence
shall be limited to underwriters' discounts or commissions or fees, brokerage
discounts, commissions, fees of placement agents, other sales expenses and fees
and disbursements of counsel and other advisors for the Investor.
(b) All other expenses incurred in any Shelf Registration or Demand
Registration (or any attempted Shelf Registration or Demand Registration that is
not consummated) shall by paid by Security Capital, including, without
limitation, (i) registration and filing fees, (ii) the expenses of printing and
distributing the registration statement and prospectus used in connection
therewith and any amendment or supplement thereto, (iii) the expenses of its
internal counsel (and/or, if Security Capital chooses, its outside counsel),
including fees and expenses related to the preparation of the registration
statement and the prospectus used in connection therewith and any amendment or
supplement thereto, (iv) any necessary accounting expenses, including any
special audits which shall be necessary to comply with governmental requirements
in connection with any such registration, including the expense related to any
comfort letters and (v) expenses of complying with the securities or blue sky
laws of any jurisdiction.
4.2. Indemnification. In the event the Investor's Registrable
Securities are included in a Demand Registration under Section 2 or in a Shelf
Registration under Section 3:
(a) Indemnity by Security Capital. Without limitation of any other
indemnity provided to the Investor, to the extent permitted by law, Security
Capital will indemnify and hold harmless the Investor, the Affiliates, officers,
directors, employees, agents and partners of the Investor, any underwriter (as
defined in the Securities Act), and each Person, if any, who controls the
Investor or any such underwriter (within the meaning of the Securities Act or
Exchange Act), against any losses, claims, damages, liabilities and expenses
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or any other federal or state law, as and when incurred,
insofar as such losses, claims, damages, liabilities and expenses (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement (including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto), (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (iii) any other violation or alleged
violation by Security Capital of the Securities Act, the Exchange Act,
any state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and Security
Capital will reimburse the Investor and each such Affiliate, officer, director,
employee, agent, partner, underwriter or controlling person for any reasonable
legal or other expenses incurred
-9-
<PAGE>
by them in connection with investigating or defending any such loss, claim,
damage, liability, expense or action; provided, however, that Security Capital
shall not be liable to the Investor in any such case for any such loss, claim,
damage, liability, expense or action to the extent that it arises out of or is
based upon a Violation which occurs (A) in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Investor or any Affiliate, officer, director, partner or
controlling person thereof or (B) by the Investor's failure to deliver a copy of
the registration statement or prospectus or any amendments or supplements
thereto after Security Capital has furnished the Investor with a sufficient
number of copies of the same.
(b) Indemnity by Investor. In connection with any registration in which
the Investor is participating, the Investor will furnish to Security Capital in
writing such information and affidavits as Security Capital reasonably requests
for use in connection with any such registration statement or prospectus and, to
the extent permitted by law, will indemnify Security Capital, its directors,
officers, employees and agents and each Person who controls Security Capital
(within the meaning of the Securities Act or Exchange Act) against any losses,
claims, damages, liabilities and expenses resulting from any Violation, but only
to the extent that such Violation occurs solely in reliance upon and in
conformity with any information or affidavit so furnished in writing by the
Investor or through the Investor's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after Security
Capital has furnished the Investor with a sufficient number of copies of the
same; provided that the obligation to indemnify will be several and not joint
and several with any other Person and will be limited to the net amount received
by the Investor from the sale of Class B Shares pursuant to such registration
statement.
(c) Notice; Right to Defend. Promptly after receipt by an indemnified
party under this Section 4.2 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
4.2, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
if the indemnifying party agrees in writing that it will be responsible for any
costs, expenses, judgments, damages and losses incurred by the indemnified party
with respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding, provided that the indemnifying party shall not be
responsible for the fees and expenses of more than one counsel for the
indemnified parties; provided, further, that the indemnifying party shall not,
without the written consent of the indemnified party, settle, compromise or
consent to the entry of any judgment in or otherwise seek to terminate any
pending or threatened action in respect to which indemnification or contribution
may be sought hereunder, unless such settlement, compromise or consent includes
an unconditional release of such indemnified person from all liability on claims
that are the subject matter of the proceeding. The failure to deliver written
notice to the indemnifying party
-10-
<PAGE>
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 4.2 only if and to the extent that such failure is prejudicial to its
ability to defend such action, and the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party other than under this Section 4.2.
(d) Contribution. If the indemnification provided for in this Section
4.2 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue statement or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the foregoing, the amount the
Investor shall be obligated to contribute pursuant to this Section 4.2(d) shall
be limited to an amount equal to the proceeds to the Investor of the Registrable
Securities sold pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages which the
Investor has otherwise been required to pay in respect of such loss, claim,
damage, liability or expense or any substantially similar loss, claim, damage,
liability or expense arising from the sale of such Registrable Securities).
(e) Survival of Indemnity and Contribution. The indemnification and
contribution provided by this Section 4.2 shall be a continuing right to
indemnification and contribution and shall survive the registration and sale of
any securities by any Person entitled to indemnification and contribution
hereunder and the expiration or termination of this Agreement.
4.3. Rule 144; Reports under Exchange Act. In order to permit the
Investor to sell the Class B Shares it holds, if it so desires, from time to
time pursuant to an effective shelf registration or pursuant to Rule 144
promulgated by the Commission or any successor to such rule or any other rule or
regulation of the Commission that may at any time permit the Investor to sell
Registrable Securities to the public without registration (the "Resale Rules")
or pursuant to a registration statement on Form S-3 at any time after Security
Capital so qualifies or any successor to such form or any other form permitting
incorporation by reference of documents filed with the Commission subsequent to
the filing of the registration statement (the "Forms"), Security Capital will:
(a) comply with all rules and regulations of the Commission applicable
in connection with use of the Resale Rules, Form S-3 (including the registrant
requirements thereof) and any other Forms;
-11-
<PAGE>
(b) make and keep adequate and current public information available, as
those terms are understood and defined in the Resale Rules, at all times;
(c) file with the Commission in a timely manner all reports and other
documents required of Security Capital under the Securities Act (including any
Forms) and the Exchange Act;
(d) furnish annually to the Investor material containing the
information required by Rule 14a-3(b) under the Exchange Act and Items 401, 402
and 403 of Regulation S-K of the Commission; and
(e) furnish to the Investor so long as the Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by
Security Capital that it has complied with the reporting requirements of the
Resale Rules, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of Security Capital and any other reports and documents so filed by
Security Capital and (iii) such other information as may be reasonably requested
in availing the Investor of any rule or regulation of the Commission which
permits the selling of any such securities without registration or pursuant to a
Form.
4.4. Assignment of Rights. The rights of the Investor under this
Agreement, including the right to cause Security Capital to register Registrable
Securities, shall be deemed to be automatically assigned with a transfer of
Registrable Securities, but only for transfers made in accordance with the
Charter and Bylaws of Security Capital, this Agreement and any other agreement
governing such Registrable Securities.
4.5. Limitations on Other Registration Rights.
(a) Security Capital shall not, without the prior written consent of
the Investor, include in any registration in which the Investor has a right to
participate pursuant to this Agreement any securities of any Person other than
the Investor.
(b) Nothing contained in this Agreement shall confer upon the Investor
any right to include any or all of the Investor's Class B Shares in a
registration statement filed by Security Capital under the Securities Act for
the sale of such securities for Security Capital's own account; provided,
however, that if Security Capital includes in any such registration statement
for its own account Class B Shares owned by a stockholder other than the
Investor, it shall also allow Investor to include the same number of Class B
Shares to be registered for the benefit of all such other stockholders in that
registration statement.
4.6. Prorations. In the event of a Proration:
(a) upon the expiration of the Selling Period, Security Capital shall
be obligated to file an additional registration statement (which registration
statement shall contain a current prospectus) relating to the Unincluded
Securities;
-12-
<PAGE>
(b) Security Capital shall use its reasonable efforts to effect the
registration of the Unincluded Securities as quickly as possible thereafter; and
(c) the Investor may withdraw its Unincluded Securities from such
additional registration without cost or penalty at any time prior to the
effective date of such additional registration.
5. MISCELLANEOUS.
5.1. Notices.
(a) All communications under this Agreement shall be in writing and
shall be mailed by first class mail, postage prepaid, or telegraphed or telexed,
or given by facsimile or delivered by hand:
(i) if to Security Capital, at:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attn: Jeffrey A. Klopf
Facsimile: (505) 988-8920
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Edward J. Schneidman
Facsimile: (312) 701-7711
(ii) if to the Investor, to the address of the Investor as it
appears in the stock ledger, or other appropriate register, of Security
Capital,
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
(b) Any notice so addressed, when mailed by registered or certified
mail shall be deemed to be given three days after so mailed, and when
telegraphed or telexed or delivered by hand shall be deemed to be given
immediately, and when given by facsimile, shall be deemed to be given when
confirmed electronically or telephonically, provided that the original is mailed
by first class mail, postage prepaid, at the same time in accordance with
Section 5.1(a).
-13-
<PAGE>
5.2. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of Security Capital and the Investor.
5.3. Amendment and Waiver. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, but only with the
written consent of Security Capital and the Investor. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
5.4. Counterparts. One or more counterparts of this Agreement may be
signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.
5.5. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Maryland.
5.6. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
5.7. Headings. The headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date and year first above written.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ C. Ronald Blankenship
------------------------------------
Name: C. Ronald Blankenship
----------------------------------
Title: Managing Director
---------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH
By: /s/ James J. Henry
------------------------------------
Name: James J. Henry
----------------------------------
Title: Senior Vice President
---------------------------------
By: /s/ Anne M. Swope
------------------------------------
Name: Anne M. Swope
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
April 6, 1998
among
SC REALTY INCORPORATED,
as Borrower
THE FINANCIAL INSTITUTIONS PARTY HERETO AND THEIR ASSIGNEES UNDER SECTION 10.8.
HEREOF,
as Lenders
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<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........................................................................ 18
SECTION 2.4. Continuation................................................................... 19
SECTION 2.5. Conversion..................................................................... 19
SECTION 2.6. Interest Rate.................................................................. 20
SECTION 2.7. Number of Interest Periods..................................................... 20
SECTION 2.8. Repayment of Loans............................................................. 20
SECTION 2.9. Voluntary Reductions of the Commitments........................................ 22
SECTION 2.10. Extension of Revolving Credit Termination Date................................. 22
SECTION 2.11. Term Loan Conversion........................................................... 23
SECTION 2.12. Release of Collateral.......................................................... 24
SECTION 2.13. Notes.......................................................................... 24
SECTION 2.14. Swingline Loans................................................................ 24
SECTION 2.15. Amount Limitations............................................................. 26
ARTICLE III. GENERAL LOAN PROVISIONS............................................................. 26
SECTION 3.1. Fees........................................................................... 26
SECTION 3.2. Computation of Interest and Fees............................................... 27
SECTION 3.3. Pro Rata Treatment............................................................. 27
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................................. 29
SECTION 3.7. Usury.......................................................................... 30
SECTION 3.8. Agreement Regarding Interest and Charges....................................... 30
SECTION 3.9. Statements of Account.......................................................... 31
SECTION 3.10. Agent's Reliance............................................................... 31
SECTION 3.11. Unscheduled Borrowing Base Calculations........................................ 31
SECTION 3.12. Foreign Lenders................................................................ 31
ARTICLE IV. YIELD PROTECTION, ETC................................................................. 32
SECTION 4.1. Additional Costs; Capital Adequacy............................................. 32
SECTION 4.2. Suspension of LIBOR Loans...................................................... 33
SECTION 4.3. Illegality..................................................................... 33
SECTION 4.4. Compensation................................................................... 34
SECTION 4.5. Affected Lenders............................................................... 34
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 4.6. Treatment of Affected Loans.................................................... 34
SECTION 4.7. Change of Lending Office....................................................... 35
ARTICLE V. CONDITIONS............................................................................ 35
SECTION 5.1. Initial Conditions to Loans.................................................... 35
SECTION 5.2. Conditions to All Loans........................................................ 37
SECTION 5.3. Conditions to Conversion to Term Loans......................................... 38
SECTION 5.4. Conditions as Covenants........................................................ 38
ARTICLE VI. REPRESENTATIONS AND WARRANTIES....................................................... 39
SECTION 6.1. Existence and Power............................................................ 39
SECTION 6.2. Ownership Structure............................................................ 39
SECTION 6.3. Authorization of Agreement, Notes, Loan Documents and Borrowings............... 39
SECTION 6.4. Compliance of Agreement, Notes, Loan Documents and Borrowing with Laws, etc.... 39
SECTION 6.5. Compliance with Law; Governmental Approvals.................................... 40
SECTION 6.6. Indebtedness and Guarantees.................................................... 40
SECTION 6.7. Transactions with Affiliates................................................... 40
SECTION 6.8. Absence of Defaults............................................................ 40
SECTION 6.9. Financial Information.......................................................... 40
SECTION 6.10. Litigation..................................................................... 40
SECTION 6.11. ERISA.......................................................................... 41
SECTION 6.12. Environmental Matters.......................................................... 41
SECTION 6.13. Taxes.......................................................................... 41
SECTION 6.14. Other Related Companies........................................................ 41
SECTION 6.15. Not an Investment Company...................................................... 42
SECTION 6.16. Full Disclosure................................................................ 42
SECTION 6.17. Insurance...................................................................... 42
SECTION 6.18. Not Plan Assets................................................................ 42
SECTION 6.19. Sole Shareholder............................................................... 42
SECTION 6.20. Liens.......................................................................... 42
SECTION 6.21. Pledged Shares................................................................. 43
SECTION 6.22. Assets......................................................................... 43
SECTION 6.23. Business Purposes and Objects.................................................. 43
SECTION 6.24. Separateness Representations................................................... 43
SECTION 6.25. Solvency....................................................................... 44
SECTION 6.26. Year 2000 Review............................................................... 44
ARTICLE VII. COVENANTS........................................................................... 44
SECTION 7.1. Information.................................................................... 44
SECTION 7.2. Payment of Obligations......................................................... 46
SECTION 7.3. Maintenance of Property; Insurance............................................. 47
SECTION 7.4. Conduct of Business and Maintenance of Existence............................... 47
SECTION 7.5. Compliance with Laws........................................................... 47
SECTION 7.6. Inspection of Property, Books and Records...................................... 48
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.7. Accounts Payable; Indebtedness................................................. 48
SECTION 7.8. Consolidations, Mergers and Sales of Assets.................................... 48
SECTION 7.9. Use of Proceeds................................................................ 48
SECTION 7.10. ERISA.......................................................................... 49
SECTION 7.11. Negative Pledge................................................................ 49
SECTION 7.12. Restricted Payments; Agreements with Affiliates................................ 49
SECTION 7.13. Loans to Other Persons......................................................... 49
SECTION 7.14. ERISA Exemptions............................................................... 50
SECTION 7.15. Separateness Covenant.......................................................... 50
SECTION 7.16. Independent Director........................................................... 51
SECTION 7.17. Guarantor Note................................................................. 51
SECTION 7.18. Compliance with and Amendment of Charter or Bylaws............................. 51
SECTION 7.19. Additional Assets.............................................................. 51
ARTICLE VIII. DEFAULTS........................................................................... 51
SECTION 8.1. Events of Default.............................................................. 51
SECTION 8.2. Remedies....................................................................... 54
SECTION 8.3. Allocation of Proceeds......................................................... 54
SECTION 8.4. Recision of Acceleration by Supermajority Lenders.............................. 55
ARTICLE IX. THE AGENT............................................................................ 55
SECTION 9.1. Appointment and Authorization.................................................. 55
SECTION 9.2. Agent and Affiliates........................................................... 56
SECTION 9.3. Collateral Matters............................................................. 56
SECTION 9.4. Approvals of Lenders........................................................... 57
SECTION 9.5. Consultation with Experts...................................................... 58
SECTION 9.6. Liability of Agent............................................................. 58
SECTION 9.7. Indemnification of Agent....................................................... 58
SECTION 9.8. Credit Decision................................................................ 59
SECTION 9.9. Successor Agent................................................................ 59
ARTICLE X. MISCELLANEOUS......................................................................... 60
SECTION 10.1. Notices....................................................................... 60
SECTION 10.2. No Waivers.................................................................... 61
SECTION 10.3. Expenses...................................................................... 61
SECTION 10.4. Stamp, Intangible and Recording Taxes......................................... 62
SECTION 10.5. Indemnification............................................................... 62
SECTION 10.6. Setoff........................................................................ 63
SECTION 10.7. Amendments.................................................................... 63
SECTION 10.8. Successors and Assigns........................................................ 64
SECTION 10.9. Governing Law................................................................. 66
SECTION 10.10. Litigation.................................................................... 66
SECTION 10.11. Counterparts; Integration..................................................... 67
SECTION 10.12. Notice of Final Agreement..................................................... 67
SECTION 10.13. Invalid Provisions............................................................ 67
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 10.14. NO NOVATION; EFFECT OF AMENDMENT AND RESTATEMENT............................. 67
</TABLE>
Exhibit A Form of Assignment and Acceptance Agreement
Exhibit B Form of Borrower Pledge Agreement
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Guaranty
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 Notice of Swingline Borrowing
Exhibit I Form of Pricing Certificate
Exhibit J Form of Qualifying Issuer Certificate
Exhibit K Form of Revolving Note
Exhibit L Form of Swingline Note
Exhibit M Form of Opinion of Borrower and Guarantor Counsel
Exhibit N Form of Opinion of Georgia Local Counsel
Exhibit O Form of Collateral Assignment of Registration Rights
Exhibit P Form of Guarantor Pledge Agreement
Schedule 6.2. Ownership Structure
Schedule 6.17. Insurance
Schedule 6.21.(A) Acquisitions of Security Capital Industrial Trust Shares
Schedule 6.21.(B) Acquisitions of Security Capital Atlantic Incorporated Shares
Schedule 6.21.(C) Acquisitions of Security Capital Pacific Trust Shares
Schedule 6.21.(D) Acquisitions of Security Capital U.S. Realty Shares
Schedule 6.21.(E) Acquisitions of Homestead Village Incorporated Shares
Schedule 6.22. Assets
-iv-
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated
as of April 6, 1998 by and among SC REALTY INCORPORATED, a Nevada corporation
("Borrower"), each of the financial institutions initially a signatory hereto
together with their assignees pursuant to Section 10.8. ("Lenders"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION, successor to Wells Fargo Realty Advisors
Funding, Incorporated, as contractual representative for Lenders to the extent
and in the manner provided in Article IX. below (in such capacity "Agent").
WHEREAS, certain of the Lenders have made available to Borrower a
$400,000,000 secured revolving credit facility on the terms and conditions
contained in that certain Amended and Restated Credit Agreement dated as of
August 19, 1996 (as amended and in effect immediately prior to the date hereof,
the "Existing Credit Agreement") by and among Borrower, such Lenders and Agent;
and
WHEREAS, Borrower, such Lenders and Agent desire to amend and restate the
terms of the Existing Credit Agreement, and the other Lenders desire to become a
party thereto, in order to make available to Borrower a $700,000,000 secured
revolving credit facility and to modify the terms of the Existing Credit
Agreement, all 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:
"Atlantic" means Security Capital Atlantic Incorporated, a Maryland
--------
corporation, and its successors.
"Additional Costs" has the meaning given that term in Section 4.1.
----------------
"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.
<PAGE>
"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 to (b) the Market Value of all
Qualifying Securities at such time:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
RATIO OF COMMITMENTS TO MARKET VALUE OF ALL APPLICABLE MARGIN
QUALIFYING SECURITIES
--------------------------------------------------------------------
<S> <C>
Greater than or equal to 30% but less than or 1.25%
equal to 35%
--------------------------------------------------------------------
Greater than 20% but less than or equal to 30% 1.125%
--------------------------------------------------------------------
Less than 20% 1.0%
--------------------------------------------------------------------
</TABLE>
Based on the information set forth in each Pricing Certificate delivered to
Agent pursuant to Section 7.1.(e), Agent shall determine the Applicable Margin
in accordance with the above table and shall notify Borrower and Lenders of such
determination. Any resulting change in the Applicable Margin shall take effect
on the 10th day following the end of each calendar month. At all times
following Borrower's failure to provide such Pricing Certificate to Agent and
until such Pricing Certificate is so provided, the Applicable Margin shall be
1.25%. In addition, if Agent shall calculate the Borrowing Base as provided in
Section 3.11., (a) Agent shall determine the Applicable Margin in accordance
with the above table; (b) Agent shall notify Borrower and Lenders of such
determination; and (c) any resulting change in the Applicable Margin shall take
effect upon such determination by Agent. Until first determined after the date
hereof as provided in this definition, the Applicable Margin shall initially be
1.00%.
"Assignee" has the meaning given that term in Section 10.8.(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 April 6, 1998 executed by Guarantor in favor of
Borrower.
"Authorized Representative" means, with respect to any Person, the
-------------------------
President, any Managing Director, the Treasurer, any controller or any other
officer, employee or representative of such Person duly authorized by such
Person to act on behalf of such Person in connection with this Agreement and the
transactions contemplated hereby; provided that evidence of such authority shall
--------
have been provided to Agent promptly following Agent's request therefor and such
evidence shall be satisfactory in form and substance to Agent.
"Base Rate" means the greater of (a) the rate of interest per annum
---------
established from time to time by Agent and designated as its prime rate (which
rate of interest may not be the lowest rate charged by Agent or any of Lenders
on similar loans) and (b) the Federal Funds Rate plus
----
-2-
<PAGE>
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 Revolving Loan or Term Loan hereunder with
--------------
respect to which the interest rate is calculated by reference to the Base Rate.
"Borrower Pledge Agreement" means the Borrower Second 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) 35% of the
--------------
Market Value of all Qualifying Securities and (b) 50% of the Market Value of all
Primary Securities. Notwithstanding the foregoing, the Market Value of
Securities of any single Issuer included when determining the Borrowing Base
under the immediately preceding clause (a) shall be limited to no more than (i)
50% of the amount of the Borrowing Base in the case of Pacific, Industrial and
Atlantic; (ii) 40% of the amount of the Borrowing Base in the case of U.S.
Realty and (iii) 30% of the amount of the Borrowing Base in the case of
Homestead.
"Borrowing Base Company" means any of Pacific, Industrial, Atlantic, U.S.
----------------------
Realty and Homestead.
"Borrowing Base Certificate" means a report certified by an Authorized
--------------------------
Representative of Borrower setting forth a detailed calculation of the Borrowing
Base, such report substantially in the form of Exhibit C.
"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, such Person's net income for such
period determined in accordance with generally accepted accounting principles
(excluding capital gains and losses for such period on any disposition of
Strategic Investments in any Real Estate Companies and, to the extent included
in net income, any unrealized gains and losses), except that cash dividends and
other cash received from Investments in Consolidated Subsidiaries, other
Subsidiaries or any other Persons shall be substituted for net income of
Consolidated Subsidiaries and for equity in earnings of any such Subsidiaries or
other Persons, plus the sum of the following amounts (but only to the extent
that any of the following amounts were taken into account when determining such
net income): (a) income taxes accrued for such period, plus (b) interest expense
----
paid or
-3-
<PAGE>
accrued for such period (excluding interest accrued in respect of any "zero-
coupon" Indebtedness and other similar Indebtedness for which interest is not
due and payable), plus (c) depreciation and amortization expenses for such
----
period, plus (d) the return of the capital component of dividends received for
----
such period (to the extent that such component is not reflected already in net
income).
"Cash Flow Available for Distribution" means, with respect to a Person for
------------------------------------
the four fiscal quarter period ending as of the date of determination, such
Person's net income for such period determined in accordance with generally
accepted accounting principles (excluding capital gains and losses for such
period on any disposition of Strategic Investments in any Real Estate Companies,
and to the extent included in net income, any unrealized gains and losses),
except that cash dividends and other cash received from Investments in
Consolidated Subsidiaries, other Subsidiaries or any other Persons shall be
substituted for net income of Consolidated Subsidiaries and for equity in
earnings of any such Subsidiaries or other Persons, plus the sum of the
following amounts (but only to the extent that any of the following amounts were
taken into account when determining such net income): (a) interest expense
accrued but not paid for such period, plus (b) depreciation and amortization
----
expenses for such period, plus (c) the return of the capital component of
----
dividends received for such period (to the extent that such component is not
reflected already in net income).
"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) income taxes paid or accrued, (iii) interest
expense paid or accrued (excluding any capitalized interest and interest accrued
in respect of any "zero-coupon" Indebtedness or other similar Indebtedness for
which interest is not due and payable) 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 paid or accrued (excluding any capitalized
interest and interest accrued in respect of any "zero-coupon" Indebtedness or
other similar Indebtedness for which interest is not due and payable) by such
Person during such period, including interest on any Indebtedness of such Person
convertible into capital stock of such Person.
"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 Second Amended and
--------------------------------------------
Restated Collateral Assignment of Registration Rights Agreements dated as of the
date hereof executed by Borrower in favor of Agent, substantially in the form of
Exhibit O.
"Collateral Documents" means 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 each Lender, such Lender's obligation to make
----------
Revolving Loans pursuant to Section 2.1. in an amount up to, but not exceeding,
the amount set forth for
-4-
<PAGE>
such Lender on its signature page hereto as such Lender's "Commitment Amount",
as the same may be reduced from time to time pursuant to Section 2.9., or as
appropriate to reflect assignments to or by such Lender effected in accordance
with Section 10.8.
"Compliance Certificate" means the certificate described in Section
----------------------
7.1.(c).
"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 (other than (a) any Strategic Investee and (b) any Subsidiary that is
a preferred stock subsidiary of any Affiliate of such Person the economic
interest in which Subsidiary owned by such Person is less than 15% of the
aggregate thereof).
"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.
"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 Industrial, Atlantic and Pacific (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 5.1.
"Eligible Assignee" means any Person who is: (i) currently a Lender; (ii) a
-----------------
commercial bank, trust company, savings and loan association, savings bank,
insurance company, investment bank or pension fund organized under the laws of
the United States of America, or any state thereof, and having total assets in
excess of $5,000,000,000; or (iii) a commercial bank organized under the laws of
any other country which is a member of the Organization for Economic Cooperation
and Development ("OECD"), or a political subdivision of any such country, and
having total assets in excess of $10,000,000,000, provided that such bank is
acting through a branch or agency located in the United States of America. If
such Person is not currently a
-5-
<PAGE>
Lender, such Person's senior unsecured long term indebtedness must be rated BBB
or higher by Standard & Poor's Rating Group, a division of McGraw-Hill
Companies, Inc., Baa2 or higher by Moody's Investors Services, Inc., or the
equivalent or higher of either such rating by another rating agency acceptable
to Agent. Notwithstanding the foregoing, if an Event of Default shall have
occurred and be continuing under Section 8.1.(a) or (b), the term "Eligible
Assignee" shall mean any Person that is not an individual.
"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 8.1., 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.
"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 2.10.
-----------------
"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.
-6-
<PAGE>
"Fixed Charges" means, with respect to a Person for the four fiscal quarter
-------------
period ending as of the date of determination, the sum of (a) the total amount
of accrued or paid interest (including, without limitation, interest expense
attributable to Capitalized Lease Obligations but excluding interest accrued in
respect of any "zero-coupon" Indebtedness and other similar Indebtedness for
which interest is not due and payable) of such Person for such period, and in
any event shall include all accrued, paid or capitalized interest with respect
to any Indebtedness or other obligation in respect of which such Person is
wholly or partially liable, whether pursuant to any repayment, interest carry,
performance Guarantee or otherwise (excluding any such "zero-coupon"
Indebtedness and other similar Indebtedness) plus (b) regularly scheduled
----
principal payments on Indebtedness of such Person during such period, other than
(i) any balloon, bullet or similar principal payment payable on any Indebtedness
of such Person which spreads the final payment thereof over a period and thereby
reduces refinancing risk and repays such Indebtedness in full and (ii) in the
case of the Borrower, principal payments in respect of the Term Loans.
"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.
"Guarantor Note" means that certain Promissory Note dated as of the date
--------------
hereof executed by Guarantor in favor of Borrower and in the original maximum
principal amount of $500,000,000, in form and substance satisfactory to Agent.
-7-
<PAGE>
"Guarantor Pledge Agreement" means the Guarantor Amended and Restated
--------------------------
Pledge Agreement dated as of the date hereof executed by Guarantor in favor of
Agent, substantially in the form of Exhibit P.
"Guaranty" means the Second 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 D.
"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.
"Homestead" means Homestead Village Incorporated, a Maryland corporation,
---------
and its successors.
"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, (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 and (iii) obligations to purchase Securities
pursuant to subscription or stock purchase agreements in the ordinary course of
business, (d) all Capitalized Lease Obligations of such Person, (e) all
reimbursement obligations of such Person under letters of credit or acceptances
in respect of drawings thereunder to the extent not reimbursed, (f) 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 (g) all Indebtedness
of others Guaranteed by such Person. Notwithstanding the foregoing, for purposes
of calculating Guarantor's compliance with Sections 6.(l) through (n) of the
Guaranty, accounts payable (other than deferred compensation) of Guarantor in
excess of 3.0% of the undepreciated book value (determined in accordance with
generally accepted accounting principles) of the assets of the Guarantor, at any
time outstanding shall be treated as Indebtedness to the extent of such excess.
"Industrial" means Security Capital Industrial Trust, a Maryland real
----------
estate investment trust, and its successors.
"Intangible Assets" means, with respect to any Person, the amount (to the
-----------------
extent reflected in determining stockholders' equity of such Person) of all
items which in accordance with generally accepted accounting principles would be
properly classified as intangible assets.
"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
-8-
<PAGE>
Period shall be one, two, three or six months, in each case as Borrower may, in
an appropriate Notice of Borrowing, Notice of Continuation or Notice of
Conversion, select (except in the case of LIBOR Loans made under Section
2.14.(e)). 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 such Lender specified as such on its signature page hereto, or such
other office of such Lender as such Lender may notify Agent in writing from time
to time.
"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 Agent (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 Agent 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 Revolving Loan or Term 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, 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
-9-
<PAGE>
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, a Swingline Loan or a 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 exceed 50.0%.
"Market Value" means, with respect to a 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
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 Real Estate
Company Securities owned by such Person, (ii) the aggregate reported net asset
value of all Securities held by such Person in investment funds which invest
primarily in the Securities of publicly traded real estate companies and the net
asset value of which is regularly determined (and in any event at least every
three months) and reported publicly, (iii) the book value of all other assets of
such Person (excluding all Intangible Assets) on and as of such date and (iv)
all cash and cash equivalents of such Person on and as of such date, minus (b)
-----
the total liabilities (excluding deferred taxes on unrealized gains) of such
Person as of such date as determined in accordance with generally accepted
accounting principles.
-10-
<PAGE>
"Materially Adverse Effect" means a materially adverse effect on (a) the
-------------------------
business, assets, liabilities, financial condition, or results of operations 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.
"Net Worth" means, for any Person, all amounts which would, in accordance
---------
with generally accepted accounting principles, be included under stockholders'
equity on the balance sheet of such Person.
"New Investee" means any Person (other than an individual and other than
------------
any Borrowing Base Company) (a) in whom Borrower acquires any Securities after
the date hereof and (b) created by Borrower or Guarantor consistent with the
business objective of Borrower or Guarantor.
"Non-ERISA Plan" means any Plan subject to Section 4975 of the Internal
--------------
Revenue Code.
"Note" means either a Revolving Note or the Swingline Note.
----
"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.
"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.
"Notice of Swingline Borrowing" means a notice in the form of Exhibit H to
-----------------------------
be delivered to Swingline Lender pursuant to Section 2.14.(b) evidencing
Borrower's request for a Swingline Loan.
"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, any Lender or Swingline Lender 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.
"Pacific" means Security Capital Pacific Trust, a Maryland real estate
-------
investment trust, and its successors.
-11-
<PAGE>
"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) Liens for taxes not yet due and payable), (e) 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, (f) Liens
for taxes, assessments and governmental charges or assessments that are being
contested in good faith by appropriate proceedings diligently conducted, and for
which reserves, if any, required under generally accepted accounting principles
have been provided, (g) Liens expressly permitted under the terms of the Loan
Documents, 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.
"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.
"Pricing Certificate" means a report certified by an Authorized
-------------------
Representative of Borrower, setting forth a detailed calculation of the
Borrowing Base, including the Market Value of the Qualifying Securities, such
report to be substantially in the form of Exhibit I.
"Primary Securities" means Qualifying Securities issued only by Pacific,
------------------
Industrial or Atlantic.
"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.
-12-
<PAGE>
"Qualified Issuer Certificate" means a report certified by an Authorized
----------------------------
Representative of Borrower, setting forth in reasonable detail the calculations
establishing that each Borrowing Base Company meets the requirements set forth
in clauses (g) and (h) of the definition of Qualifying Security, such report to
be substantially in the form of Exhibit J attached hereto.
"Qualifying Security" means any Security (1) which is common stock,
-------------------
beneficial interest in a trust, or the equivalent thereof, (2) the Issuer of
which is a Borrowing Base Company and (3) which Agent confirms 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 (i) such
representations or warranties specifically relate to an earlier date or (ii)
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 Company (including any organized as a societe d'investissement a capital
fixe, a 1929 holding company, or other similar entity);
(d) such 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) is listed on the principal national securities
exchange in Luxembourg, the Netherlands, the United Kingdom of Great Britain or
other European country acceptable to Agent;
(e) such Security is not subject to any instrument, document or agreement
which in any way prohibits the sale of such 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 Security, in which agreement Borrower agrees not to sell such
Security for a period ending no later than 180 days after such offering);
(f) the offer and sale of such 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, (ii) restrictions under Regulation 144A
or S of the Securities and Exchange Commission and (iii) other
-13-
<PAGE>
restrictions related to the timing of offers and sales consented to by the
Majority Lenders in writing;
(g) 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 (or 1.75 to 1.00 solely in the case of Homestead);
(h) 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 (or 1.5 to
1.0 solely in the case of Homestead); and
(i) 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.
"Real Estate Company" means any Person (a) engaged in the business of
-------------------
owning, acquiring, developing, selling, leasing or operating real property and
related assets or (b) who owns, directly or indirectly, other Persons engaged in
the type of business described in the immediately preceding clause (a).
"Real Estate Company Securities" means any Security: (a) which is common
------------------------------
stock, beneficial interest in a trust, or the equivalent thereof; (b) the Issuer
of which is a Real Estate Company and (c) which either (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) is listed on the
principal national securities exchange in Luxembourg, the Netherlands, the
United Kingdom of Great Britain or other European country acceptable to Agent;
"Reduced Rate" has the meaning given that term in Section 3.12.
------------
"Registration Rights Agreements" means (a)(i) that certain Third Amended
------------------------------
and Restated Investor Agreement dated as of September 9, 1997 by and between
Guarantor and Pacific, (ii) that certain Third Amended and Restated Investor
Agreement dated as of September 9, 1997 by and between Guarantor and Industrial,
(iii) that certain Third Amended and Restated Investor Agreement dated as of
September 9, 1997 by and between Guarantor and Atlantic 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 T, U and X" means Regulations T, U and X of the Board of
----------------------
Governors of the Federal Reserve System, as in effect from time to time.
"Regulatory Change" means, with respect to any Lender, any change effective
-----------------
after the Agreement Date in Applicable Law (including without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or the
adoption or making after such date of any
-14-
<PAGE>
interpretation, directive or request applying to a class of banks, including
such Lender, of or under any Applicable Law (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
Governmental Authority or monetary authority charged with the interpretation or
administration thereof or compliance by any Lender with any request or directive
regarding capital adequacy.
"REIT" means a Person qualifying for treatment as a "real estate investment
----
trust" under the Internal Revenue Code.
"Related Company" means any of Guarantor, Borrower or any of their
---------------
respective Subsidiaries.
"Restricted Payment" means cash payment or other distributions of property
------------------
on, or in respect of, any class of stock of, or other equity interest in, a
Person, or other payments or transfers of property 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 Credit Termination Date" means the earlier to occur of (a) April
---------------------------------
6, 2000, or such later date to which such date may be extended in accordance
with Section 2.10. or (b) the date on which the Revolving Loans are converted
into the Term Loan pursuant to Section 2.11.
"Revolving Loan" means a loan made by a Lender to Borrower under Section
--------------
2.1.
"Revolving Note" means a promissory note executed by Borrower, payable to
--------------
the order of a Lender, in a maximum principal amount equal to such Lender's
Commitment and substantially in the form of Exhibit K.
"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 2.11.
"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.
"Services Subsidiary" means a Subsidiary of Guarantor that provides
-------------------
services for a fee and which Subsidiary is material to the financial condition
of Guarantor.
"Shareholders' 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.
-15-
<PAGE>
"Strategic Investee" means, with respect to one Person, any other
------------------
Person (other than, in the case of Guarantor, any of the Service Subsidiaries)
of which such first Person initially owns, directly or indirectly, more than 25%
of the outstanding securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other individuals
performing similar functions.
"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.
"Supermajority Lenders" means, as of any date, Lenders whose combined
---------------------
Pro Rata Shares equal or exceed 66-2/3%.
"Swingline Commitment" means Swingline Lender's obligation to make
--------------------
Swingline Loans pursuant to Section 2.14. in an amount up to, but not exceeding,
$50,000,000, as such amount may be reduced from time to time in accordance with
the terms hereof.
"Swingline Lender" means Wells Fargo Bank, National Association,
----------------
together with its respective successors and assigns.
"Swingline Loan" means a loan made by Swingline Lender to Borrower
--------------
pursuant to Section 2.14.(a).
"Swingline Note" means the promissory note of Borrower payable to the
--------------
order of Swingline Lender in a principal amount equal to the amount of the
Swingline Commitment as originally in effect and otherwise duly completed,
substantially in the form of Exhibit L.
"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 2.11.
---------
"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) Indebtedness of such Person, (ii) all Contingent Obligations of such Person
and (iii) 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
and any accounts payable representing deferred compensation,
-16-
<PAGE>
(ii) accrued expenses, (iii) deferred taxes on unrealized gains and (iv)
declared but unpaid dividends.
"Type" with respect to any Revolving Loan or Term 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.
"U.S. Realty" means Security Capital U.S. Realty, a societe
-----------
d'investissement a capital fixe formed under the laws of the Grand Duchy of
Luxembourg, and its successors.
"Wells Fargo" means Wells Fargo Bank, National Association, and its
-----------
successors and permitted assigns.
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
7.7. or 7.12.(a) hereof, or Guarantor wishes to amend any covenant in Section
6.(j)(i) or 6.(l) through (n) 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
-17-
<PAGE>
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 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,
including, without limitation, Section 2.15., 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 the lesser of (a) such Lender's
Commitment and (b) such Lender's Pro Rata Share of 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 any successor regulation). 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 then
outstanding under the Existing Credit Agreement 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 respective Pro Rata Shares. 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
aggregate principal amount of Revolving Loans to be borrowed, the date such
Revolving Loans are to be borrowed (which must be a Business Day), the use of
the proceeds of such Revolving Loans, the Type of the requested Revolving Loans
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
-18-
<PAGE>
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.
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. No later than 9:00 a.m. on the date
specified in the Notice of Borrowing, each Lender will make available for the
account of its applicable Lending Office to Agent at Agent's Lending Office, in
immediately available funds, the proceeds of the Revolving Loan to be made by
such Lender. 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
Revolving Loans 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 a Revolving Loan.
(b) With respect to Revolving Loans to be made after the Effective
Date, unless Agent shall have been notified by any Lender prior to the specified
date of borrowing that such Lender does not intend to make available to Agent
the Revolving Loan to be made by such Lender on such date, Agent may assume that
such Lender will make the proceeds of such Revolving Loan available to Agent on
the date of the requested borrowing as set forth in the Notice of Borrowing and
Agent may (but shall not be obligated to), in reliance upon such assumption,
make available to Borrower the amount of such Revolving Loan to be provided by
such Lender.
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.
-19-
<PAGE>
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 two percent (2%).
SECTION 2.7. Number of Interest Periods.
--------------------------
Anything herein to the contrary notwithstanding, there may be no more
than 12 different Interest Periods outstanding at the same time.
SECTION 2.8. 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 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.
-20-
<PAGE>
(b) Payment of Principal of Revolving Loans. Subject to Section
---------------------------------------
2.11., 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 Loans. Borrower shall repay the
----------------------------------
principal balance of the Term Loans in consecutive quarterly installments due on
the last day of each March, June, September and December following the Revolving
Credit Termination Date until the Term Loans have been paid in full. The amount
of such installments shall be as follows: (i) the first four installments shall
each be in the aggregate amount of 5.0% of the initial aggregate principal
balance of the Term Loans (or if the outstanding aggregate principal balance of
the Term Loans is less than such amount on the due date of any such installment,
then in the amount of such aggregate outstanding balance) and (ii) if after the
payment of such four installments any principal balance shall remain owing on
the Term Loans, each remaining installment shall be in the aggregate amount of
6.6675% of the initial aggregate principal balance of the Term Loans (or if the
outstanding aggregate principal balance of the Term Loans is less than such
amount on the due date of any such installment, then in the amount of such
aggregate outstanding balance). Notwithstanding the foregoing, the entire
outstanding principal balance of all Term Loans 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 Revolving Loan or Term 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 4.4.
(e) Mandatory Prepayments. If at any time the aggregate principal
---------------------
amount of all outstanding Revolving Loans, together with the aggregate principal
amount of all outstanding Swingline Loans, exceeds the aggregate amount of the
Commitments in effect at such time, Borrower shall promptly upon demand pay to
Agent for the accounts of the Lenders the amount of such excess. 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 to have been made on
the next succeeding
-21-
<PAGE>
Business Day). 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 8.1.(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 provided by such
Lender to Agent from time to time, for the account of such Lender at the
applicable Lending Office of such Lender. Each payment received by Agent for the
account of Swingline Lender under this Agreement or the Swingline Note shall be
paid to Swingline Lender by wire transfer of immediately available funds in
accordance with the wiring instructions provided by Swingline Lender to the
Agent from time to time. In the event Agent fails to pay such amounts to such
Lender or Swingline Lender, as the case may be, 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 2.9. Voluntary Reductions of the Commitments.
---------------------------------------
Borrower may terminate or reduce the aggregate unused amount of the
Commitments (for which purpose use of the Commitments shall be deemed to include
the aggregate principal amount of all outstanding Swingline Loans) 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 Commitments 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 aggregate
-------- -------
amount of the Commitments below $200,000,000, then all of the Commitments shall
be reduced to zero and except as otherwise provided herein, the provisions of
this Agreement shall terminate. The Commitments, 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
Commitments to Agent for the account of Lenders. Any reduction in the aggregate
amount of the Commitments shall result in a proportionate reduction (rounded to
the next lowest integral multiple of multiple of $100,000) in the Swingline
Commitment.
SECTION 2.10. 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 no later than January 15 (and not before January 1) of
the year one year prior to the current Revolving Credit Termination Date, a
written request for such extension (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
-22-
<PAGE>
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 on or prior to
February 15 of the year 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 such February 15 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 (x) require such
Rejecting Lender to assign its respective Commitment to an Eligible Assignee as
contemplated in the immediately following clause (i) or (y) 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 an Eligible Assignee subject to and in accordance with the
provisions of Section 10.8.(c) for a purchase price equal to the aggregate
principal balance of Revolving Loans then outstanding and owing to such
Rejecting Lender 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 the aggregate principal balance of Revolving Loans then
outstanding and owing to such Rejecting Lender 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, and 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. Agent may (but shall not be
obligated to) cooperate in effectuating the replacement of any such Rejecting
Lender under this Section, but at no time shall Agent, such Rejecting Lender, or
any other Lender be obligated in any way whatsoever to initiate any such
replacement or to assist in finding an Assignee. 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.
-23-
<PAGE>
SECTION 2.11. 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 owing to each Lender
and outstanding on the Revolving Credit Termination Date into a term loan owing
to such Lender (each a "Term Loan") provided (a) Borrower has given Agent not
less than 15 days' prior notice of Borrower's intention to so convert the
Revolving Loans and (b) the conditions set forth in Section 5.3. 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 Term Loans as contemplated by this
Section, Borrower shall have no right to borrow, and neither Swingline Lender
nor any Lender shall have any obligation to make, any Swingline Loans or
Revolving Loans, as applicable.
SECTION 2.12. Release of Collateral.
---------------------
Within 10 Business Days following receipt by Agent of Borrower's
written request that certain Pledged Collateral be released from the Lien of the
Borrower Pledge Agreement, Agent shall so release such Pledged Collateral if,
and only if: (a) Borrower shall have delivered to Agent a report certified by an
Authorized Representative of Borrower, setting forth in reasonable detail a
calculation of the Borrowing Base and (b) no Default or Event of Default shall
have occurred and be continuing nor would result from any such release (nor
would such release result in the existence of any condition described in Section
2.8.(e)). The Agent shall forward to each Lender a copy of any such written
request from Borrower for release of Pledged Collateral, promptly upon receipt.
If Borrower requests the release of Securities of a given Issuer, some of which
Securities the offer and sale of which 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 or restrictions of the type referred to
in clause (e) of the definition of Qualifying Security, and some of which would
be subject to any such restrictions, then Agent shall first release to Borrower
those Securities that are subject to such restrictions. Any release of
Collateral pursuant to this Section shall be at the sole cost and expense of
Borrower.
SECTION 2.13. Notes.
-----
The obligation of Borrower to repay the Revolving Loans and the Term
Loans shall, in addition to this Agreement, be evidenced by the Revolving Notes.
SECTION 2.14. Swingline Loans.
---------------
(a) Swingline Loans. Subject to the terms and conditions hereof,
---------------
including without limitation, Section 2.15., if necessary to meet Borrower's
funding deadline, Swingline Lender agrees to make Swingline Loans to Borrower,
during the period from the Effective Date to but excluding the Revolving Credit
Termination Date, in an aggregate principal amount at any one time outstanding
up to, but not exceeding, the amount of the Swingline Commitment. If at any
time the aggregate principal amount of the Swingline Loans outstanding at such
time exceeds the
-24-
<PAGE>
Swingline Commitment in effect at such time, Borrower shall immediately pay to
Agent for the account of Swingline Lender the amount of such excess. Subject to
the terms and conditions of this Agreement, Borrower may borrow, repay and
reborrow Swingline Loans hereunder. Except as otherwise provided in Section
2.9., the borrowing of a Swingline Loan shall not constitute usage of any
Lender's Commitment.
(b) Procedure for Borrowing Swingline Loans. Borrower shall give
---------------------------------------
Agent and Swingline Lender notice pursuant to a Notice of Swingline Borrowing
delivered to Agent and Swingline Lender no later than 9:00 a.m. on the proposed
date of such borrowing, provided that Borrower shall have given telephonic
notice to Agent and Swingline Lender no later than 9:00 a.m. on the proposed
date of borrowing. Any such telephonic notice shall include all information to
be specified in a written Notice of Swingline Borrowing. Not later than 11:00
a.m. on the date of the requested Swingline Loan and subject to satisfaction of
the applicable conditions set forth in Article V. for such borrowing, Swingline
Lender will make the proceeds of such Swingline Loan available to Borrower in
Dollars, in immediately available funds, at the account specified by Borrower in
the Notice of Swingline Borrowing.
(c) Interest. Swingline Loans shall bear interest at a per annum rate
--------
equal to (i) the Base Rate as in effect from time to time minus (ii) 1.60%, or
-----
at such other rate or rates as Borrower and Swingline Lender may agree from time
to time in writing. Interest payable on Swingline Loans is solely for the
account of Swingline Lender. All accrued and unpaid interest on Swingline Loans
shall be payable on the dates and in the manner provided in Section 2.8. with
respect to interest on Base Rate Loans (except as Swingline Lender and Borrower
may otherwise agree in writing in connection with any particular Swingline
Loan).
(d) Swingline Loan Amounts, Etc. Each Swingline Loan shall be in the
---------------------------
minimum amount of $1,000,000 and integral multiples of $100,000 in excess
thereof, or such other minimum amounts agreed to by Swingline Lender and
Borrower. Any voluntary prepayment of a Swingline Loan must be in integral
multiples of $100,000 or the aggregate principal amount of all outstanding
Swingline Loans (or such other minimum amounts upon which Swingline Lender and
Borrower may agree) and in connection with any such prepayment, Borrower must
give Swingline Lender prior written notice thereof no later than 10:00 a.m. one
Business Day prior to the date of such prepayment. The Swingline Loans shall,
in addition to this Agreement, be evidenced by the Swingline Note.
(e) Repayment and Participations of Swingline Loans. Borrower agrees
-----------------------------------------------
to repay each Swingline Loan within one Business Day of demand therefor by
Swingline Lender and in any event, within 10 Business Days after the date such
Swingline Loan was made. Notwithstanding the foregoing, Borrower shall repay
the entire outstanding principal amount of, and all accrued but unpaid interest
on, the Swingline Loans on the Revolving Credit Termination Date (or such
earlier date as Swingline Lender and Borrower may agree in writing). In lieu of
demanding repayment of any outstanding Swingline Loan from Borrower, Swingline
Lender may, on behalf of Borrower (which hereby irrevocably directs Swingline
Lender to act on its behalf), request a borrowing of either Base Rate Loans or
LIBOR Loans with a one month Interest Period (as chosen by Agent in its sole
discretion) from Lenders in an amount equal to the principal balance of such
Swingline Loan. Swingline Lender shall give notice to Agent of any such
borrowing of
-25-
<PAGE>
(x) Base Rate Loans not later than 9:00 a.m. at least one Business Day prior to
the proposed date of such borrowing and (y) LIBOR Loans not later than 10:00
a.m. at least three Business Days prior to the proposed date of such borrowing.
Each Lender will make available to Agent's Lending Office for the account of
Swingline Lender, in immediately available funds, the proceeds of the Loan to be
made by such Lender. Agent shall pay the proceeds of such Loans to Swingline
Lender, which shall apply such proceeds to repay such Swingline Loan. If Lenders
are prohibited from making Loans required to be made under this subsection for
any reason whatsoever, including without limitation, the occurrence of any of
the Defaults or Events of Default described in Sections 8.1.(h) or 8.1.(i), each
Lender shall purchase from Swingline Lender, without recourse or warranty, an
undivided interest and participation to the extent of such Lender's Pro Rata
Share of such Swingline Loan, by directly purchasing a participation in such
Swingline Loan in such amount and paying the proceeds thereof to Agent for the
account of Swingline Lender in Dollars and in immediately available funds. A
Lender's obligation to purchase such a participation in a Swingline Loan shall
be absolute and unconditional and shall not be affected by any circumstance
whatsoever, including without limitation, (i) any claim of setoff, counterclaim,
recoupment, defense or other right which such Lender or any other Person may
have or claim against Agent, the Swingline Lender or any other Person
whatsoever, (ii) the occurrence or continuation of a Default or Event of Default
(including without limitation, any of the Defaults or Events of Default
described in Sections 8.1.(h) or (i)) or the termination of any Lender's
Commitment, (iii) the existence (or alleged existence) of an event of condition
which has had or could have a Material Adverse Effect, (iv) any breach of any
Loan Document by Agent, any Lender or the Borrower or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing; provided, however, a Lender shall not be obligated to purchase
-------- -------
such a participation in a Swingline Loan as provided above if, and only if, the
Swingline Lender made such Swingline Loan after having received written notice
from the Borrower or any Lender that an Event of Default had occurred and is
continuing, and in fact, such Event of Default had occurred and was continuing.
If such amount is not in fact made available to Swingline Lender by any Lender,
Swingline Lender shall be entitled to recover such amount on demand from such
Lender, together with accrued interest thereon for each day from the date of
demand thereof, at the Federal Funds Rate. If such Lender does not pay such
amount forthwith upon Swingline Lender's demand therefor, and until such time as
such Lender makes the required payment, Swingline Lender shall be deemed to
continue to have outstanding Swingline Loans in the amount of such unpaid
participation obligation for all purposes of the Loan Documents (other than
those provisions requiring the other Lenders to purchase a participation
therein). Further, such Lender shall be deemed to have assigned any and all
payments made of principal and interest on its Loans, and any other amounts due
to it hereunder, to Swingline Lender to fund Swingline Loans in the amount of
the participation in Swingline Loans that such Lender failed to purchase
pursuant to this Section until such amount has been purchased (as a result of
such assignment or otherwise).
SECTION 2.15. Amount Limitations.
------------------
Notwithstanding any other term of this Agreement or any other Loan
Document, at no time may the aggregate principal amount of all outstanding
Revolving Loans, together with the aggregate principal amount of all outstanding
Swingline Loans, exceed the lesser of (a) the Borrowing Base and (b) the
aggregate amount of the Commitments.
-26-
<PAGE>
ARTICLE III. GENERAL LOAN PROVISIONS
SECTION 3.1. Fees.
----
(a) During the period from the Effective Date 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 daily amount by
which the aggregate amount of the Commitments exceeds the aggregate outstanding
principal balance of Revolving Loans set forth in the table below multiplied by
the corresponding per annum rate applicable to that portion:
<TABLE>
<CAPTION>
-----------------------------------------------------------
PORTION OF AMOUNT BY WHICH
COMMITMENTS EXCEEDS REVOLVING UNUSED FEE
LOANS
-----------------------------------------------------------
<S> <C>
$0 to and including $200,000,000 0.125%
-----------------------------------------------------------
Greater than $200,000,000 and less 0.15%
than or equal to $400,000,000
-----------------------------------------------------------
Greater than $400,000,000 0.20%
-----------------------------------------------------------
</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 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 2.10., Lenders grant an extension of the
Revolving Credit Termination Date, Borrower agrees to pay to Agent for the
account of each Lender consenting to such extension an extension fee equal to
one-tenth of one percent (0.10%) of such Lender's Commitment at such time. Such
fee shall be payable on the date on which Lenders grant such extension.
(c) If, pursuant to Section 2.11., the outstanding balance of
Revolving Loans is converted into Term Loans, Borrower agrees to pay to Agent
for the account of each Lender a conversion fee equal to two-tenths of one
percent (0.20%) per annum of the principal balance of the Term Loans 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.
-27-
<PAGE>
SECTION 3.2. Computation of Interest and Fees.
--------------------------------
Interest 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.
------------------
Except to the extent otherwise provided herein: (a) each borrowing from
Lenders under Section 2.1. shall be made from Lenders, each payment of the fees
under Sections 3.1.(a) through 3.1.(c) shall be made for account of Lenders, and
each termination or reduction of the amount of the Commitments under Section
2.9. shall be applied to the respective Commitments of Lenders, pro rata
according to the amounts of their respective Commitments; (b) each payment or
prepayment of principal of Loans by Borrower shall be made for account of
Lenders pro rata in accordance with the respective unpaid principal amounts of
the Loans held by them, provided that if immediately prior to giving effect to
any such payment in respect of any Revolving Loans the outstanding principal
amount of the Revolving Loans shall not be held by Lenders pro rata in
accordance with their respective Commitments in effect at the time such Loans
were made, then such payment shall be applied to the Revolving Loans in such
manner as shall result, as nearly as is practicable, in the outstanding
principal amount of the Revolving Loans being held by Lenders pro rata in
accordance with their respective Commitments; and (c) each payment of interest
on Loans by Borrower shall be made for account of Lenders pro rata in accordance
with the amounts of interest on such Loans then due and payable to the
respective Lenders; (d) the making, Conversion and Continuation of Revolving
Loans of a particular Type (other than Conversions provided for by Section 4.6.)
shall be made pro rata among Lenders according to the amounts of their
respective Commitments (in the case of making of Loans) or their respective
Loans (in the case of Conversions and Continuations of Loans) and the then
current Interest Period for each Lender's portion of each Loan of such Type
shall be coterminous; and (e) Lenders' participation in, and payment obligations
in respect of, Swingline Loans under Section 2.14., shall be pro rata in
accordance with their respective Commitments. All payments of principal,
interest, fees and other amounts in respect of the Swingline Loans shall be for
the account of Swingline Lender only (except to the extent any Lender shall have
acquired a participating interest in any such Swingline Loan pursuant to Section
2.14.(e)).
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, but only after having obtained the
prior written consent of Agent exercised in its sole discretion, 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 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
-28-
<PAGE>
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 pro rata to Lenders,
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 or Supermajority Lenders, shall
be suspended during the pendency of such failure or refusal. If a Lender is a
Defaulting Lender because it has failed 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, (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 Loans shall not be paid to such Defaulting
Lender and shall be held by Agent and either applied against the purchase price
of such Loans under Section 3.6. or paid to such Defaulting Lender upon the
Defaulting Lender's curing of its default.
-29-
<PAGE>
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
Commitment. If more than one Lender exercises such right, each such Lender
shall have the right to acquire an amount of such Defaulting Lender's Commitment
in proportion to the Commitments of the other Lenders exercising such right.
Upon any such purchase, 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
10.8.(c), shall pay to Agent an assignment fee in the amount of $6,000.
(b) The purchase price for the Commitment 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 a Defaulting Lender, Agent shall apply against such purchase price any
amounts retained by Agent pursuant to 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.
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. AND, WITH RESPECT TO SWINGLINE
LOANS, IN SECTION 2.14.(c). 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
-30-
<PAGE>
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. Unscheduled Borrowing Base Calculations.
If Agent (i) reasonably determines that the Market Value of any of the
Qualifying Securities has been affected materially and adversely or (ii)
releases any Pledged Collateral pursuant to Section 2.12., Agent may (but shall
not be obligated to) determine the amount of the Borrowing Base based on
published Market Values and based on the other information most recently
provided by Borrower with respect to the Qualifying Securities (and for such
purpose may assume that there has been no change in such information). Agent
shall give Borrower and Lenders notice of the amount of the Borrowing Base as so
determined.
SECTION 3.12. 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,
-31-
<PAGE>
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 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. YIELD PROTECTION, ETC.
SECTION 4.1 Additional Costs; Capital Adequacy.
----------------------------------
(a) Additional Costs. Borrower shall promptly pay to Agent for the account
----------------
of a Lender from time to time such amounts as such Lender may reasonably
determine to be necessary to compensate such Lender for any costs incurred by
such Lender that it determines are attributable to its making or maintaining of
any LIBOR Loans or its obligation to make any LIBOR Loans hereunder, any
reduction in any amount receivable by such Lender under this Agreement or any of
the other Loan Documents in respect of any of such Loans or such obligation or
the maintenance by such Lender of capital in respect of its Loans or its
Commitment (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), in each such case resulting from any
Regulatory Change that: (i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or any of the other Loan Documents
in respect of any of such Loans or its Commitment (other than taxes imposed on
or measured by the overall net income of such Lender or of its Lending Office
for any of such Loans by the jurisdiction in which such Lender has its principal
office or such Lending Office); or (ii) imposes or modifies any reserve, special
deposit or similar requirements (including Regulation D of the Board of
Governors of the Federal Reserve System or other reserve requirement utilized in
the determination of the Adjusted Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender, or any commitment of such Lender (including,
without limitation, the Commitment of such Lender hereunder); or (iii) has or
would have the effect of reducing the rate of return on capital of such Lender
to a level below that which such Lender could have achieved but for such
Regulatory Change (taking into consideration such Lender's policies with respect
to capital adequacy).
-32-
<PAGE>
(b) Lender's Suspension of LIBOR Loans. Without limiting the effect of the
----------------------------------
provisions of the immediately preceding subsection (a), if by reason of any
Regulatory Change, any Lender either (i) incurs Additional Costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Lender that includes deposits by reference
to which the interest rate on LIBOR Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
that includes LIBOR Loans or (ii) becomes subject to restrictions on the amount
of such a category of liabilities or assets that it may hold, then, if such
Lender so elects by notice to Borrower (with a copy to Agent), the obligation of
such Lender to make or Continue, or to Convert any other Type of Loans into,
LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to
be in effect (in which case the provisions of Section 4.6. shall apply).
(c) Notification and Determination of Additional Costs. Each Lender agrees
--------------------------------------------------
to notify Borrower of any event occurring after the date hereof entitling such
Lender to compensation under any of the preceding subsections of this Section as
promptly as practicable; provided, however, subject to the last sentence of this
-------- -------
subsection, the failure of any Lender to give such notice shall not release
Borrower from any of its obligations hereunder. Such Lender agrees to furnish
to Borrower a certificate setting forth the basis and amount of each request by
such Lender for compensation under this Section. Determinations by Agent or any
Lender of the effect of any Regulatory Change shall be prima facie evidence of
the matters so certified. A Lender shall only be entitled to compensation under
the preceding subsection (a) as a result of events occurring during the 120-day
period ending on the date Borrower receives the notice described in the first
sentence of this subsection and if such Lender uses reasonable allocation and
attribution methods to determine such compensation.
SECTION 2 Suspension of LIBOR Loans.
-------------------------
Anything herein to the contrary notwithstanding, if, on or prior to the
determination of LIBO Rate for any Interest Period:
(a) Agent reasonably determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the LIBO Rate
for such Interest Period, or
(b) Agent reasonably determines (which determination shall be
conclusive) that the LIBO Rate will not adequately and fairly reflect the
cost to Lenders 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 Loans into LIBOR Loans and Borrower shall, on the last day of each
current Interest Period for each outstanding LIBOR Loan, either repay such Loan
or Convert such Loan into a Base Rate Loan.
-33-
<PAGE>
SECTION 4.3. Illegality.
----------
Notwithstanding any other provision of this Agreement, if it becomes
unlawful for any Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then such Lender shall promptly notify Borrower thereof (with a copy
to Agent) and such Lender's obligation to make or Continue, or to Convert Loans
of any other Type into, LIBOR Loans shall be suspended until such time as such
Lender may again make and maintain LIBOR Loans (in which case the provisions of
Section 4.6. shall be applicable).
SECTION 4.4 Compensation.
------------
Borrower shall pay to Agent for account of each Lender, upon the request of
such Lender through Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:(a) any payment or
prepayment (whether mandatory or optional) of a LIBOR Loan, or Conversion of a
LIBOR Loan, made by such Lender for any reason (including, without limitation,
acceleration) on a date other than the last day of the Interest Period for such
Loan; or (b) any failure by Borrower for any reason (including, without
limitation, the failure of any of the applicable conditions precedent specified
in Article V. to be satisfied) to borrow a LIBOR Loan from such Lender on the
date for such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or
Continue a LIBOR Loan on the requested date of such Conversion or Continuation.
Upon Borrower's request, any Lender requesting compensation under this Section
shall provide Borrower with a statement setting forth the basis for requesting
such compensation and the method for determining the amount thereof. Any such
statement shall be prima facie evidence of the matters stated therein.
SECTION 4.5. Affected Lenders.
----------------
If any Lender requests compensation pursuant to Section 4.1., or the
obligation of any Lender to make LIBOR Loans or to Continue, or to Convert Base
Rate Loans into, LIBOR Loans shall be suspended pursuant to Section 4.1.(b) or
4.3., then, so long as there does not then exist any Default or Event of
Default, Borrower may (but shall not be obligated to) take either of the
following actions: (a) demand that such Lender (the "Affected Lender"), and upon
such demand the Affected Lender shall promptly, assign its Commitment to an
Eligible Assignee subject to and in accordance with the provisions of Section
10.8.(c) for a purchase price equal to the aggregate principal balance of Loans
then owing to the Affected Lender 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 aggregate principal balance of Loans then owing to the
Affected Lender 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 hereunder or under any of the other
Loan Documents. Agent and the Affected Lender may (but shall not be obligated
to) cooperate in effectuating the replacement of such Affected Lender under this
Section, but at no time shall Agent, such Affected Lender, or any other Lender
be obligated in any way whatsoever to initiate any such replacement or to assist
in finding an Assignee. The exercise by Borrower of its rights under this
Section shall be at Borrower's sole cost and expense and at no cost or expense
to Agent, the Affected Lender, or any of the other
-34-
<PAGE>
Lenders. The terms of this Section shall not in any way limit Borrower's
obligation to pay to any Affected Lender compensation owing to such Affected
Lender pursuant to Section 4.1.
SECTION 4.6. Treatment of Affected Loans.
---------------------------
If the obligation of any Lender to make LIBOR Loans or to Continue, or to
Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to Section
4.1.(b), 4.2. or 4.3., then such Lender's LIBOR Loans shall be automatically
Converted into Base Rate Loans on the last day(s) of the then current Interest
Period(s) for LIBOR Loans (or, in the case of a Conversion required by Section
4.1.(b) or 4.3., on such earlier date as such Lender may specify to Borrower
with a copy to Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 4.1., 4.2. or 4.3. that gave
rise to such Conversion no longer exist:
(a) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Lender
as LIBOR Loans shall be made or Continued instead as Base Rate Loans, and
all Base Rate Loans of such Lender that would otherwise be Converted into
LIBOR Loans shall remain as Base Rate Loans.
If such Lender gives notice to Borrower (with a copy to Agent) that the
circumstances specified in Section 4.1. or 4.3. that gave rise to the Conversion
of such Lender's LIBOR Loans pursuant to this Section no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when LIBOR Loans made by other Lenders are outstanding, then such Lender's
Base Rate Loans shall be automatically Converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding LIBOR Loans, to the
extent necessary so that, after giving effect thereto, all Loans held by Lenders
holding LIBOR Loans and by such Lender are held pro rata (as to principal
amounts, Types and Interest Periods) in accordance with their respective
Commitments.
SECTION 4.7. Change of Lending Office.
------------------------
Each Lender agrees that it will use reasonable efforts to designate an
alternate Lending Office with respect to any of its Loans affected by the
matters or circumstances described in Sections 4.1. or 4.3. to reduce the
liability of Borrower or avoid the results provided thereunder, so long as such
designation is not disadvantageous to such Lender as determined by such Lender
in its sole discretion, except that such Lender shall have no obligation to
designate a Lending Office located in the United States of America.
-35-
<PAGE>
ARTICLE V. CONDITIONS
SECTION 5.1. Initial Conditions to Loans.
---------------------------
The obligation of a Lender to make any Revolving Loan to Borrower, or the
Swingline Lender to make any Swingline Loan to Borrower, in each case in
accordance with the terms hereof, is 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) Revolving Notes executed by Borrower, payable to each Lender and
complying with the terms of Section 2.13., and the Swingline Note executed by
Borrower;
(c) the Borrower Pledge Agreement executed by Borrower;
(d) evidence that all of the Securities of the Borrowing Base Companies
issued to Borrower and to be pledged by Borrower under the Borrower Pledge
Agreement have been delivered to Agent or a securities depository designated by
Agent;
(e) the original Guarantor Note, duly endorsed by Borrower to Agent;
(f) copies of all of the Registration Rights Agreements, together with a
copy of the Assignment of Registration Rights;
(g) the Collateral Assignment of Registration Rights, together with the
consent of each applicable Issuer with respect to such assignment, if required
to effect such assignment;
(h) the Guaranty executed by Guarantor;
(i) the Guarantor Pledge Agreement executed by Guarantor;
(j) the certificates issued in the name of Guarantor evidencing the
Securities of Borrower subject to the Lien of the Guarantor Pledge Agreement;
(k) appropriate stock transfer powers endorsed in blank by Guarantor with
respect to such certificates;
(l) 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;
(m) the opinion of Mayer, Brown and Platt, counsel to Borrower and
Guarantor, and addressed to Agent and Lenders in substantially the form of
Exhibit M;
(n) an opinion of King & Spalding, local Georgia counsel to Borrower and
Guarantor, and addressed to Agent and Lenders in substantially the form of
Exhibit N;
-36-
<PAGE>
(o) an opinion of Arendt & Medernach, local Luxembourg counsel to
Borrower, addressed to Agent and Lenders, regarding the perfection of Agent's
Lien in the capital stock of U.S. Realty and such other matters as Agent may
reasonably request;
(p) an opinion of Arendt & Medernach, local Belgian counsel to Borrower,
addressed to Agent and Lenders, regarding the perfection of Agent's Lien in the
capital stock of U.S. Realty and such other matters as Agent may reasonably
request;
(q) the articles of incorporation of Borrower certified as of a recent
date by the Secretary of State of the State of Nevada;
(r) 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;
(s) 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 and to execute and deliver Notices of Borrowing, Notices of Conversion,
Notices of Continuation and Notices of Swingline Borrowing;
(t) 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;
(u) the articles of incorporation of Guarantor certified as of a recent
date by the Secretary of State of the State of Maryland;
(v) 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;
(w) 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;
(x) 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;
(y) a Form FR U-1 and a Form FR G-3 executed by Borrower with respect to
the Collateral in which it has rights;
(z) a Borrowing Base Certificate calculated as of March 31, 1998, a
Pricing Certificate calculated as of March 31, 1998 and a Qualifying Issuer
Certificate calculated as of December 31, 1997; and
-37-
<PAGE>
(aa) such other documents and instruments as Agent, or any Lender through
Agent, may reasonably request.
SECTION 5.2. Conditions to All Loans.
-----------------------
The obligation of any Lender to make any Revolving Loan, and of Swingline
Lender to make any Swingline 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, or in the case of a
Swingline Loan, timely receipt by Swingline Lender of a Notice of Swingline
Borrowing;
(b) the proposed use of proceeds of such Loans set forth in the Notice of
Borrowing or Notice of Swingline Borrowing, as the case may be, is consistent
with the provisions of Section 7.9.;
(c) immediately before and after the making of such Revolving Loans or
Swingline Loan, no Default (including without limitation the existence of the
condition described in Section 2.8.(e)) or Event of Default shall have occurred
and be continuing; and
(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 Loans or Swingline Loan except
to the extent (x) such representations or warranties specifically relate to an
earlier date or (y) 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 each Notice of Swingline Borrowing
and the making of each Loan shall constitute a certification by Borrower to
Agent, Swingline Lender and Lenders that the statements in the immediately
preceding clauses (b) through (d) are true.
SECTION 5.3. Conditions to Conversion to Term Loans.
--------------------------------------
The right of Borrower to convert Revolving Loans into Term Loans under
Section 2.11. 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 prior to such conversion, no Default or Event of Default
shall have occurred and be continuing or would result after giving effect to
such conversion; 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.
-38-
<PAGE>
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 5.4. Conditions as Covenants.
-----------------------
If Lenders make the initial Revolving Loan, or Swingline Lender makes the
initial Swingline Loan, prior to the satisfaction of all conditions precedent
set forth in Section 5.1., 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 Loans or Swingline Loan.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and each Lender as follows:
SECTION 6.1. 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 6.2. Ownership Structure.
-------------------
Schedule 6.2. 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 6.3. 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.
-39-
<PAGE>
SECTION 6.4. 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
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 6.5. 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 6.6. 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 6.7. Transactions with Affiliates.
----------------------------
Borrower is not a party to any transaction with any Affiliate which is in
violation of Section 7.12.(b).
SECTION 6.8. 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 6.9. Financial Information.
---------------------
The consolidated balance sheet of Borrower as at December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year then
-40-
<PAGE>
ending, reported on by Arthur Andersen LLP, 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, 1997 and with reference to such date, there 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 6.10. 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 Authority (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 6.11. 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 6.12. 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 6.13. 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
-41-
<PAGE>
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 Borrower in respect of taxes or
other governmental charges are, in the opinion of Borrower, adequate.
SECTION 6.14. 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 6.15. Not an Investment Company.
-------------------------
Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 6.16. 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 (other than projections and other similar forward-looking
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. All financial projections prepared by or on behalf of
Borrower or Guarantor that have been or may hereafter be made available to Agent
or any Lender were or will be prepared in good faith based on assumptions
believed by management of Borrower to be reasonable. 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 6.17. Insurance.
---------
Schedule 6.17. sets forth a true and correct description of the insurance
coverage maintained by or on behalf of Borrower currently in effect.
SECTION 6.18. 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.
-42-
<PAGE>
SECTION 6.19. Sole Shareholder.
----------------
Guarantor owns all of the issued and outstanding capital stock of Borrower.
SECTION 6.20. 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 6.21. Pledged Shares.
--------------
Schedules 6.21.(A) through (E) are true, correct and complete descriptions
of the transactions pursuant to which Borrower (or Guarantor prior to the
Contribution) acquired the Pledged Shares of Industrial, Atlantic, Pacific, U.S.
Realty and Homestead, respectively, including the date of acquisition, the
number of Pledged Shares so acquired, whether or not acquired in a public
purchase, the identity of the Person from whom acquired (if known), the per
share acquisition price (if applicable) and when the full acquisition price was
paid or given (if applicable). Schedules 6.21.(A) through (E) each set forth,
as of the date hereof, the number of Pledged Shares, if any, which are
"restricted securities" as such term is defined in Rule 144 of the Securities
Act.
SECTION 6.22. 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) Securities issued by New
Investees, (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, (d) Collateral released from the Lien
of the Borrower Pledge Agreement, pursuant to Section 2.12., (e) Investments in
its Consolidated Subsidiaries and the other persons set forth on Schedule 6.22.,
and (f) the Guarantor Note and other promissory notes evidencing loans permitted
under Section 7.13. 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 6.23. 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
companies or other entities which directly or indirectly own such entities);
-43-
<PAGE>
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 6.24. 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" (as
defined in 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 6.25. 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.
SECTION 6.26. Year 2000 Review.
----------------
Borrower has reviewed its business and operations and has developed a plan
to address on a timely basis the risk that computer applications used by it in
performing date sensitive functions and involving dates prior to December 31,
1999 and thereafter might fail to perform such functions properly which failure
would reasonably be expected to have a Materially Adverse Effect.
ARTICLE VII. COVENANTS
Borrower agrees that, so long as Lenders have any Commitments hereunder or
any Obligation remains unpaid:
-44-
<PAGE>
SECTION 7.1. Information.
-----------
Borrower will deliver to Agent:
(a) as soon as available and in any event within 95 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 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 50 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 an Authorized Representative of such Person;
(c) simultaneously with the delivery of each set of financial statements
referred to in the immediately preceding clauses (a) and (b), a certificate of
an Authorized Representative of Borrower (i) setting forth in reasonable detail
the calculations required to establish whether Borrower was in compliance with
the requirements of Sections 7.7. and 7.12. 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 50 days after the end of
each fiscal quarter, or promptly upon the request of Agent, a Qualifying Issuer
Certificate and a Pricing Certificate;
(e) as soon as possible and in any event within 5 days following the end
of each calendar month or promptly upon the request of Agent pursuant to Section
3.11. hereof, a Pricing Certificate;
(f) as soon as possible and in any event within 5 days following the end
of each calendar month, a Borrowing Base Certificate;
-45-
<PAGE>
(g) within five days after any executive officer of Borrower obtains
knowledge of any Default or Event of Default, a certificate of an Authorized
Representative 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 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;
(i) promptly upon the release thereof, copies of all press releases of
Borrower and any of its Affiliates which it directly or indirectly controls;
(j) 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;
(k) promptly upon the occurrence thereof, any material change in the
senior management of Borrower;
(l) promptly upon the occurrence thereof, any amendment to the bylaws of
Borrower;
(m) promptly upon the filing thereof, the annual report of Borrower filed
with the Secretary of State of the State of Nevada;
(n) 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;
(o) promptly upon any executive officer of Borrower obtaining knowledge
that an event or condition has occurred or exists which results in any
Qualifying Security then included in determinations of the Borrowing Base no
longer satisfying the requirements of a Qualifying Security, notice of such
event or condition; 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.
Agent shall deliver to each Lender a copy of each item delivered to the Agent
under the immediately preceding subsections (a) through (o) promptly upon
receipt by Agent.
SECTION 7.2. 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
-46-
<PAGE>
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 7.3. 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 in primary coverage and $25,000,000 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 7.8., 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.
SECTION 7.4. Conduct of Business and Maintenance of Existence.
------------------------------------------------
Except as otherwise permitted under Section 7.8., 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
-47-
<PAGE>
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 7.5. 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 7.6. 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 7.7. 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.
SECTION 7.8. 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 30
days prior notice thereof, (ii) after giving effect thereto, no Default or Event
of Default shall have occurred and be continuing, and Borrower shall have
delivered to Agent a certificate of an Authorized Representative of Borrower
setting forth in reasonable detail the calculations required to establish
whether Borrower will be in compliance with the requirements of Sections 7.7.
and 7.12. after giving pro forma effect thereto 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.
-48-
<PAGE>
SECTION 7.9. 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 the
Borrowing Base Companies and New Investees and (ii) loans by Borrower permitted
under Section 7.13., 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 T, U and X if such use would result in
a violation by any party hereto of any of Regulations T, U and X.
SECTION 7.10. 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 7.11. 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 7.12. Restricted Payments; Agreements with Affiliates.
-----------------------------------------------
(a) Borrower shall not directly or indirectly declare or make, or incur
any liability to make, any Restricted Payments; provided, however, so long as no
-------- -------
Event of Default shall have occurred and be continuing (and would not result
from the occurrence of the following), Borrower may (i) pay cash dividends
during any period of four consecutive fiscal quarters ending during the term of
this Agreement in an aggregate amount not to exceed 100% of Borrower's Cash Flow
Available for Distribution for such four fiscal quarter period, and (ii) make
distributions to Guarantor of any non-cash property of Borrower that is not (nor
required to be) subject to a Lien in favor of Agent.
(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 7.13. Loans to Other Persons.
----------------------
Borrower shall not, and shall not permit any Subsidiary that is not a
Public Subsidiary to, make or permit to be outstanding any loan or advance to
any Person; provided, however, Borrower may make loans to (a) Guarantor
-------- -------
evidenced by the Guarantor Note; and (b) any Consolidated Subsidiary (excluding
any Public Subsidiary) of Guarantor, in each case so long as
-49-
<PAGE>
(i) no Default or Event of Default exists at the time of (or would result from)
the making of such loan; (ii) such loan is evidenced by a promissory note in
form acceptable to Agent (or the Guarantor Note in the case of loans to
Guarantor) and (iii) such note is subject to the Lien of the Borrower Pledge
Agreement which Lien is perfected and of first priority (subject only to Liens
permitted under the Borrower Pledge Agreement). In addition to the foregoing,
Borrower and its Subsidiaries that are not Public Subsidiaries may make loans
and advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business consistent with past practices.
SECTION 7.14. 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 7.15. 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;
(vii) Borrower will compensate Guarantor at market rates for any
services that Guarantor actually renders to Borrower; and
-50-
<PAGE>
(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 7.16. 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 7.17. 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 7.18. 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 7.19. 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
6.22. 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 (as defined in the Existing Credit Agreement)
pursuant to which Borrower grants to Agent for the benefit of Lenders, a
security interest in substantially all of Borrower's assets (excluding
Securities issued by New Investees and Investments in its Consolidated
Subsidiaries and the other Persons set forth on Schedule 6.22.) that are not
already Collateral, together with such other documents, instruments and
agreements as Agent may reasonably request to perfect such security interest.
-51-
<PAGE>
ARTICLE VIII. DEFAULTS
SECTION 8.1. Events of Default.
-----------------
If one or more of the following events shall have occurred and be
continuing:
(a) Borrower shall fail to pay within 1 Business Day of the due date
thereof any principal of any Obligation, or shall fail to pay within 3 Business
Days of the due date thereof any interest owing on any Obligation, or shall fail
to pay within 10 Business Days of the due date thereof any fees or other
Obligation;
(b) Borrower shall fail to observe or perform any covenant or agreement
contained in Section 7.1.(g), Section 7.7.(b), Section 7.8., Section 7.11. (if,
in the case of such Section 7.11., such failure was willful or intentional),
Section 7.16. or Section 7.18.;
(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 30 days after written notice
thereof from Agent has been received by Borrower;
(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 8.1.) 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 in the case of Borrower or $25,000,000 in the
case of Guarantor 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 Borrower or
$25,000,000 in the case of Guarantor 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 similar law now or hereafter in
-52-
<PAGE>
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 60 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
with respect to Borrower or $25,000,000 with respect to Guarantor shall be
rendered against Borrower or Guarantor and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 consecutive 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 reasonably deemed material by Agent in the identity of
persons constituting management of Borrower or Guarantor, as applicable;
(m) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercised immediately or only after the passage of time), directly
or indirectly, of more than 25% of the total voting power of the then
outstanding voting stock of Guarantor;
(n) 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;
-53-
<PAGE>
(o) 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) (other than as a
result of any act or omission of Agent);
(p) Guarantor shall, or shall attempt to, disavow, revoke or terminate the
Guaranty;
(q) Guarantor shall fail to observe or perform any covenant or agreement
contained in Section 6.(a)(iv), Section 6.(g) or Section 6.(i)(if, in the case
of such Section 6.(i), such failure was willful or intentional) of the Guaranty;
(r) Guarantor shall fail to observe or perform any covenant or agreement
contained in the Guaranty (other than those covered by the immediately preceding
clause (q)) for a period of 30 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 8.2. Remedies.
--------
Upon the occurrence of an Event of Default, and in every such event, Agent
shall, upon the direction of the Supermajority 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. If Agent has exercised
any of the rights provided under the preceding sentence, Swingline Lender shall:
(x) declare the principal of, and accrued interest on, the Swingline Loans and
the Swingline Note at the time outstanding, and all of the other Obligations
owing to Swingline Lender, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment, demand, protest or
other notice of any kind, all of which are expressly waived by Borrower and (y)
terminate the Swingline Commitment and the obligation of Swingline Lender to
make Swingline Loans. Notwithstanding the foregoing, upon the occurrence 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 and the Swingline
Commitment 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. In addition upon the occurrence of an Event of Default, the
Supermajority Lenders may direct Agent to, and Agent if so directed shall,
instruct Borrower to cease making Investments and upon receipt of any such
instruction Borrower shall cease to do so. Not in limitation of the foregoing,
upon the occurrence of an Event of Default, the Supermajority Lenders may direct
Agent to, and Agent if so directed shall, exercise any and all of its rights
under any and all of the other Loan Documents and under Applicable Law.
-54-
<PAGE>
SECTION 8.3. Allocation of Proceeds.
----------------------
If an Event of Default shall have occurred and be continuing and maturity
of any of the Obligations has been accelerated, all payments received by Agent
under any of the Loan Documents, in respect of any principal of or interest on
the Obligations or any other amounts payable by Borrower hereunder or
thereunder, shall be applied in the following order and priority:
(a) amounts due to Agent, and Lenders in respect of Fees and expenses due
under Sections 3.1. and 10.3., ratably in accordance with the amounts then
payable;
(b) payments of interest on Swingline Loans;
(c) payments of principal on Swingline Loans;
(d) payments of interest on Loans, to be applied for the ratable benefit
of Lenders;
(e) payments of principal of Loans, to be applied for the ratable benefit
of Lenders;
(f) amounts due to Agent and Lenders pursuant to Sections 9.7. and 10.5.;
(g) payments of all other amounts due under any of the Loan Documents, if
any, to be applied for the ratable benefit of Lenders; and
(h) any amount remaining after application as provided above, shall be
paid to Borrower or whomever else may be legally entitled thereto.
SECTION 8.4. Recision of Acceleration by Supermajority Lenders.
If at any time after acceleration of the maturity of the Obligations,
Borrower shall pay all arrears of interest and all payments on account of
principal of the Obligations which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by
Applicable Law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Defaults (other than nonpayment of principal of
and accrued interest on the Obligations due and payable solely by virtue of
acceleration) shall be remedied or waived to the satisfaction of the
Supermajority Lenders, then by written notice to Borrower, the Supermajority
Lenders may elect, in the sole discretion of such Supermajority Lenders, to
rescind and annul the acceleration and its consequences; but such action shall
not affect any subsequent Default or Event of Default or impair any right or
remedy consequent thereon. The provisions of the preceding sentence are
intended merely to bind the Lenders to a decision which may be made at the
election of the Supermajority Lenders; they are not intended to benefit Borrower
and do not give Borrower the right to require the Lenders to rescind or annul
any acceleration hereunder, even if the conditions set forth herein are
satisfied.
-55-
<PAGE>
ARTICLE IX. THE AGENT
SECTION 9.1. Appointment and Authorization.
-----------------------------
Each Lender hereby appoints and authorizes Agent to take such action as
contractual representative 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 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
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 5.1. 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 Supermajority
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 9.2. Agent and Affiliates.
--------------------
Wells Fargo, 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 in each case in its
individual capacity. Wells Fargo 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
or such Lender were any other bank and without any duty to account therefor to
the other Lenders.
-56-
<PAGE>
SECTION 9.3. 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 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, including the terms of Section 2.12., 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 9.1., 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
-57-
<PAGE>
have no duty or liability whatsoever to Lenders, except for its gross negligence
or willful misconduct.
SECTION 9.4. 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 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 9.5. 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 9.6. 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 V., 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.
-58-
<PAGE>
SECTION 9.7. 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' 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 9.8. 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.
-59-
<PAGE>
SECTION 9.9. 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
Supermajority Lenders. Upon any such resignation or removal, the Supermajority
Lenders shall have the right to appoint a successor Agent. If no successor
Agent shall have been so appointed by the Supermajority Lenders, and shall have
accepted such appointment, within 30 days after the current Agent's giving of
notice of resignation or the Supermajority 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 (a) 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 Rating Services, a division of McGraw-Hill, Inc.
(b) which has total assets in excess of $10,000,000,000 and (c) so long as no
Default or Event of Default shall have occurred and be continuing, reasonably
acceptable to Borrower. 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.
ARTICLE X. MISCELLANEOUS
SECTION 10.1. 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: Jeffrey A. Klopf
Telecopier: (702) 892-3951
Telephone: (702) 892-3723
-60-
<PAGE>
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 7.1. to the following address of Agent:
Wells Fargo Bank, National Association
Real Estate Group
Koll Center
2030 Main Street, Suite 800
Irvine, California 92714
Attention: Ms. Debra Autry
SECTION 10.2. 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 10.3. 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 10.8.) of this Agreement, the Notes and each of the other Loan
Documents, whenever the same shall be executed and delivered, including
-61-
<PAGE>
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;
(e) Subject to any limitation contained in Section 10.5., 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 8.1.(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.
-62-
<PAGE>
SECTION 10.4. 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 10.5. 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 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 10.6. 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
-63-
<PAGE>
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 10.7. 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 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 this Section; (e) the Revolving Credit
Termination Date; (f) the Termination Date; (g) the definition of Commitment,
Primary Securities, Borrowing Base Company or Borrowing Base; and (h) the amount
and payment date of any fees. 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 the Supermajority Lenders and Borrower or
Guarantor, as applicable: (i) the definitions of Qualifying Securities and
Supermajority Lenders; (ii) the provisions of Section 7.7. through and including
Section 7.19. and (iii) the provisions of Section 6.(g) through and including
Section 6.(q) of the Guaranty. 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. Any amendment, waiver or consent
relating to Section 2.14. or the obligations of Swingline Lender under this
Agreement or any other Loan Document shall, in addition to Lenders required
hereinabove to take such action, require the written consent of Swingline
Lender. 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 9.3.(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
-64-
<PAGE>
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.
No notice to or demand upon Borrower shall entitle Borrower to other or further
notice or demand in similar or other circumstances.
SECTION 10.8. 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 10.6., 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 2.10., 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).
(c) Any Lender may with the prior written consent of Agent and, so long as
no Event of Default shall have occurred and be continuing, Borrower (which
consent, in each case, shall not be unreasonably withheld) at any time assign to
one or more Eligible Assignees 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
-65-
<PAGE>
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 10.9. Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF GEORGIA.
SECTION 10.10. 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
-66-
<PAGE>
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.
SECTION 10.11. 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 10.12. 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.
-67-
<PAGE>
SECTION 10.13. 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 10.14. 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.
[Signatures on Following Pages]
-68-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and
Restated Credit Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
SC REALTY INCORPORATED
By:_______________________________
Name:____________________________
Title:___________________________
[Signatures Continued on Next Page]
-69-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
WELLS FARGO BANK, NATIONAL ASSOCIATION,
individually and as Agent
By:_____________________________
Name:________________________
Title:_______________________
Commitment Amount: $77,500,000
Lending Office (all Types of Loans):
2859 Paces Ferry Road, Suite 1805
Atlanta, Georgia 30339
Attention: Robert Belson
Telecopier: (770) 435-2262
Telephone: (770) 435-3800
[Signatures Continued on Next Page]
-70-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $77,500,000
Lending Office (all Types of Loans):
707 Travis, 6th Floor North
Houston, Texas 77002-8047
Attention: Kent Kaiser or Monica Bercher
Telecopier: (713) 216-7713
Telephone: (713) 216-8699 or (713) 216-5379
[Signatures Continued on Next Page]
-71-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
CREDIT LYONNAIS NEW YORK BRANCH
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $75,000,000
Lending Office (all Types of Loans):
1301 Avenue of the Americas
New York, New York 10019
Attention: Greg Allen or Marcia DeVine
Telecopier: (212) 261-3833
Telephone: (212) 261-7820 or (212) 261-7866
[Signatures Continued on Next Page]
-72-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $50,000,000
Lending Office (all Types of Loans):
Unit #1313
555 South Flowers Street - 6th Floor
Los Angeles, California 90071
Attention: Robert N. Allen
Telecopier: (213) 228-5389
Telephone: (213) 228-5479
[Signatures Continued on Next Page]
-73-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
BANK OF MONTREAL, CHICAGO BRANCH
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $50,000,000
Lending Office (all Types of Loans):
115 South LaSalle Street, 12W
Chicago, Illinois 60603
Attention: David A. Mazujian and
Catherine A. Sahagian
Telecopier: (312) 750-4352
Telephone: (312) 750-5905
Copy of Notices to go to:
Chapman & Cutler
111 West Monroe
Chicago, Illinois 60603
Attention: James R. Theiss, Esq.
Telecopier: (312) 701-2361
Telephone: (312) 845-3591
[Signatures Continued on Next Page]
-74-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
NATIONSBANK OF TEXAS, N.A.
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $50,000,000
Lending Office (all Types of Loans):
901 Main Street - 51st Floor
Dallas, Texas 75202
Attention: M. David Howard
Telecopier: (214) 508-0085
Telephone: (214) 508-2089
[Signatures Continued on Next Page]
-75-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
GUARANTY FEDERAL BANK, F.S.B.
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $40,000,000
Lending Office (all Types of Loans):
8333 Douglas Avenue, Suite 1000
Dallas, Texas 75225
Attention: Roger Davis
Telecopier: (214) 360-1661
Telephone: (214) 360-2849
[Signatures Continued on Next Page]
-76-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
AMSOUTH BANK
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $35,000,000
Lending Office (all Types of Loans):
P.O. Box 11007
Birmingham, Alabama 35203
Attention: Arthur J. Sharbel, III
Telecopier: (205) 326-4075
Telephone: (205) 581-7647
[Signatures Continued on Next Page]
-77-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By:_____________________________
Name:_________________________
Title:________________________
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $35,000,000
Lending Office (all Types of Loans):
75 Wall Street
New York, New York 10005
Attention: Johannes Boeckmann
Telecopier: (212) 429-2781
Telephone: (212) 429-2479
[Signatures Continued on Next Page]
-78-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
FIRST UNION NATIONAL BANK
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $35,000,000
Lending Office (all Types of Loans):
301 South College Street, DC6
Charlotte, North Carolina 28288
Attention: John A. Schissel
Telecopier: (704) 383-1967
Telephone: (704) 383-6205
[Signatures Continued on Next Page]
-79-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $35,000,000
Lending Office (all Types of Loans):
One PNC Plaza, 19th Floor
249 5th Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Theron D. Imbrie
Telecopier: (412) 762-6500
Telephone: (412) 762-4464
[Signatures Continued on Next Page]
-80-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
TRANSAMERICA LIFE INSURANCE AND ANNUITY CO.
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $35,000,000
Lending Office (all Types of Loans):
1150 South Olive, Suite T-27
Los Angeles, California 90015
Attention: John Casparian
Telecopier: (213) 741-7110
Telephone: (213) 742-3554
[Signatures continued on Next Page]
-81-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
BANK ONE ARIZONA, NA
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $25,000,000
Lending Office (all Types of Loans):
241 N. Central Avenue
19th Floor, Dept. AZ1-1321
Phoenix, Arizona 85004
Attention: Todd Popovich
Telecopier: (602) 221-4435
Telephone: (602) 221-2375
[Signatures Continued on Next Page]
-82-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
FLEET NATIONAL BANK
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $25,000,000
Lending Office (all Types of Loans):
111 Westminster Street
Mail Code RIMO 215
Providence, Rhode Island 02903
Attention: Mark Dalton
Telecopier: (401) 278-5166
Telephone: (401) 278-5605
[Signatures Continued on Next Page]
-83-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
BANKBOSTON, N.A.
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $20,000,000
Lending Office (all Types of Loans):
115 Perimeter Center Place, Suite 660
Atlanta, Georgia 30346
Attention: Jay Johns
Telecopier: (770) 390-8434
Telephone: (770) 390-6579
[Signatures Continued on Next Page]
-84-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
KREDIETBANK N.V.
By:_____________________________
Name:_________________________
Title:________________________
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $20,000,000
Lending Office (all Types of Loans):
125 West 55th Street, 10th Floor
New York, New York 10019
Attention: Michael V. Curran or Diane M. Grimmig
Telecopier: (212) 956-5580
Telephone: (212) 541-0708 or (212) 541-0707
With a copy to:
515 South Figueroa Street, Suite 1920
Los Angeles, California 90071
Attention: Kevin P. McKenna
Telecopier: (213) 629-5801
Telephone: (213) 996-7529
[Signatures Continued on Next Page]
-85-
<PAGE>
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
APRIL 6, 1998 WITH SC REALTY INCORPORATED]
MELLON BANK, N.A.
By:_____________________________
Name:_________________________
Title:________________________
Commitment Amount: $15,000,000
Lending Office (all Types of Loans):
One Mellon Bank Center
Room 2940
Pittsburgh, Pennsylvania 15258-0001
Attention: James G. McDunn
Telecopier: (412) 234-8657
Telephone: (412) 234-5344
-86-
<PAGE>
EXHIBIT 10.2
BORROWER SECOND AMENDED AND
RESTATED PLEDGE AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AGREEMENT dated as of April 6, 1998
by and between SC REALTY INCORPORATED (the "Pledgor") and WELLS FARGO BANK,
NATIONAL ASSOCIATION, successor to Wells Fargo Realty Advisors Funding,
Incorporated, as Agent (the "Pledgee").
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of August 19, 1996 (as amended and in effect immediately 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 "Existing Lenders"), and the Pledgee, the Existing Lenders extended
certain financial accommodations to the Pledgor;
WHEREAS, as security for its obligations owing to the Existing Lenders and
the Pledgee under the Existing Credit Agreement, the Pledgor entered into that
certain Borrower Amended and Restated Pledge Agreement dated as of August 19,
1996 (as amended and in effect immediately prior to the date hereof, the
"Existing Pledge Agreement") by and between the Pledgor and the Pledgee;
WHEREAS, the Pledgor, the Pledgee and the Existing Lenders are to amend and
restate the terms of the Existing Credit Agreement pursuant to the terms of that
certain Second 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 financial institutions party thereto and their assignees under
Section 10.8 thereof (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 the Swingline Lender, and grants to the Pledgee for the benefit of
the Lenders and the Swingline Lender a security interest in, all of the
Pledgor's right, title and interest in, to and under the following
(collectively, the
B-1
<PAGE>
"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 and which are delivered to the Pledgee by or on behalf
of the Pledgor; (c) the Guarantor Note and any other promissory note executed by
any Consolidated Subsidiary of Guarantor in favor of the Pledgor (together with
the Guarantor Note, collectively the "Intercompany Notes"), together with (i)
all books and accounts, papers and documents in any way evidencing or relating
to any Intercompany Note, (ii) the Pledgor's right (A) to give all consents,
waivers and releases under any Intercompany Note, (B) to take all action upon
the happening of any breach or default giving rise to any right (including
rights to payment of money, rights of indemnification and setoff, and rights to
defer payment of amounts or to compel specific performance) in the Pledgor's
favor under any Intercompany Note, and (C) to do any and all other things
whatsoever which Pledgor is or may become entitled to do under any Intercompany
Note; (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)through (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
and the Swingline Lender, to secure the prompt performance and payment in full
of the following (collectively, the "Secured Obligations"): (a) all Revolving
Loans, Term Loans and Swingline Loans; (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, the Lenders and the Swingline Lender 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-2
<PAGE>
(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:
(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 Pledgee 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 Collateral. 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 which are (or which the Pledgor desires to be) subject to the Lien of
this Pledge Agreement shall be delivered or otherwise transferred to the Pledgee
as soon as practicable, but in any event within 10 Business Days of receipt as
additional Pledged Collateral and shall be subject to the terms and conditions
of this Agreement. Further, upon the execution and delivery of any Intercompany
Note, the Pledgee shall deliver such Intercompany Note to the Pledgor as soon as
practicable, but in any event within 10 Business Days of receipt thereof, 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
B-3
<PAGE>
(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 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) (if, in the case of such Section 4(a), such failure
was willful or intentional), Section 5, or Section 6(b) hereof;
B-4
<PAGE>
(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 30 days after written notice thereof from
Pledgee has been received by Pledgor; 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 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 Pledged 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
B-5
<PAGE>
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, the Lenders and the Swingline Lender, 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, the Lenders or the Swingline Lender from the Pledgor as a credit
against the purchase price, and the Pledgee, the Lenders and the Swingline
Lender 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 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 order provided in Section 8.3. of the Credit
Agreement. 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; (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
B-6
<PAGE>
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, 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
B-7
<PAGE>
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 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.
B-8
<PAGE>
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, the Lenders
and the Swingline Lender, 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 Swingline 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, the Swingline Lender and any corporation controlling,
controlled by, or under common control with, the Pledgee, any Lender or the
Swingline Lender, and any officer, attorney, director, shareholder, agent or
employee of the Pledgee, any Lender or the Swingline 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.
B-9
<PAGE>
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, ANY LENDER NOR THE
SWINGLINE 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.
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 made in accordance with Section 10.7 of the Credit
Agreement.
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
B-10
<PAGE>
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.
[Signatures on Next Page]
B-11
<PAGE>
IN WITNESS WHEREOF, the Pledgor has executed and delivered this Borrower
Second Amended and Restated Pledge Agreement as of this the date first written
above.
SC REALTY INCORPORATED
By:__________________________________
Title:_____________________________
Agreed to, accepted and acknowledged
as of the date first written above.
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent
By:________________________________
Title:___________________________
B-12
<PAGE>
SC REALTY INCORPORATED
Schedule 1 to Borrower Pledge Agreement
B-13
<PAGE>
EXHIBIT 10.3
SECOND AMENDED AND RESTATED GUARANTY
THIS SECOND AMENDED AND RESTATED GUARANTY dated as of April 6, 1998
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 BANK, NATIONAL ASSOCIATION, successor
to Wells Fargo Realty Advisors Funding, Incorporated, in its capacity as Agent
(the "Agent") for the Lenders under that certain Second Amended and Restated
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 10.8 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 and the
Swingline Lender.
WHEREAS, certain of 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 August 19, 1996, as amended
prior to the date hereof (the "Existing Credit Agreement") by and among the
Borrower, the Lenders and the Agent;
WHEREAS, the Guarantor guaranteed the Borrower's obligations under the
Existing Credit Agreement pursuant to the terms of that certain Amended and
Restated Guaranty dated as of August 19, 1996 (as amended and in effect
immediately prior to the date hereof, the "Existing Guaranty");
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 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
D-1
<PAGE>
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 Loans made by the Lenders to the
Borrower under the Credit Agreement and the payment of all interest, fees,
charges, 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;
D-2
<PAGE>
(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 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:
D-3
<PAGE>
(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, or (B) 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 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.
D-4
<PAGE>
(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.(j)(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, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the fiscal year then ended,
reported on by Arthur Andersen LLP, 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, 1997 and with reference to such date, there has been
no material adverse change in the business, properties, financial position or
results of operations of the Guarantor and its 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 Authority
(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.
(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-
D-5
<PAGE>
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 Loan Documents or any transaction
contemplated hereby is, and all such information (other than projections and
similar forward-looking 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. All
financial projections prepared by or on behalf of Guarantor that have been or
may hereafter be made available to Agent or any Lender were or will be prepared
in good faith based on assumptions believed by management of Guarantor to be
reasonable. 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,
D-6
<PAGE>
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) 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.
(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
D-7
<PAGE>
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.
(t) 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.
(u) Year 2000 Review. Guarantor has reviewed its business and
----------------
operations and has developed a plan to address on a timely basis the risk that
computer applications used by it in performing date sensitive functions and
involving dates prior to December 31, 1999 and thereafter might fail to perform
such functions properly which failure could reasonably be expected to have a
Materially Adverse Effect.
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:
(a) Information. The Guarantor will deliver to the Agent and each
-----------
Lender:
(i) as soon as available and in any event within 95 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 50 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 an Authorized Representative of such Person;
(iii) simultaneously with the delivery of each set of financial
statements referred to in the immediately preceding clauses (i) and (ii), a
certificate of an Authorized Representative of the Guarantor (A) setting
forth in reasonable detail the calculations
D-8
<PAGE>
required to establish whether the Guarantor was in compliance with the
requirements of Sections 6.(j) and (l) through (n) 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) within five days after any executive officer of the Guarantor
obtains knowledge of any Default or Event of Default, a certificate of an
Authorized Representative of the Guarantor setting forth the details
thereof and the action which the Guarantor is taking or proposes to take
with respect thereto;
(v) 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;
(vi) promptly upon the release thereof, copies of all press releases
of the Guarantor;
(vii) 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;
(viii) promptly upon the occurrence thereof, any material change in
the senior management of the Guarantor;
(ix) promptly upon the occurrence thereof, any amendment to the
articles of incorporation or bylaws of the Guarantor;
(x) promptly upon the filing thereof, the annual report of the
Guarantor filed with the Secretary of State of the State of Maryland; and
(xi) 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
D-9
<PAGE>
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 located in California), (B) public liability insurance
(including products/completed operations liability coverage) in an
amount not less than $5,000,000 in primary coverage and $25,000,000 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.(g) 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.(g) 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
D-10
<PAGE>
(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 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) 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 Guarantor shall have delivered to Agent a
certificate of an Authorized Representative of Guarantor setting forth in
reasonable detail the calculations required to establish whether Guarantor will
be in compliance with the requirements of Sections 6.(l) through (n) after
giving pro forma effect thereto 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.
(h) 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.
(i) Negative Pledge. The Guarantor will not create, assume or suffer
---------------
to exist any Lien on any of the Collateral or any of its right, title or
interest in or to any capital stock of any of the Services Subsidiaries.
D-11
<PAGE>
(j) Restricted Payments; and Agreements with Affiliates.
---------------------------------------------------
(i) The Guarantor shall not directly or indirectly declare or
make, or incur any liability to make, any Restricted Payments;
provided, however, so long as no Event of Default shall have occurred
-------- -------
and be continuing (and would not result from the occurrence of the
following), the Guarantor may (i) pay cash dividends during any
periods of four consecutive fiscal quarters ending during the term of
the Credit Agreement in an aggregate amount not to exceed 50% of the
Guarantor's Cash Flow Available for Distribution for such four fiscal
quarter period and (ii) notwithstanding the preceding clause (i), pay
cash dividends to the holders of the 139,000 shares of the Guarantor's
Series A Cumulative Convertible Redeemable Voting Preferred Stock
currently issued and outstanding (the "Series A Shares"), and any
other securities into which the Series A Shares may be exchanged or
converted but only to the extent required to do so under the terms of
the Series A Shares as in effect on the date hereof; provided,
further, however, if any Event of Default other than any Event of
Default described in Section 8.1.(a) or (f) through (i) of the Credit
Agreement shall have occurred and be continuing, the Guarantor may pay
cash dividends to the holders of Series A Shares but only to the
extent required to do so under the terms of the Series A Shares as in
effect on the date hereof.
(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.
(k) 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
(l) Minimum Shareholders' Equity. The Guarantor shall not at any
----------------------------
time permit the Shareholders' Equity of the Guarantor and its Consolidated
Subsidiaries to be less than (i) $1,892,924,780 plus (ii) 75% of the amount by
----
which the Shareholders' Equity of the Guarantor and its Consolidated
Subsidiaries has been increased by the issuance after December 31, 1997 of
capital stock.
(m) 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 determined in accordance with
generally accepted accounting principles to (ii) the Market Value Net Worth of
the Guarantor and its Consolidated Subsidiaries to exceed 1.0 to 1.0.
(n) Ratio of Cash Flow to Fixed Charges. The Guarantor shall not
-----------------------------------
permit the ratio of (i) the Cash Flow of the Guarantor and its Consolidated
Subsidiaries to (ii) the Fixed Charges of
D-12
<PAGE>
the Guarantor and its Consolidated Subsidiaries to be less than 1.50 to 1.00 at
the end of any fiscal quarter.
(o) 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.
(p) 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:
(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.
D-13
<PAGE>
(q) Exchange Listing. The Guarantor will maintain at least one class
----------------
of common shares of the Guarantor having trading privileges on the New York
Stock Exchange or the American Stock Exchange or which is listed on The NASDAQ
Stock Market's National Market.
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 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
D-14
<PAGE>
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 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.
D-15
<PAGE>
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
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
D-16
<PAGE>
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 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 as
----------
provided in Section 10.7 of the Credit Agreement.
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:
D-17
<PAGE>
Wells Fargo Bank, National Association
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 DOCUMENTS (AS DEFINED IN THE CREDIT
AGREEMENT). FURTHER, THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE
TRANSACTIONS
D-18
<PAGE>
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.
[Signature on Next Page]
D-19
<PAGE>
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Second Amended and Restated Guaranty as of the date and year first written
above.
SECURITY CAPITAL GROUP INCORPORATED
By:____________________________
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
D-20
<PAGE>
SCHEDULE 5.(f)
Indebtedness and Guaranties
---------------------------
(To be completed by Guarantor)
D-21
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED
GUARANTOR PLEDGE AGREEMENT
THIS AMENDED AND RESTATED GUARANTOR PLEDGE AGREEMENT dated as of April 6,
1998 by and between SECURITY CAPITAL GROUP INCORPORATED, formerly known as
Security Capital Realty Incorporated, a Maryland corporation (the "Pledgor") and
WELLS FARGO BANK, NATIONAL ASSOCIATION, successor to Wells Fargo Realty Advisors
Funding, Incorporated, as Agent (the "Pledgee").
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of August 19, 1996, (as amended and in effect immediately prior to the
date hereof, the "Existing Credit Agreement") by and among SC Realty
Incorporated (the "Borrower"), the financial institutions party thereto and
their assignees under Section 9.8 thereof (the "Existing Lenders"), and the
Pledgee, the Existing Lenders extended certain financial accommodations to the
Borrower pursuant to the terms thereof;
WHEREAS, the Pledgor guaranteed the Borrower's obligations under the
Existing Credit Agreement on the terms and conditions contained in that certain
Guaranty dated as of August 19, 1996 (as amended and in effect immediately prior
to the date hereof, the "Existing Guaranty") executed by the Pledgor in favor of
the Pledgee and the Existing Lenders;
WHEREAS, the obligations of the Pledgor owing to the Agent and Existing
Lenders under the Existing Guaranty, were secured by that certain Guarantor
Pledge Agreement dated as of February 17, 1995 (as amended and in effect
immediately prior to the date hereof, the "Existing Pledgee Agreement") by and
between the Pledgor and the Pledgee;
WHEREAS, the Borrower, the Pledgee and the Existing Lenders are to amend
and restate the terms of the Existing Credit Agreement pursuant to the terms of
that certain Second 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 Borrower, the financial institutions party thereto and their assignees
under Section 10.8 thereof (the "Lenders") and the Pledgee;
WHEREAS, the Pledgor and the Agent are to amend and restate the terms of
the Existing Guaranty pursuant to that certain Guaranty 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 "Guaranty") executed by the
Pledgor in favor of the Pledgee and the Lenders;
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
P-1
<PAGE>
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 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 the Swingline Lender, and grants to the Pledgee for the benefit of
the Lenders and the Swingline Lender 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, equity
interests and other securities (collectively, "Securities") of the Borrower now
owned or hereafter acquired by the Pledgor, including without limitation, the
Securities described as set forth in Schedule 1 attached hereto (collectively,
the "Pledged Shares"); (b) such additional Securities of the Borrower as may
from time to time be issued to the Pledgor or otherwise acquired by the Pledgor;
(c) any additional Securities of the Borrower as may hereafter at any time be
delivered to the 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
and the Swingline Lender, to secure the prompt performance and payment in full
of the following (collectively, the "Secured Obligations"): (a) all obligations
and indebtedness of the Pledgor owing to the Pledgee and/or the Lenders or the
Swingline Lender of every kind, nature and description, under or in respect of
the Guaranty, this Agreement or any of the other Loan Documents to which the
Pledgor is a party, whether direct or indirect, absolute or contingent, due or
not due, contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any note and (b) 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.
Section 3. Representations and Warranties. The Pledgor hereby represents
------------------------------
and warrants to the Pledgee, the Lenders and the Swingline Lender 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 Commerical Code financing
statements filed
P-2
<PAGE>
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 are located at
125 Lincoln Avenue, Santa Fe, Santa Fe County, New Mexico 87501. Pledgor has no
offices or places of business other than as set forth in the immediately
preceding sentence of this Section 3(b). The Pledgor's books and records
relating to the Pledged Collateral are maintained by SC Group Incorporated and
are located at 7777 Market Center Avenue, El Paso, El Paso County, Texas 79912.
(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. All of the Securities of the Borrower initially pledged
hereunder constitute all of the issued and outstanding capital stock of the
Borrower.
Section 4. Covenants. The Pledgor hereby unconditionally covenants and
---------
agrees as follows:
(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 Pledgee 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.
(c) Issuance of Additional Shares. The Pledgor shall not permit the
-----------------------------
Borrower to issue to any Person other than the Pledgor any common stock, other
capital stock or other Securities of the Borrower, including without limitation,
any Securities convertible into any of the Borrower's capital stock, or any
options, warrants or other rights to acquire any such capital stock or other
Securities.
Section 5. Additional Shares. The Pledgor agrees that, until this Agreement
-----------------
has terminated in accordance with its terms, any additional Securities of the
Borrower 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.
P-3
<PAGE>
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 the Borrower 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 the Borrower, 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 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
P-4
<PAGE>
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 4(c) (if, in the case of such Section 4(c),
such failure was willful or intentional), 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
from Pledgee has been received by 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
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 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 Pledged 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
P-5
<PAGE>
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 further 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
and the Swingline Lender, 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, the Lenders or the Swingline Lender
from the Pledgor as a credit against the purchase price, and the Pledgee, the
Lenders and the Swingline Lender 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 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
P-6
<PAGE>
under the provisions of this Agreement, shall be applied by the Pledgee in the
order provided in Section 8.3 of the Credit Agreement.
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; (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
P-7
<PAGE>
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, 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 the 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 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
P-8
<PAGE>
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 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. Indemnification. The Pledgor agrees to indemnify and hold the
---------------
Pledgee, each Lender, the Swingline Lender and any corporation controlling,
controlled by, or under common control with, the Pledgee, any Lender or the
Swingline Lender and any officer, attorney, director, shareholder, agent or
employee of the Pledgee, any Lender or the Swingline Lender or any such
corporation (each an "Indemnified Person"), harmless form 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 14. 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 15. 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
P-9
<PAGE>
PLEDGEE, ANY LENDER NOR THE SWINGLINE 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 16. 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.
Section 17. Notices. All notices and communications required or permitted
-------
hereunder shall be given in accordance with the applicable provisions of the
Guaranty.
SECTION 18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 19. 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 made in accordance with Section 10.7 of the Credit
Agreement.
Section 20. Binding Agreement; Assignment. The 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 21. 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 22. 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 23. 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.
P-10
<PAGE>
Section 24. 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 25. Definitions. Terms not otherwise defined herein are used herein
-----------
with the respective meanings given them in the Credit Agreement.
[Signatures on Next Page]
P-11
<PAGE>
IN WITNESS WHEREOF, the Pledgor has executed and delivered this Amended and
Restated Pledge Agreement as of this the date first written above.
SECURITY CAPITAL GROUP INCORPORATED
By:_____________________________________
Title:_______________________________
Agreed to, accepted and acknowledged
as of the date first written above.
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent
By:_____________________________________
Title:_______________________________
P-12
<PAGE>
Schedule 1 to Pledge Agreement
Pledged Shares
--------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Issuer No. and Type of Certificate Nos.
------ --------------- ---------------
Securities
----------
<S> <C> <C>
- -------------------------------------------------------------------------------
SC Realty Incorporated 1000 Shares of 1
Common Stock
- -------------------------------------------------------------------------------
</TABLE>
P-13
<PAGE>
EXHIBIT 15
May 12, 1998
Board of Directors and Shareholders
of Security Capital Group Incorporated:
We are aware that Security Capital Group Incorporated has incorporated by
reference in its Registration Statement Nos. 333-38521, 333-38523, 333-38525,
333-38527, 333-38531, 333-38533, 333-38537, 333-38539 and 333-48167 its Form
10-Q for the quarter ended March 31, 1998, which includes our report dated May
12, 1998 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 the 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Form 10-Q for the three months ended March 31, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,889
<SECURITIES> 131,329
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 854,976
<DEPRECIATION> 23,450
<TOTAL-ASSETS> 3,935,819
<CURRENT-LIABILITIES> 0
<BONDS> 629,082
0
139,000
<COMMON> 396
<OTHER-SE> 2,414,174
<TOTAL-LIABILITY-AND-EQUITY> 3,935,819
<SALES> 0
<TOTAL-REVENUES> 66,431
<CGS> 0
<TOTAL-COSTS> 43,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,799
<INCOME-PRETAX> 10,625
<INCOME-TAX> 3,533
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,027
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
