As filed with the Securities and Exchange Commission on April 16, 2002
Registration Statement No. 333-75722
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROLOGIS TRUST
(Exact Name of Registrant as Specified in its Charter)
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Maryland 74-2604728
(State of organization) (I.R.S. Employer
Identification No.)
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Edward S. Nekritz, Secretary
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
(Name, address, including zip code, and telephone number,
including area code, of agent for service):
Copies to:
Michael T. Blair Adam O. Emmerich Raymond O. Gietz
Mayer, Brown, Rowe & Maw Wachtell, Lipton, Rosen & Katz Weil, Gotshal & Manges LLP
190 South LaSalle Street 51 West 52nd Street New York, New 767 Fifth Avenue
Chicago, Illinois 60603 York 10019 New York, New York 10153
(312) 782-0600 (212) 403-1000 (212) 310-8007
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective with regard to
the transaction described in this post-effective amendment and from time to time
thereafter with respect to other transactions described in this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
EXPLANATORY NOTE
The following document consists of the proxy statement of Security Capital
Group Incorporated to be used in connection with its special meeting of
stockholders to be held on May 14, 2002, and the prospectus of ProLogis Trust
with respect to the ProLogis common shares owned by Security Capital Group
Incorporated that may be issued in connection with the transactions described
herein.
SECURITY CAPITAL GROUP INCORPORATED
125 LINCOLN AVENUE
SANTA FE, NEW MEXICO 87501
APRIL 16, 2002
TO OUR STOCKHOLDERS:
You are cordially invited to attend a special meeting of stockholders of
Security Capital Group Incorporated ("Security Capital") to be held on Tuesday,
May 14, 2002, at 8:30 a.m., local time, at the Holiday Inn, 4140 West 95th
Street, Oak Lawn, Illinois.
At the special meeting you will be asked to consider and vote upon a
proposal to approve a merger between an indirect wholly owned subsidiary of
General Electric Capital Corporation ("GE Capital") and Security Capital. If
the merger is completed, Security Capital will become an indirect wholly owned
subsidiary of GE Capital, and you will receive $26.00 in cash for each of your
shares of Security Capital class B stock, subject to the substitution, at the
option of GE Capital, of a combination of cash and common shares of beneficial
interest of ProLogis Trust owned by Security Capital with an agreed aggregate
value of $26.00 per share. The value of the ProLogis common shares will be
measured during the 10 consecutive full trading days preceding May 10, 2002. At
and after the closing, Security Capital stockholders will bear all of the
economic risk of fluctuations, if any, in the market price of the ProLogis
common shares below the average price during the measurement period. Each share
of Security Capital class A stock will be converted into the right to receive
50 times the per share class B consideration. GE Capital has informed Security
Capital that its current plan is to cause Security Capital to distribute some
(but not all) of the ProLogis common shares to Security Capital stockholders.
However GE Capital has not made a formal election, and has informed Security
Capital that it intends to continue to evaluate its alternatives and could
change its plans.
The Security Capital board has determined that the merger is advisable, fair
to and in the best interests of Security Capital and its stockholders.
ACCORDINGLY, THE SECURITY CAPITAL BOARD HAS APPROVED AND ADOPTED THE MERGER
AGREEMENT AND THE MERGER, AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT AND THE MERGER AT THE SPECIAL MEETING.
The accompanying notice of special meeting and proxy statement/prospectus
explain the proposed merger and provide specific information concerning the
special meeting.
Your vote is very important. We cannot complete the merger unless holders of
shares entitled to cast a majority of all the votes entitled to be cast on the
proposal approve the merger agreement and the merger. Accordingly, failing to
vote your shares of Security Capital stock will have the same effect as a vote
against the merger agreement and the merger. Whether or not you plan to be
present at the special meeting, please sign and return your proxy as soon as
possible in the enclosed self-addressed envelope so that your vote will be
recorded. You can also authorize a proxy to vote your shares of Security
Capital stock through the Internet or by telephone.
WILLIAM D. SANDERS
/s/ William D. Sanders
Chairman of the Board of Directors and
Chief Executive Officer
This proxy statement/prospectus is dated April 16, 2002, and is first being
mailed to stockholders on or about April 16, 2002.
SECURITY CAPITAL GROUP INCORPORATED
-----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2002
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To Our Stockholders:
A special meeting of stockholders of Security Capital Group Incorporated, a
Maryland corporation ("Security Capital"), will be held on Tuesday, May 14,
2002, at 8:30 a.m., local time, at the Holiday Inn, 4140 West 95th Street, Oak
Lawn, Illinois, to do the following:
1. consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of December 14, 2001, by and among Security
Capital, General Electric Capital Corporation ("GE Capital"), and EB
Acquisition Corp., an indirect, wholly owned subsidiary of GE Capital
("Merger Sub"), and approve the merger of Merger Sub with and into
Security Capital, with Security Capital surviving the merger as an
indirect wholly owned subsidiary of GE Capital. In the merger, each
share of Security Capital class B stock will be converted into the right
to receive $26.00 in cash, subject to the substitution, at the election
of GE Capital as described in the accompanying proxy
statement/prospectus, of a combination of cash and common shares of
beneficial interest of ProLogis Trust owned by Security Capital with an
agreed aggregate value of $26.00. The value of the ProLogis common
shares will be measured during the 10 consecutive full trading days
preceding May 10, 2002. Each share of Security Capital class A stock
will be converted into the right to receive 50 times the per share class
B consideration; and
2. transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
We have described these matters more fully in the proxy statement/prospectus
accompanying this notice. We have attached a copy of the merger agreement as
Appendix A to the proxy statement/prospectus. Please read these materials
carefully.
The Security Capital board has fixed April 11, 2002 as the record date for
the determination of stockholders entitled to notice of and to vote at the
special meeting or any adjournment of the special meeting of not more than 120
days after the record date of the special meeting. If you are a registered
owner and plan to attend the meeting in person, you may request an admission
ticket by marking the attendance box on your attached proxy card. Beneficial
owners whose ownership is registered under another party's name and who plan to
attend the meeting in person may obtain admission tickets in advance by sending
written requests, along with proof of ownership, such as a bank or brokerage
firm account statement, to: Frances Josephic, Security Capital Group
Incorporated, 125 Lincoln Avenue, Santa Fe, New Mexico 87501. We will admit
registered owners and beneficial owners who do not present valid admission
tickets at the meeting or who have not pre-registered only upon verification of
ownership at the registration counter at the meeting.
Whether or not you expect to attend the special meeting in person, please
date and sign the accompanying proxy card and return it promptly in the
envelope enclosed for that purpose. You can also authorize a proxy to vote your
shares of Security Capital stock through the Internet or by telephone.
We look forward to seeing you at the special meeting.
By Order of the Board of Directors,
/s/ Jeffrey A. Klopf
Jeffrey A. Klopf
Senior Vice President and Secretary
YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE, OR AUTHORIZE YOUR PROXY BY TELEPHONE OR THROUGH THE
INTERNET.
QUESTIONS & ANSWERS ABOUT THE MERGER
Q: WHY IS SECURITY CAPITAL PROPOSING THE MERGER?
A: Security Capital believes that the merger fulfills its goal of substantially
eliminating the trading discount to its net asset value, and that the
current transaction presents stockholders with a significant premium to the
market prices of Security Capital class A and class B stock over the past
three years. Security Capital believes that Security Capital stockholders
could expect to realize greater value from the proposed transaction with GE
Capital than could be expected to be generated in a reasonable period were
Security Capital to remain independent.
To review the reasons for the merger in greater detail, see pages 14 through
15.
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, Security Capital will merge with an indirect wholly owned
subsidiary of GE Capital and survive as an indirect wholly owned subsidiary
of GE Capital. The merger agreement is attached to this document as Appendix
A. We encourage you to read it carefully.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Security Capital class B stockholders:
In the merger, each share of Security Capital class B stock will be
converted into the right to receive $26.00 in cash, subject to the
substitution, at the election of GE Capital as described in the accompanying
proxy
statement/prospectus, of a combination of cash and some or all of the common
shares of beneficial interest of ProLogis Trust owned by Security Capital,
the total consideration to have an agreed aggregate value of $26.00. GE
Capital has informed Security Capital that its current plan is to cause
Security Capital to distribute some (but not all) of the ProLogis common
shares to Security Capital stockholders, such that each share of class B
stock would be entitled to receive approximately 0.19 ProLogis common
shares. GE Capital has not made a formal election and has informed Security
Capital that it intends to continue to evaluate its alternatives and could
change its plans.
For example, if GE Capital were to change its current plans, and elect to
substitute all of the ProLogis common shares currently owned by Security
Capital for a portion of the merger consideration, each share of class B
stock will receive approximately 0.3 ProLogis common shares. The number of
ProLogis common shares to be received with respect to each share of class B
stock will not change regardless of any decision, election or other action
by Security Capital option holders, preferred stockholders or holders of
convertible debentures in connection with the merger.
The ProLogis common shares will be valued based on the average closing
prices on the ten consecutive full trading days ending on May 9, 2002 (the
day immediately preceding the two consecutive full trading days before the
stockholders meeting). Stockholders will also receive cash in lieu of
fractional common shares of ProLogis. Class B stockholders will receive the
remainder of the consideration in cash so that the total value received,
with ProLogis common shares valued as described above, will remain $26.00
per share. Under GE Capital's current plans, the former stockholders of
Security Capital will, in the aggregate, own approximately 18.2% of ProLogis
and Security Capital will become an indirect wholly owned subsidiary of GE
Capital owning approximately 9.8% of ProLogis.
A prospectus describing the ProLogis common shares which you will receive is
included in this document. We encourage you to read it carefully.
Security Capital class A stockholders:
In the merger, each share of Security Capital class A stock will be
converted into the right to receive 50 times the per share class B
consideration.
Security Capital option holders:
Following the merger, each option to purchase Security Capital class A or
class B stock will be cancelled, and the holder will receive cash in the
amount of the difference, or "spread," if any, between $26 in the case of an
option to purchase class B stock or $1,300 in the case of an option to
purchase class A stock, and the exercise price per share of such option
(less applicable withholding taxes).
i
If GE Capital elects to substitute some or all of the ProLogis common
shares, each option holder may elect to receive the merger consideration
(less the applicable exercise price and withholding taxes) in lieu of a
payment entirely in cash.
Security Capital convertible debenture holders: Following the merger, each
Security Capital 6.5% convertible subordinated debenture due 2016 which has
not been converted will remain outstanding and will be convertible, at the
option of the holder, into the merger consideration received by holders of
class A stock. Alternatively, prior to the merger, convertible debenture
holders may elect to convert such debentures into Security Capital class A
stock pursuant to the terms of such debentures, in which case they will
receive the same consideration as other holders of class A stock.
Security Capital series B preferred holders: Following the merger, each
share of series B preferred stock which has not been converted will remain
outstanding and will be convertible at the option of the holder into the
merger consideration received by holders of class B stock. Alternatively,
prior to the merger, series B preferred holders may elect to convert such
shares into class B stock pursuant to the terms of the series B preferred
stock, in which case they will receive the same consideration as other
holders of class B stock. GE Capital has entered into an agreement with the
holder of the series B preferred stock to purchase all of the issued and
outstanding shares of series B preferred stock from the series B holder at a
per share price of $1,000, together with all accrued and unpaid dividends
thereon up to the date of purchase. GE Capital has informed Security Capital
that it expects the purchase of the series B preferred shares to occur
immediately following the closing of the merger.
Q: WHEN WILL I KNOW IF PROLOGIS COMMON SHARES WILL BE PART OF THE MERGER
CONSIDERATION?
A: If GE Capital elects to substitute some or all of the ProLogis common shares
currently owned by Security Capital for a portion of the merger
consideration:
. it will make its decision no later than the 15th day prior to the
stockholder meeting;
. GE Capital and Security Capital will promptly issue a press release
announcing the election; and
. Two days before the stockholder meeting, GE Capital and Security
Capital will issue a press release with the number of ProLogis common
shares, and the amount of cash to be received.
Stockholders may withhold submitting their proxy cards until after any
announcement is made, or may change any vote that they may have delivered
prior to any announcement by following the procedures set forth in this
proxy statement. See "Security Capital Special Meeting--How to Revoke A
Proxy."
GE CAPITAL NOTIFIED SECURITY CAPITAL ON MARCH 8, 2002 THAT ITS CURRENT PLAN
IS TO CAUSE SECURITY CAPITAL TO DISTRIBUTE APPROXIMATELY 32.8 MILLION
PROLOGIS COMMON SHARES AS PART OF THE MERGER CONSIDERATION, OR 0.19 PROLOGIS
COMMON SHARES FOR EACH CLASS B SHARE. HOWEVER, GE CAPITAL HAS NOT MADE A
FORMAL ELECTION AND HAS INFORMED SECURITY CAPITAL THAT IT INTENDS TO
CONTINUE TO EVALUATE ITS ALTERNATIVES AND COULD CHANGE ITS PLANS.
Q: CAN GE CAPITAL REVOKE ITS ELECTION TO INCLUDE PROLOGIS COMMON SHARES AS PART
OF THE MERGER CONSIDERATION?
A: Yes, GE Capital may revoke its election to include ProLogis common shares as
part of the merger consideration. If GE Capital elects to revoke its
election:
. it will make its decision no later than the 10th day prior to the
stockholder meeting;
. GE Capital and Security Capital will promptly issue a press release
announcing the election.
Stockholders may withhold submitting their proxy cards until after any
announcement is made, or may change any vote that they may have delivered
prior to any announcement by
ii
following the procedures set forth in this proxy statement. See "Security
Capital Special Meeting--How to Revoke A Proxy."
Q: HOW WILL SECURITY CAPITAL DETERMINE HOW MUCH CASH I WILL RECEIVE IN THE
MERGER?
A: Security Capital will first determine the value of the ProLogis common
shares. This value will be measured based on the average closing prices of
these shares on the ten consecutive full trading days ending on May 9, 2002
(the day immediately preceding the two consecutive full trading days before
the stockholders meeting). This value will be multiplied by the number of
ProLogis common shares, if any, to be distributed for each class B share and
subtracted from $26 to determine the amount of cash you will receive.
By way of example, if the average price of the ProLogis common shares during
the measurement period is $23.50 and GE Capital, as is its current plan,
elects to distribute 0.19 ProLogis common shares to each holder of class B
shares, Security Capital class B stockholders will receive $21.54 in cash
($26--$23.50x .19).
Alternatively, by way of example, if the average price of the ProLogis
common shares during the measurement period is $21.33 and GE Capital changes
its current plan and elects to distribute 0.30 ProLogis common shares to
each holder of class B shares, Security Capital class B stockholders will
receive $19.60 in cash
($26--$21.33x .30).
The exact amount of cash to be received will be announced in a press release
as soon as the information is known.
It is important to note that once fixed, the amount of cash to be received
will not change regardless of any subsequent change in the price of the
ProLogis common shares. This means that at and after the Closing, Security
Capital stockholders will bear all of the economic risk of subsequent
fluctuations, if any, in the market price of the ProLogis shares below the
average price of those shares during the measurement period. For example,
the price of the ProLogis shares at the end of the measurement period
and/or at the closing could be lower than the average price during the
measurement period.
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
A: The merger will be a taxable transaction to you. For United States federal
income tax purposes, you will generally recognize gain or loss in the merger
in an amount equal to the difference between the sum of the cash and the
fair market value of the ProLogis common shares, if any, you receive or are
deemed to receive, and your tax basis in Security Capital common stock.
Because determining the tax consequences of the merger can be complicated,
you should consult your own tax advisor in order to understand fully how the
merger will affect you.
Q: SHOULD I SEND IN MY SECURITY CAPITAL STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Security Capital stockholders will
receive written instructions for exchanging their Security Capital stock
certificates. Please do not send in your Security Capital stock certificates
with your proxy.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working to complete the merger as quickly as practicable. If Security
Capital stockholders approve the merger agreement and the merger, we expect
to complete the merger in the second quarter of 2002.
Q: DO I HAVE APPRAISAL RIGHTS?
A: No. No rights of appraisal are available.
Q: WHAT DO I NEED TO DO NOW?
A: Carefully read and consider the information contained in this document.
There are several ways your shares can be represented at the stockholder
meeting. You can attend the stockholder meeting in person or you can
indicate on the enclosed proxy card how you want to vote and then sign and
mail the proxy card in the enclosed return envelope as soon as possible. You
may also authorize a proxy via the Internet or by telephone to vote your
shares instead by following the instructions set forth on your proxy card.
Your vote is important regardless of the number of shares that you own.
iii
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES?
A: Your broker will not vote your shares unless you follow the voting
directions your broker provides to you.
If you fail to provide your broker with instructions, it will have the same
effect as a vote against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote by sending in a written notice of revocation
or a later-dated, signed proxy card to the Secretary of Security Capital at
or before the stockholders meeting or by attending the meeting in person and
voting.
Q: WHAT IF I DON'T VOTE?
A: If you do not vote or if you return your proxy marked "ABSTAIN," it will
have the same effect as a vote against the merger.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the proposed merger, including how to
complete and return your proxy card, please call the firm assisting us with
the solicitation of proxies:
Georgeson Shareholder Communications Inc.
Banks & Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
(866) 300-8589
iv
SUMMARY TERM SHEET FOR THE MERGER
This summary highlights selected information from this document regarding
the merger and the merger agreement and may not contain all of the information
that is important to you as a Security Capital stockholder. Accordingly, we
encourage you to carefully read this entire document and the documents to which
we have referred you.
THE PROPOSED TRANSACTION
THE PROPOSAL (PAGE 7). We are asking you to consider and vote upon a proposal
to approve the merger agreement that provides for Security Capital to be
acquired by GE Capital and the merger of an indirect wholly owned subsidiary
of GE Capital with and into Security Capital.
WHAT YOU WILL RECEIVE (PAGE 7). Upon completion of the merger, you will be
entitled to receive $26.00 in value for each of your shares of Security
Capital class B stock that you own as of the Closing. A holder of a share of
class A stock will receive 50 times the value received by a holder of a
share of class B stock. At the election of GE Capital, a portion of the
class B consideration may consist of common shares of ProLogis Trust (which
we refer to as ProLogis) owned by Security Capital. The value of the
ProLogis common shares will be measured during the 10 consecutive full
trading days preceding May 10, 2002.
A PROSPECTUS DESCRIBING THE PROLOGIS COMMON SHARES IS INCLUDED IN THIS
DOCUMENT BEGINNING ON PAGE 69. WE ENCOURAGE YOU TO READ IT CAREFULLY.
THE ACQUIROR (PAGE 1). GE Capital, based in Stamford, Connecticut, is a
provider of financing, asset management and insurance products and services.
SECURITY CAPITAL'S RECOMMENDATION TO STOCKHOLDERS (PAGE 14). The Security
Capital board has determined, by the unanimous vote of those directors
voting on the proposal, that the merger is advisable, fair to and in the
best interests of Security Capital and its stockholders and has approved and
adopted the merger agreement and the merger. The Security Capital board
recommends that stockholders vote FOR approval of the merger agreement and
the merger at the special meeting.
OPINION OF GOLDMAN SACHS (PAGE 16 AND APPENDIX C). On December 14, 2001,
Goldman Sachs delivered to the Security Capital board a written opinion,
dated December 14, 2001, that, based upon and subject to the matters set
forth in the opinion, as of the date of the opinion, the consideration to be
received by the holders of the class A stock and the class B stock of
Security Capital pursuant to the merger agreement was fair from a financial
point of view to the holders.
Goldman Sachs provided its advisory services and its opinion for the
information and assistance of the Security Capital board in connection with
its consideration of the merger. Goldman Sachs' opinion is not a
recommendation as to how any Security Capital stockholder should vote at the
special meeting. THE FULL TEXT OF GOLDMAN SACHS' OPINION, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX C TO THIS
PROXY STATEMENT/PROSPECTUS AND WE URGE YOU TO READ THE OPINION IN ITS
ENTIRETY.
THE SPECIAL MEETING
DATE, TIME AND PLACE (PAGE 7). The special meeting will be held on Tuesday, May
14, 2002 at 8:30 a.m., local time at the Holiday Inn, 4140 West 95th Street,
Oak Lawn, Illinois.
REQUIRED VOTE (PAGE 7). Approval of the merger requires the affirmative vote of
the holders of a majority of the votes entitled to be cast by the holders of
class A stock, class B stock and series B preferred stock, voting together
as a single class.
WHO MAY VOTE (PAGE 7). You are entitled to vote at the special meeting if you
owned shares of Security Capital stock at the close of business on April 11,
2002, the record date for the special
v
meeting. As of that date, 640,055.963 shares of class A stock entitled to
640,055.963 votes, 109,207,399.826 shares of class B stock entitled to
546,036 votes, and 257,642 shares of series B preferred stock entitled to
33,029 votes (voting on an as converted basis) were outstanding and are
entitled to be voted at the special meeting.
PROCEDURE FOR VOTING (PAGE 8). You may vote in any of three ways:
(1) by completing and returning the enclosed proxy card,
(2) by authorizing a proxy by telephone or through the Internet according to
the instructions on the proxy card, or
(3) by appearing in person at the special meeting and casting a ballot in
person.
If you complete and return the enclosed proxy but wish to revoke it, you
must file with the Secretary of Security Capital a written, later-dated
notice of revocation, send a later-dated proxy relating to the same shares
to the Secretary of Security Capital at or before the special meeting or
appear and cast a ballot in person at the special meeting.
THE MERGER
THE STRUCTURE (PAGE 32). On the terms and subject to the conditions of the
merger agreement, an indirect wholly owned subsidiary of GE Capital will
merge with and into Security Capital. Security Capital will remain in
existence as an indirect wholly owned subsidiary of GE Capital. Security
Capital common stockholders will have no equity interest in Security Capital
or GE Capital after the merger.
ACCOUNTING TREATMENT (PAGE 28). The merger will be treated as a "purchase" for
accounting purposes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 25). The merger
will be a taxable transaction to you. For United States federal income tax
purposes, you generally will recognize gain or loss in the merger in an
amount equal to the difference between the sum of the cash and the fair
market value of the ProLogis common shares, if any, you receive or are
deemed to receive and your tax basis in Security Capital common stock.
Because determining the tax consequences of the merger can be complicated,
you should consult your own tax advisor in order to understand fully how the
merger will affect you.
ANTITRUST MATTERS (PAGE 27). Under United States federal antitrust law, the
merger may not be completed until Security Capital and GE Capital have made
filings with the United States Federal Trade Commission and the Antitrust
Division of the United States Department of Justice, and the applicable
waiting periods have expired or been terminated. The applicable waiting
period was terminated effective as of January 14, 2002. GE Capital and
Security Capital do not believe the merger requires any other antitrust
approvals, but if any such approvals are determined to be necessary, the
parties will make the requisite filings expeditiously.
DISSENTERS' APPRAISAL RIGHTS (PAGE 31). Under Maryland law, Security Capital
stockholders will not have dissenters' rights to an appraisal of their
shares in connection with the merger.
MERGER FINANCING. GE Capital has advised us that it expects to finance the
merger from the issuance of its commercial paper or other borrowings in the
ordinary course, and that it does not believe that there are any
uncertainties regarding the availability of funds to complete the merger.
Completion of the merger is not conditioned on any financing arrangements.
THE MERGER AGREEMENT (PAGE 32 AND APPENDIX A).
CLOSING OF THE MERGER (PAGE 41). Before we can complete the merger, we must
satisfy a number of conditions. These include:
. approval of the merger agreement and the merger by the affirmative
vote of a majority of the votes entitled to be cast by the holders of
the voting securities of Security Capital voting together as a single
class;
vi
. absence of any legal prohibitions against the merger;
. expiration or early termination of applicable waiting periods under
United States federal antitrust laws and any other applicable
antitrust laws;
. receipt of other material governmental consents and approvals;
. no material adverse effect will have occurred with respect to
Security Capital; and
. Security Capital's representations and warranties will be true and
Security Capital will have complied with its obligations under the
merger agreement.
We expect to merge as promptly as practicable after all of the conditions to
the merger have been satisfied or waived.
RESTRICTIONS AGAINST THE SOLICITATION OF ACQUISITION TRANSACTIONS (PAGE 37).
The merger agreement contains detailed provisions prohibiting us from
seeking an alternative transaction. The no solicitation covenant generally
prohibits us and any of our officers, directors, employees, investment
bankers, attorneys, accountants, or other advisor or representatives or any
of our subsidiaries from, directly or indirectly, doing any of the following:
. soliciting, initiating or encouraging the submission of alternative
transactions; and
. participating in any discussions or negotiations regarding, or
furnishing to any person any information with respect to, or taking
any other action to facilitate alternative transactions.
In addition, we have agreed that our board will not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to GE Capital, its
approval or recommendation of the merger agreement or the merger. The merger
agreement does not, however, prohibit us from considering, or our board from
considering and potentially recommending an unsolicited bona fide written
superior proposal from a third party in the circumstances described under
"The Merger Agreement--No Solicitation of Acquisition Transactions" on pages
37 through 39.
TERMINATION OF THE MERGER AGREEMENT (PAGE 43). Security Capital and GE Capital
may agree in writing to terminate the merger agreement at any time without
completing the merger, even after Security Capital stockholders have
approved the merger agreement and the merger. The merger agreement also may
be terminated at any time prior to the effective time of the merger:
. by either party if any court or governmental agency issues a final
order preventing the merger;
. by either party if the merger is not completed by August 14, 2002;
. by GE Capital if the Security Capital board changes its
recommendation or fails to reconfirm its recommendation of the merger
agreement and the merger or approves an alternative acquisition
proposal;
. by Security Capital after giving GE Capital at least three days prior
written notice of its intent to terminate the merger agreement
because it has received a more favorable acquisition proposal which
it intends to accept, GE Capital in the three-day period fails to
increase the merger consideration to be equal to or greater than the
alternative proposal, and Security Capital pays a termination fee of
$120 million plus expenses of up to $40 million and Security Capital
immediately enters into an agreement with respect to the alternative
transaction;
. by either party if the other party materially breaches its
representations or agreements and fails to cure its breach within 30
days after receiving notice of the breach or the breach is incapable
of being cured prior to August 14, 2002; and
vii
. by either party if Security Capital stockholders fail to approve the
merger agreement and the merger at the special meeting (including any
adjournments or postponements of the special meeting).
TERMINATION FEE IF MERGER IS NOT COMPLETED (PAGE 44). In addition to the
circumstances described above, we must also pay GE Capital a termination fee
of $120 million and expenses of up to $40 million if:
. the merger agreement is terminated by GE Capital because the Security
Capital board changes its recommendation or fails to reconfirm its
recommendation of the merger agreement and the merger or approves an
alternative acquisition proposal; or
. the merger agreement is terminated by either GE Capital or Security
Capital because the Security Capital stockholders fail to approve the
merger agreement and the merger after the Security Capital board has
changed its recommendation or fails to reconfirm its recommendation
of the merger agreement and the merger or approves an alternative
acquisition proposal;
AND
. a third party has previously proposed publicly to acquire Security
Capital; or
. within 12 months following the termination of the merger agreement,
Security Capital is acquired or enters into a definitive agreement to
be acquired by a third party.
SUPPORT AGREEMENTS (PAGE 47 AND APPENDIX B).
As an inducement to GE Capital to enter into the merger agreement, two
stockholders holding 7.55% of the voting power of Security Capital as of
April 11, 2002 have executed Support Agreements agreeing to vote their shares
in favor of the merger. The Support Agreements could discourage other persons
from trying or proposing to combine with Security Capital before we complete
the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 28).
Some members of Security Capital management and the Security Capital board
have certain interests in the merger that are different from or in addition to
the interests of Security Capital stockholders generally. These additional
interests relate to provisions in the merger agreement or Security Capital
employee benefit plans, as well as:
. entering into non-competition agreements with several executives pursuant
to which the executives will receive at the completion of the merger, in
exchange for entering into an 18-month non-competition restriction, cash
payments in the aggregate of approximately $26.8 million;
. entering into letter agreements of employment with several executives
that replace the executive's existing change in control employment
agreements. These letter agreements provide the benefits and terms for a
one-year term of employment, subject to termination by either party on
thirty days notice, and for welfare and fringe benefits. Assuming each
executive is employed for the entire one-year term the minimum aggregate
cash consideration GE Capital would be required to pay under these letter
agreements is approximately $7.9 million;
. modifying existing change in control agreements with two executives. The
minimum aggregate consideration required to be paid under these letter
agreements is approximately $3.4 million;
. acceleration and payments in respect of outstanding Security Capital
stock options and restricted stock units; and
. indemnification of and provisions for liability insurance for Security
Capital directors and officers.
The Security Capital board was aware of these interests and considered them
in approving and adopting the merger agreement and the merger.
TRADING OF PROLOGIS COMMON SHARES.
ProLogis' common shares are currently listed on the New York Stock Exchange
under the symbol "PLD". The ProLogis common shares, if any, distributed to
Security Capital stockholders will also be listed on the New York Stock
Exchange.
viii
TRANSACTIONS WITH STORAGE USA (PAGE 45).
On December 4, 2001 the Security Capital board approved a purchase and sale
agreement, which provides for the sale of all of the assets of Storage USA,
including its operating partnership, to Security Capital, and the merger of
Storage USA with and into its operating partnership.
The Storage USA transaction is conditioned upon, among other things, the
approval of the Storage USA shareholders at a special meeting. This Storage USA
special meeting will be held on April 26, 2002. You will know the results of
the Storage USA special meeting before the special meeting. The Storage USA
transaction requires the approval of a majority of Storage USA shares, of which
Security Capital already owns 41%.
The transactions with Storage USA and GE Capital are independent and not
contingent upon each other. You are not being asked to vote on the Storage USA
transaction in this proxy statement/prospectus.
ix
TABLE OF CONTENTS
Page
----
The Companies.............................................................................. 1
Security Capital Group Incorporated..................................................... 1
GE Capital.............................................................................. 1
Merger Subsidiary....................................................................... 1
Selected Historical Consolidated Financial Data............................................ 2
Risk Factors............................................................................... 4
Security Capital Special Meeting........................................................... 7
Date, Time and Place of the Security Capital Special Meeting............................ 7
What You Will Vote On................................................................... 7
Stockholder Record Date for the Special Meeting......................................... 7
Quorum.................................................................................. 7
Vote Required for Approval.............................................................. 7
Voting Your Shares...................................................................... 8
Other Matters........................................................................... 8
How to Revoke a Proxy................................................................... 9
Cost of Solicitation.................................................................... 9
The Merger................................................................................. 10
Background of the Merger................................................................ 10
Security Capital's Reasons for the Merger; Recommendation of the Security Capital Board. 14
Projections............................................................................. 15
Opinion of Goldman Sachs................................................................ 16
Material United States Federal Income Tax Consequences.................................. 25
Governmental and Regulatory Approvals................................................... 27
Accounting Treatment.................................................................... 28
Interests of Certain Persons in the Merger.............................................. 28
Amendment to Security Capital Rights Agreement, Takeover Statutes....................... 31
No Dissenters' Appraisal Rights......................................................... 31
The Merger Agreement....................................................................... 32
Structure and Effective Time............................................................ 32
Merger Consideration.................................................................... 32
Payment Procedures...................................................................... 33
Treatment of Security Capital Stock Options and Restricted Stock Units.................. 33
Directors and Officers.................................................................. 33
Representations and Warranties.......................................................... 33
Covenants; Conduct of the Business of Security Capital Prior to the Merger.............. 35
No Solicitation of Acquisition Transactions............................................. 37
Employee Benefits....................................................................... 39
Reasonable Best Efforts; Antitrust Law Matters.......................................... 40
Registration and Sale of ProLogis Shares................................................ 41
Storage USA Acquisition................................................................. 41
Conditions to Consummation of the Merger................................................ 41
Important Definitions................................................................... 42
Termination............................................................................. 43
Termination Fee......................................................................... 44
Expenses................................................................................ 44
Amendment............................................................................... 44
Storage USA Transactions................................................................... 45
Support Agreements......................................................................... 47
Principal Stockholders..................................................................... 48
x
PAGE
----
Market Price of Security Capital Common Stock and Dividend Information....................... 52
Market Price of ProLogis Common Shares and Dividend Information.............................. 53
Security Capital Group Incorporated Unaudited Pro Forma Condensed Consolidated Financial Data 54
Comparison of Rights of Holders of Security Capital Common Stock and ProLogis Common Shares.. 59
Resale Restrictions.......................................................................... 65
Forward-Looking Statements................................................................... 65
Future Stockholder Proposals................................................................. 65
Where You Can Find More Information.......................................................... 66
Incorporation of Certain Documents by Reference.............................................. 67
Information Concerning ProLogis Trust........................................................ 68
Forward-Looking Statements................................................................ 70
ProLogis Trust............................................................................ 70
About This Prospectus..................................................................... 71
Where You Can Find More Information....................................................... 72
Risk Factors.............................................................................. 73
Use of Proceeds........................................................................... 79
Description of Common Shares.............................................................. 79
Federal Income Tax Considerations......................................................... 84
Selling Shareholder....................................................................... 93
Plan of Distribution...................................................................... 97
Experts................................................................................... 98
Legal Matters............................................................................. 98
APPENDICES
Appendix A--Agreement and Plan of Merger, dated as of December 14, 2001...................... A-1
Appendix B--Form of Support Agreement, dated as of December 14, 2001......................... B-1
Appendix C--Opinion of Goldman, Sachs & Co., dated December 14, 2001......................... C-1
xi
THE COMPANIES
Security Capital Group Incorporated
Security Capital is a leading international real estate operating and
investment management company. The principal offices of Security Capital and
its directly owned affiliates are located in Brussels, Chicago, El Paso,
Houston, London, Luxembourg, New York and Santa Fe.
Security Capital is a Maryland corporation. Our executive offices are
located at 125 Lincoln Avenue, Santa Fe, New Mexico 87501; telephone (505)
982-9292.
The information contained in pages 1 to 68 relates primarily to the
transaction by which GE Capital will acquire Security Capital. It is followed
by information relating to ProLogis and the shares of ProLogis which may be
distributed in the acquisition. This is important information if GE Capital
elects to distribute some or all of the ProLogis common shares, and we urge you
to read this information. GE Capital has informed Security Capital that its
current plan is to cause Security Capital to distribute some (but not all) of
the ProLogis common shares to Security Capital stockholders, however GE Capital
has not made a formal election, and has informed Security Capital that they
intend to continue to evaluate their alternatives and could change their
current plan. This information in the portion of this proxy
statement/prospectus relating to the transaction with GE Capital has been
prepared by Security Capital, from the perspective of Security Capital.
Accordingly references to "we," "us," "our" or "the Company" on pages 1 to 68
are references to Security Capital.
GE Capital
GE Capital was incorporated in 1943 in the State of New York under the
provisions of the New York Banking Law relating to investment companies. On
July 2, 2001, GE Capital reincorporated and changed its domicile from New York
to Delaware. All outstanding common stock of GE Capital is owned by General
Electric Capital Services, Inc., the common stock of which is in turn wholly
owned directly or indirectly by General Electric Company.
GE Capital provides a wide variety of financing, asset management, and
insurance products and services which are organized into the following five key
operating segments: consumer products; equipment management; mid-market
financing; specialized financing; and specialty insurance. These operations are
subject to a variety of regulations in their respective jurisdictions. Services
of GE Capital are offered primarily in the United States, Canada, Europe and
the Pacific Basin. The principal executive offices of GE Capital are located at
292 Long Ridge Road, Stamford, Connecticut 06927 and the telephone number is
(203) 961-5400.
Merger Subsidiary
Merger Sub is a Maryland corporation formed by GE Capital solely for the
purpose of merging into Security Capital. Merger Sub is an indirect wholly
owned subsidiary of GE Capital. The mailing address of Merger Sub's principal
executive offices is c/o GE Capital Real Estate, 292 Long Ridge Road, Stamford,
Connecticut 06927; telephone (203) 961-5400.
1
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The table below shows summary selected historical financial information for
Security Capital as of and for the years ended December 31, 1997, 1998, 1999,
2000 and 2001. Summary selected financial information from 1997, 1998, 1999,
2000 and 2001 has been derived from the audited consolidated financial
statements of Security Capital. This information is only a summary, and you
should read it in conjunction with Security Capital's historical financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the annual reports,
quarterly reports and other information on file with the U.S. Securities and
Exchange Commission. See "Where You Can Find More Information" on page 66.
Years Ended December 31,
------------------------------------------------
1997 1998 1999 2000 2001(1)
-------- --------- --------- -------- --------
(in thousands)
Operating Data:
Equity in earnings (loss) of investees $171,873 $ (60,860) $ 85,440 $369,045 $140,835
Property revenues..................... 58,397 144,374 226,730 274,980 401,544
Realized gains (losses)(2)............ 8,024 (12,582) (53,856) 154,893 122,522
Total revenues........................ 261,763 71,627 266,655 801,684 684,137
Property expenses..................... 25,089 63,339 101,795 117,965 192,442
General, administrative and other
expenses,net of reimbursements
from related parties................. 36,189 45,017 55,330 25,010 60,248
Provision for loss(3)................. -- -- 65,296 69,481 --
Interest expense:
Security Capital.................. 102,380 59,220 82,331 78,161 77,698
Majority-owned subsidiaries(4).... 2,054 22,983 51,123 30,397 44,846
-------- --------- --------- -------- --------
Total interest expense......... 104,434 82,203 133,454 108,558 122,544
-------- --------- --------- -------- --------
Net earnings (loss) attributable to
Class B Equivalent Shares(5)......... $106,154 $(157,104) $(116,996) $317,269 $183,530
======== ========= ========= ======== ========
Years Ended December 31,
---------------------------------------------
1997 1998 1999 2000 2001
------- -------- -------- -------- --------
Per Share Data:
Series A Preferred Share cash dividends(6)............. $ 75.00 $ 27.50 $ -- $ -- $ --
Series B Preferred Share cash dividends(6)............. $ -- $ 44.33 $ 70.00 $ 70.00 70.00
Net earnings (loss) per Class B Equivalent Share:(7)
Basic.................................................. $ 1.39 $ (1.29) $ (0.98) $ 2.95 $ 1.32
Diluted................................................ $ 1.28 $ (1.29) $ (0.98) $ 2.74 $ 1.28
Weighted average Class B Equivalent Shares outstanding:
Basic.................................................. 76,577 121,325 119,255 107,514 139,432
Diluted................................................ 93,054 121,325 119,255 126,232 151,371
2
Years Ended December 31,
------------------------------------------------------
1997 1998 1999 2000 2001(1)
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Investments, at equity...................... $2,658,748 $3,071,772 $2,659,398 $2,476,389 $1,676,317
Real estate, net of accumulated depreciation 716,882 1,164,869 1,073,474 999,278 1,081,643
Total assets................................ 3,614,239 4,510,357 3,957,151 3,637,213 4,758,522
Long-term debt:
Security Capital(8)..................... 323,024 937,010 978,557 929,494 896,074
Majority-owned subsidiaries(4).......... 301,606 343,362 378,210 182,685 558,218
Minority interests(9)....................... 107,135 132,718 94,723 63 10,895
Total shareholders' equity.................. $2,548,873 $2,422,979 $2,180,787 $2,292,989 $3,160,941
========== ========== ========== ========== ==========
--------
(1)In January 2001, Security Capital acquired the net assets of Security
Capital U.S. Realty for 45.4 million shares of class B stock and $565
million in cash, resulting in higher revenues, expenses and real estate.
(2)The realized gains in 2000 and 2001 were the result of the sale of
substantially all of Security Capital's shares of Archstone Communities
Trust, which were partially offset by the realized loss from the sale of
Homestead Village in November 2001.
(3)Represents loss provisions recorded at Homestead Village in 2000, and in
1999 relates to the sale of Strategic Hotel Capital in which Security
Capital disposed of its 33% ownership.
(4)Security Capital does not guarantee the debt of any of its consolidated or
unconsolidated operating companies.
(5)2001 net earnings includes a $2.4 million adjustment to equity in earnings
of SC-European Realty recorded subsequent to the issuance of Security
Capital's 2001 year-end earnings report on February 14, 2002.
(6)257,642 shares of series B preferred stock were issued on May 12, 1998, in
exchange for the 139,000 shares of series A preferred stock then outstanding
and 3,293,288 shares of class B stock.
(7)Includes the conversion of class A stock into class B stock at a ratio of
1:50.
(8)During 1998, Security Capital issued $614 million of long-term debt.
(9)Prior to June 2000, the minority interests primarily relate to Homestead
Village, which was 87% owned by Security Capital until June 2000, after
which it was 99.9% owned. In November 2001, Security Capital sold all of its
interest in Homestead Village.
3
RISK FACTORS
Security Capital stockholders should consider the following factors, in
addition to the other risk factors incorporated by reference into this proxy
statement/prospectus, in deciding whether to vote for approval of the merger
agreement and the merger. See "Where You Can Find More Information" on page 66
for where you can find the additional risk factors incorporated by reference.
In addition, you should also carefully consider the risk factors on page 74 for
additional risk factors concerning the ProLogis common shares.
The total value of the merger consideration you will receive is fixed and
will not take into account any changes in the value of Security Capital between
December 14, 2001, the date the merger agreement was signed, and the closing of
the merger.
If the contemplated transaction with GE Capital is approved and completed,
each share of Security Capital will be exchanged for merger consideration with
a fixed value ($26 in the case of class B shares and $1,300 in the case of
class A shares). This value is a fixed number and the merger agreement does not
contain any provision to adjust this ratio for changes in the underlying value
of Security Capital. Neither party is permitted to terminate the merger
agreement because of changes in the market price of Security Capital common
stock or the underlying value of Security Capital. Security Capital
shareholders will not be compensated for any delays in the closing of the
merger. The underlying value of Security Capital may vary because of a number
of factors including:
. changes in the business, operating results or prospects of Security
Capital, including its investee companies;
. market assessments of the likelihood that the merger will be completed;
. the timing of the completion of the merger;
. additions or departures of key personnel;
. announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments including the contemplated transaction
with Storage USA;
. conditions or trends in the real estate industry;
. changes in market valuations of other comparable companies;
. the prospects of post-merger operations; and
. general market and economic conditions.
You may receive a portion of the merger consideration as ProLogis common
shares.
GE Capital may, in its sole discretion, elect to include some or all of the
ProLogis common shares owned by Security Capital as part of the merger
consideration received by the Security Capital stockholders. Neither Security
Capital nor its stockholders will have any control over GE Capital's decision
whether or not to make this election. Consequently you may receive ProLogis
common shares when you might otherwise have preferred to receive cash.
Similarly, GE Capital has the right to revoke its election to include ProLogis
common shares in the merger consideration. While GE Capital has informed
Security Capital that it will not make any such revocation later than the
10/th/ day before the stockholders meeting, you may receive all cash when you
might otherwise have preferred to receive a portion of the merger consideration
in ProLogis common shares.
GE Capital has informed Security Capital that its current plan is to cause
Security Capital to distribute some (but not all) of the ProLogis common shares
to Security Capital stockholders, however GE Capital has not made a formal
election, and has informed Security Capital that it intends to continue to
evaluate its alternatives and could change its plans.
4
If GE elects to substitute some or all of the ProLogis common shares as
merger consideration, and the merger is successfully completed, holders of
Security Capital common stock will become holders of ProLogis common shares.
ProLogis' business differs significantly from Security Capital's business, and
ProLogis' results of operations, as well as the price of ProLogis common
shares, may be affected by factors different than those affecting Security
Capital's results of operations and the price of Security Capital common stock.
See page 74 for additional risks associated with owning ProLogis common shares.
The value attributed to ProLogis common shares that may be included as a
portion of the merger consideration may not reflect the market price of these
shares at the closing of the transaction.
The exact amount of cash which you may receive will vary depending on
whether or not ProLogis common shares are included in the merger consideration
and the value of those common shares. While Security Capital has attempted to
provide its class B stockholders with a fixed $26 in value ($1,300 for class A
stockholders), this consideration may include ProLogis common shares whose
value may fluctuate. The ProLogis common shares which may be included in the
merger consideration will be valued based on the average closing prices on the
ten consecutive full trading days ending on May 9, 2002 (the date which
precedes the two consecutive full trading days preceding the stockholders
meeting). The price of the ProLogis common shares may fluctuate during this ten
trading day measurement period for many reasons, including as a result of the
merger consideration being determined by the ProLogis common share prices
during this period. If the market price of the ProLogis common shares at
closing is different from the price set during this measurement period,
Security Capital class B stockholders will receive an aggregate merger
consideration that may have a market value on the date the merger consideration
is received that is higher or lower than $26 (or $1,300 for the class A
stockholders). At and after the closing, you will bear all of the economic risk
of fluctuations, if any, in the price of the ProLogis common shares below the
average price during the measurement period. We cannot tell you what the price
of ProLogis common shares will be during the measurement period, at the time we
complete the merger, or at any other time. We urge you to obtain current market
quotations for ProLogis common shares.
You may have taxes and transaction costs associated with the ownership
and/or disposition of ProLogis common shares which you may receive in the
merger and which may reduce the value you receive in the merger.
If the merger is completed you may receive ProLogis common shares as a
portion of the merger consideration. You may have additional costs such as
brokerage commissions and other transaction costs in disposing of those shares.
You will be responsible for these costs and this will reduce the net value of
the merger consideration that you have received. In addition, the receipt of
the merger consideration in the merger will be a taxable transaction for United
States federal income tax purposes (and also may be a taxable transaction under
applicable state, local and other income tax laws). In general, for United
States federal income tax purposes, a holder of Security Capital common stock
will recognize gain or loss equal to the difference between the stockholder's
adjusted tax basis in Security Capital common stock and the sum of the amount
of cash and the fair market value of the ProLogis common shares received or
deemed received in respect thereof in the merger. The tax basis of the ProLogis
common shares received, if any, by a holder of Security Capital common stock
pursuant to the merger will be the fair market value of such shares on the
effective date of the merger, which may be different than the value used for
calculating the amount of cash you will receive in the merger. Accordingly, you
may be taxed on the portion of the merger consideration, if any, paid in
ProLogis common shares, even though you have not sold these shares or otherwise
received cash proceeds with which to pay this portion of the tax. For
additional information concerning the U.S. federal income tax consequences of
the merger we urge you to read the material included under the section "The
Merger--Material United Sates Federal Income Tax Consequences."
Security Capital's officers and directors have interests different from
yours that may have influenced them to support or approve the merger.
Security Capital directors and officers have entered into arrangements and
there are provisions in the merger agreement and in Security Capital's employee
benefit plans that have given these directors and officers interests in the
merger that are different from, or in addition to, yours. These interests
include the following:
5
. non-competition agreements, modification of change of control agreements
and agreements regarding employment terms;
. acceleration and payments in respect of outstanding Security Capital
stock options and restricted stock units; and
. indemnification of and provisions for liability insurance for Security
Capital directors and officers.
For the above reasons, the directors and officers of Security Capital may
have been more likely to support and recommend the approval of the merger
agreement and the merger than if they did not hold these interests. Security
Capital stockholders should consider whether these interests may have
influenced the decisions of these directors and officers to support or
recommend the merger. You should read more about these interests under "The
Merger--Interests of Certain Persons in the Merger."
Some Security Capital shareholders will be restricted in their ability to
resell ProLogis common shares.
ProLogis common shares, if any, received by persons who are deemed to be
"affiliates" of ProLogis or of Security Capital under the rules and regulations
of the Securities Act at the time of the special meeting may only be resold by
them in transactions permitted by Rule 145 of the rules and regulations of the
Securities Act or as otherwise permitted thereunder. Persons who may be deemed
to be affiliates of ProLogis or Security Capital for such purposes generally
include individuals or entities that control, are controlled by or are under
common control with ProLogis or Security Capital, as the case may be, and
generally include certain officers, directors, trustees and significant
shareholders. These resale restrictions may lower the value of the merger
consideration received by these shareholders.
6
SECURITY CAPITAL SPECIAL MEETING
We are furnishing this proxy statement/prospectus to Security Capital
stockholders in connection with the solicitation of proxies by the Security
Capital board for use at the Security Capital special meeting. We are first
sending this proxy statement/prospectus to stockholders of Security Capital on
or about April 16, 2002. You should read this proxy statement/prospectus
carefully before voting your shares.
Date, Time and Place of the Security Capital Special Meeting
The Security Capital special meeting is scheduled to be held as follows:
Tuesday, May 14, 2002
8:30 a.m., local time
Holiday Inn
4140 West 95th Street
Oak Lawn, Illinois
What You Will Vote On
At the special meeting, we will ask you to consider and vote upon the
following items:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 14, 2001, by and
among Security Capital, GE Capital, and Merger Sub, an indirect wholly
owned subsidiary of GE Capital, and approve the merger of Merger Sub
with and into Security Capital, with Security Capital surviving the
merger as an indirect wholly owned subsidiary of GE Capital. In the
merger, each share of class B stock will be converted into the right to
receive $26.00 in cash, subject to the substitution at the election of
GE Capital as described below, of a combination of cash and common
shares of beneficial interest of ProLogis owned by Security Capital with
an agreed aggregate value of $26.00. The value of the ProLogis common
shares will be measured during the 10 consecutive full trading days
preceding May 10, 2002. Each share of class A stock will be converted
into the right to receive 50 times the per share class B consideration.
2. Any other business as may properly come before the special meeting
or any adjournment or postponement of the special meeting.
Stockholder Record Date for the Special Meeting
The Security Capital board has fixed the close of business on April 11,
2002, as the record date for determination of Security Capital's stockholders
entitled to notice of and to vote at the special meeting. On the record date
there were 640,055.963 shares of Security Capital class A stock entitled to
notice of and to vote at the special meeting held by approximately 562 holders
of record, 109,207,399 shares of Security Capital class B stock entitled to
notice of and to 546,036 votes at the special meeting held by approximately 237
holders of record, and 257,642 shares of Security Capital series B preferred
stock entitled to notice of and to vote at the special meeting held by one
holder of record.
Quorum
In order to have a quorum, holders of record of shares of Security Capital
class A stock, Security Capital class B stock and Security Capital series B
preferred stock representing a majority of the votes entitled to be cast must
be represented in person or by proxy at the special meeting. Regardless of
whether a quorum is present or represented, stockholders represented in person
or by proxy and entitled to vote, voting a majority of the votes cast by such
stockholders, will have the power to adjourn the special meeting from time to
time to a date not later than 120 days from the original record date of the
special meeting.
Vote Required for Approval
Approval of the merger proposal requires the affirmative vote of at least a
majority of the votes entitled to be cast by holders of the outstanding
Security Capital class A stock, class B stock and series B preferred stock,
voting as a single class. Each share of Security Capital class A stock is
entitled to cast one vote. Each share of Security Capital class B stock is
entitled to cast .005 of a vote. Each share of Security Capital series B
preferred
7
stock is entitled to cast .1282 of a vote. As of the record date, holders of
Security Capital class A stock, Security Capital class B stock and Security
Capital series B preferred stock together are entitled to cast a total of
1,219,122.666 votes at the special meeting.
As of the record date, the directors (including a non-voting advisory
director) and executive officers of Security Capital and their affiliates
beneficially owned and were entitled to vote 103,997 shares of Security Capital
class A stock, 5,124,741 shares of Security Capital class B stock and 257,642
shares of Security Capital series B preferred stock (or 13.34% of the total
voting power of the Security Capital shares entitled to vote on the merger
proposal).
Voting Your Shares
We will vote all shares of Security Capital class A stock, class B stock and
series B preferred stock represented by properly executed proxies received
before or at the Security Capital special meeting in accordance with the
instructions indicated on those proxies, unless the proxies are revoked. If you
do not indicate any instructions on a properly executed proxy card, we will
vote the shares represented by the proxy FOR approval of the merger proposal.
We urge you to mark the box on the proxy card to indicate how to vote your
shares.
We will count properly executed proxies marked "Abstain" for purposes of
determining whether there is a quorum, but we will not vote any of the shares
represented by these proxies at the Security Capital special meeting. If you
hold your shares in an account at a brokerage firm or bank, you must instruct
the broker or bank on how to vote your shares. If an executed proxy card is
returned by a broker or bank holding shares which indicates that the broker or
bank does not have discretionary authority to vote at the special meeting, the
shares will be considered present at the meeting for purposes of determining
the presence of a quorum, but will not be considered to have been voted. Your
broker or bank will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker or bank. The
Security Capital 401(k) Plan provides a mechanism through which all shares of
Security Capital common stock held under the 401(k) Plan will be voted whether
or not the participant has directed the vote. If you are a participant in the
Security Capital 401(k) Plan and you do not vote your Security Capital common
stock held by the 401(k) Plan, the administrator for the 401(k) Plan will,
pursuant to the terms of the 401(k) Plan, instruct the trustee to vote your
Security Capital stock in proportion to the votes received from other
participants. Abstentions, failures to respond and broker non-votes will have
the effect of votes against the merger proposal, since the vote required to
approve the merger proposal is based on the total number of shares outstanding.
Submitting Proxies by Telephone or Internet
Maryland law and our bylaws expressly provide for the authorization of
proxies by any electronic or telephonic means. Accordingly, you may submit your
proxy by telephone or the Internet. To submit a proxy with voting instructions
by telephone call 1-877-381-4019. Proxies may also be submitted over the
Internet. Please refer to your proxy card for the website information. In each
case stockholders will be required to provide the unique control number which
has been printed on each stockholder's proxy card. In addition to the
instructions that appear on the proxy card, step-by-step instructions will be
provided by a recorded telephone message for those stockholders submitting
proxies by telephone, or at the designated web site for those stockholders
submitting proxies over the Internet. Stockholders submitting their proxies
with voting instructions by telephone or over the Internet will receive
confirmation on the telephone or over the Internet, as applicable, that their
proxies have been successfully submitted.
Other Matters
We do not expect any matters other than those mentioned above to be brought
before the special meeting. If, however, other matters are presented, the
persons named as proxies will only vote your shares in accordance with their
discretion with respect to those matters, if you vote in favor of the grant of
discretionary authority by marking the "FOR" box under proposal number two on
your proxy card.
8
How to Revoke a Proxy
You may revoke your proxy before we vote it at the special meeting in one of
three ways:
. notifying the Secretary of Security Capital in writing;
. submitting a later dated proxy; or
. appearing in person and voting at the special meeting if you are a holder
of record. Attendance at the special meeting will not in and of itself
constitute revocation of a proxy.
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy to the Secretary of Security Capital before
your proxy is voted at the special meeting. If you hold your shares through an
account at a brokerage firm or bank, or through the 401(k) Plan, you should
contact your brokerage firm or bank or, in the case of the 401(k) Plan, the
plan trustee, to change your vote.
Cost of Solicitation
Security Capital will bear its own costs of solicitation of proxies.
Security Capital has retained Georgeson, for a fee of $25,000 plus additional
charges related to telephone calls and other services, to assist in the
solicitation of proxies. Security Capital and Georgeson will also request
banks, brokers and other intermediaries holding Security Capital shares
beneficially owned by others to send this proxy statement/prospectus to, and
obtain proxies from, the beneficial owners and will reimburse the holders for
their reasonable expenses. Security Capital may supplement its solicitation of
proxies by mail through solicitation by telephone, telegram and other
electronic means, advertisements and personal solicitation by the directors,
officers or employees of Security Capital. Security Capital will not pay any
additional compensation to directors, officers or employees for any such
solicitation.
9
THE MERGER
Background of the Merger
At a series of meetings of the Security Capital Board held between February
1999 and December 2001, the board reviewed with management Security Capital's
business, structure, relationships with its public and private investees and
ideas for creating stockholder value. At these meetings the board discussed a
number of ways to increase stockholder value, simplify the structure of
Security Capital and eliminate the discount to the underlying value of its
assets. Some of the topics discussed included selling its ownership interests
in businesses which no longer met its objectives and increasing its ownership
interests in other businesses, so that upon completion, Security Capital would
own all or a high percentage of six real estate businesses that function as
private operating divisions. The board also discussed other strategies which
might strengthen Security Capital's balance sheet.
In connection with these board discussions, Security Capital took a number
of actions with respect to its interests in its portfolio companies. These
actions included the following:
. the sale of Security Capital's interests in Strategic Hotel Capital in
September 1999;
. the acquisition of the remaining interests Security Capital did not own
in Homestead Village Incorporated in June 2000;
. the sale of Security Capital's interests in Archstone-Smith Operating
Trust (formerly Archstone Communities Trust) between July 2000 and
February 2001;
. the acquisition of the remaining interests Security Capital did not own
in Security Capital U.S. Realty in January 2001;
. the sale of Security Capital's interests in CWS Communities Trust in
August 2001;
. the sale of Security Capital's interests in Homestead Village
Incorporated in November 2001;
. the sale of Security Capital's interests in CarrAmerica during November
and December 2001; and
. the entry into an agreement to purchase the remaining interest in Storage
USA in December 2001.
In addition, as part of Security Capital's strategy to increase stockholder
value, Security Capital instituted a stock buyback program and between
September 1999 and April 2001 purchased common stock and convertible debentures
for a total of $601 million.
During the first quarter of 2000, GE Capital contacted Security Capital
regarding possible business opportunities involving the two firms. Discussions
were held between William Sanders and C. Ronald Blankenship of Security Capital
and Ronald Pressman and Steven Hoover of GE Capital. The discussions covered a
wide range of potential transactions, including the formation of a joint
venture to explore potential real estate transactions, the possible sale of one
or more of Security Capital's interests in its public and private investees,
the possibility of management taking Security Capital private and GE Capital
providing the financing for the potential transaction, and the possibility of
GE Capital taking an equity position in Security Capital. At that time shares
of the class B stock were trading in the range of $12.00 to $14.69 per share.
Security Capital management, in consultation with the board, decided not to
pursue any of these matters.
In February 2000, the Board of Directors of Security Capital U.S. Realty, a
former affiliate of Security Capital organized under Luxembourg law, determined
to sell $55,000,000 principal amount of 6.5% Convertible Subordinated
Debentures due 2016 of Security Capital that it owned, as well as shares of
Security Capital common stock, in order to provide funds for Security Capital
U.S. Realty to repurchase its own shares. Toward that end, Security Capital
U.S. Realty contacted a number of potential purchasers, including GE Capital.
In February 2000, GE Capital executed a confidentiality agreement with Security
Capital which also included an agreement not to seek to acquire control of
Security Capital or to assist any third party seeking to acquire control of
Security Capital for eighteen months other than in a negotiated transaction
with Security Capital. After the execution of the confidentiality agreement, GE
Capital performed due diligence on Security Capital. In March 2000, GE Capital
purchased the debentures from Security Capital U.S. Realty for $39,875,000 in a
private transaction. In March 2001, GE Capital sold the debentures to an
unaffiliated third party.
Between March 2000 and September 2001, there were discussions from time to
time between Mr. Sanders and senior officers of GE Capital regarding possible
business opportunities involving the two firms, although no
10
agreements were reached. These discussions did not involve any discussions
regarding a possible merger or other change of control of Security Capital. The
discussions were regularly reported to the board at its quarterly meetings.
In November 2000, Archstone Communities Trust, at the request of Security
Capital pursuant to a registration rights agreement, filed a registration
statement for all the shares of beneficial interest of Archstone then owned by
Security Capital. As a result of earlier discussions between Security Capital
and GE Capital, in early 2001, Steven Hoover of GE Capital contacted Messrs.
Sanders and Blankenship and Constance Moore of Security Capital regarding a
possible purchase of the Archstone shares. Discussions were held but no
agreement was reached, and in February 2001, Security Capital sold
substantially all its remaining shares in Archstone in an underwritten
secondary public offering.
In early 2001, Security Capital determined to sell its 94% ownership
interest in CWS Communities Trust. Security Capital retained Macquarie Capital
Partners, which is 40% owned by Security Capital, to assist in the sale of the
entire equity interest in CWS. Macquarie Capital Partners contacted a number of
potential buyers, including GE Capital, to determine if they would be
interested in purchasing CWS. GE Capital signed a confidentiality agreement and
received information regarding CWS. However, no agreement was reached and in
August 2001 Chateau Communities Trust acquired all of CWS.
On September 5, 2001, Mr. Sanders met with Michael Pralle, Alec Burger, and
Steven Hoover of GE Capital in New York City to again discuss possible business
opportunities involving the two companies. This meeting was arranged by GE
Capital and was the result of ongoing discussions which had been held between
Security Capital and GE Capital since early 2000. Mr. Sanders gave the GE
Capital representatives a presentation regarding Security Capital's current
business strategy. This strategy consisted of Security Capital selling its
ownership interests in businesses which no longer met its objectives and
increasing its ownership interests in other businesses, so that upon
completion, Security Capital would own all or a high percentage of six real
estate businesses that function as private operating divisions. This strategy
also included repurchases of Security Capital common stock in the open market
pursuant to a previously announced stock buyback program. Mr. Sanders reviewed
the transactions completed or announced in furtherance of this strategy, and
described Security Capital's intentions to continue to simplify Security
Capital's structure and effectively eliminate, to the extent practicable, the
discount to net asset value and to repurchase Security Capital common stock as
and when permitted by applicable law.
On September 25, 2001, in a telephone call between Alec Burger of GE Capital
and William Sanders of Security Capital, Mr. Burger brought up the subject of
GE Capital either acquiring Security Capital or management taking Security
Capital private and GE Capital providing the financing.
Between October 1 and November 6, 2001, there were numerous phone calls and
meetings between Messrs. Sanders or Blankenship of Security Capital and Michael
Pralle, Alec Burger and other senior executives of GE Capital regarding a
possible acquisition of Security Capital by GE Capital. The primary focus of
the discussions was on the price per share to be offered to Security Capital
stockholders, the timing of any potential transaction, as well as the process
for exploring whether or not any agreement could be reached. During this time
Security Capital provided GE Capital with public information regarding Security
Capital.
In late October 2001, Mr. Sanders contacted individual members of the
Security Capital board regarding the discussions which were occurring between
Security Capital and GE Capital. These directors encouraged Mr. Sanders to
continue discussions.
At the direction of the Security Capital board, in late October 2001,
Security Capital contacted Goldman, Sachs & Co. regarding a possible
transaction with GE Capital, and Security Capital retained Wachtell, Lipton,
Rosen & Katz to represent it as legal counsel in connection with a possible
transaction with GE Capital.
On November 7, 2001, GE Capital and Security Capital executed a
confidentiality agreement. On November 7, 8 and 9, 2001, representatives of GE
Capital, and Merrill, Lynch & Co., Inc., financial advisor to GE Capital, met
with representatives of Security Capital and its financial advisor, at Security
Capital's offices in Santa Fe. Senior management of Security Capital gave
presentations regarding Security Capital's business and strategy.
11
Between November 7 and November 16, 2001, Security Capital provided
additional information to GE Capital regarding Security Capital and its private
affiliates. During this period, Messrs. Sanders and Blankenship and Messrs.
Pralle and Burger held frequent discussions regarding terms of a possible
transaction, including price and consideration for a transaction. Mr. Sanders
conveyed to GE Capital that Security Capital would not be interested in
pursuing a transaction in which Security Capital stockholders received less
than $26 in cash per share. Security Capital believed that $26 per share
represented a reasonable approximation of its realizable net asset value and
was at the upper end of what a potential acquirer would be willing to pay. On
November 16, 2001, Mr. Sanders called Mr. Burger and told him that because
Security Capital was interested in promptly resuming its stock buyback program,
unless an agreement could be signed and announced by December 7, 2001, Security
Capital was not interested in pursuing a transaction with GE Capital.
Between November 16 and November 21, 2001, discussions were suspended
pending GE Capital's consideration of Security Capital's $26 per share
expectation as well as its December 7th deadline. On the evening of November
21, 2001, Mr. Burger contacted Mr. Blankenship and told him that GE Capital was
willing to proceed with discussions concerning a transaction along these
general lines. GE Capital then instructed its legal counsel, Weil, Gotshal &
Manges LLP, to begin preparation of a draft merger agreement and related
documentation.
On November 28, 2001, Mr. Blankenship participated in a conference call with
Alec Burger, other GE senior officers and counsel for Security Capital and GE
Capital to discuss the general terms of a possible transaction and a draft
merger agreement which had been prepared by counsel for GE Capital. The primary
issues discussed on this call were the conditions to closing, representations
and warranties, whether the transaction could be completed by tender offer, GE
Capital's desire to retain Security Capital management for some period after
the merger, the termination fee, the no-solicitation covenant, and anti-trust
matters.
On November 29, 2001, Mr. Sanders discussed with individual directors of
Security Capital, by telephone, the general outline of a possible transaction
with GE Capital. The directors encouraged management to continue discussions
with GE Capital.
During the week of December 3, 2001, discussions between Security Capital
and GE Capital, and their respective financial and legal advisors, continued.
These discussions focused on the structure of the transaction and the
conditions to closing.
On December 4, 2001, the Security Capital board, acting by unanimous written
consent, approved a purchase and sale agreement by and among Storage USA, Inc.,
Storage USA Trust, SUSA Partnership, L.P. and Security Capital, which provides
for the sale of all of the assets of Storage USA, including its interests in
SUSA Partnership, L.P., its operating partnership, to Security Capital, and the
merger of Storage USA, Inc. with and into SUSA Partnership, L.P. The
negotiation and approval of the Storage USA transaction was conducted
independently of the negotiations concerning the transaction with GE Capital.
Security Capital did not provide GE Capital or its representatives with any
material information regarding the status of these negotiations (other than to
provide information that had been previously publicly disclosed) and GE Capital
did not have any role in any aspect of the Storage USA negotiations. GE did
request that the closing of the Storage USA acquisition be made a condition to
the closing of the GE Capital transaction; Security Capital rejected this
request and it was not raised again.
On December 7, 2001, the board of GE Capital met to consider the transaction
with Security Capital. The following members of the GE Capital board were
present at the December 7, 2001 meeting: Nancy E. Barton, Ferdinando Beccalli,
James R. Bunt, David L. Calhoun, Dennis D. Dammerman, Scott C. Donnelly,
Michael D. Frazier, Jeffrey R. Immelt, John H. Meyers, Denis J. Nayden, Michael
A. Neal, James A. Parke, Ronald R. Pressman, Gary M. Reiner, Gary L. Rogers,
John M. Samuels, Keith S. Sherin, Edward D. Stewart, and Robert C. Wright.
During the board meeting, there were questions and discussions about the
Security Capital transaction. At the close of such discussions, the GE Capital
Board deferred consideration of the transaction to the Executive Committee
comprised of Messrs. Dammerman, Immelt and Nayden which allowed discussions to
continue with Security Capital regarding the structure of the transaction.
12
Following this meeting of the GE Capital directors, representatives of GE
Capital advised Security Capital that it might not wish to pay $26 in cash.
However, it would consider a transaction in which, at GE Capital's option,
Security Capital stockholders could receive part of the merger consideration in
the form of ProLogis common shares and part in cash. GE Capital also proposed
various mechanisms by which Security Capital stockholders would be partially
protected for potential drops in value of the ProLogis common shares. These
discussions continued into the evening of December 7. That evening, Security
Capital indicated a willingness to discuss a transaction in which GE Capital
would have the option to distribute the ProLogis shares. Based on these
discussions, the general terms of a transaction with Security Capital involving
this option were reviewed and approved by the Executive Committee, subject to
endorsement by the Board of Directors of General Electric Company.
Negotiations regarding the terms of the transaction, the potential
disposition of the ProLogis shares owned by Security Capital, conditions to
closing, support agreements and employment arrangements for senior officers of
Security Capital, and employee issues continued through the week of December
10, 2001. During these negotiations Security Capital reiterated its position
that its stockholders receive $26 in cash, and GE Capital again expressed its
desire to have an option to cause part of the consideration to be paid in
ProLogis common shares and that Security Capital stockholders bear some of the
risk of any drop in value of these shares. On December 11, GE Capital and
Security Capital tentatively agreed to a structure in which Security Capital
stockholders would receive a fixed $26 in value, with GE Capital having the
option to cause Security Capital to distribute the ProLogis common shares to
Security Capital stockholders. ProLogis was not involved in any of the
discussions or negotiations concerning the merger or any related matters,
including the disposition of the ProLogis shares.
On December 12, 2001, at a regularly scheduled Security Capital board
meeting (attended by all of Security Capital's directors except Mr. Frank Lowy,
a non-voting advisory director), management presented a proposed transaction
with GE Capital under which GE Capital would acquire all the outstanding common
stock of Security Capital in a merger transaction for a fixed value of $26 per
share of class B stock, either in the form of all cash or partially cash and
partially shares of ProLogis at GE Capital's election, and assume all
outstanding indebtedness. Each share of class A stock would be entitled to
receive 50 times the per share consideration received by holders of class B
stock. Under Security Capital's charter each share of class A stock is entitled
to 50 times the economic value of each share of class B stock, accordingly
there were no separate negotiations as to the consideration to be paid to the
holders of class A stock apart from the holders of class B stock. Goldman Sachs
made a financial presentation to the board regarding the proposed transaction
and advised the board that, provided the terms of the draft merger agreement
did not vary materially from the terms presented to the board, it would be able
to give a fairness opinion on the transaction. Legal counsel to Security
Capital discussed the legal responsibilities of the board regarding the
proposed transaction and described the terms and conditions of the draft merger
agreement and other related matters.
From December 12 to December 14, 2001, counsel to GE Capital and counsel to
Security Capital further discussed the draft merger agreement at the direction
of their respective clients. On the afternoon of December 14, 2001, the Board
of General Electric Company endorsed the terms of the merger agreement.
On the afternoon of December 14, 2001, at a special meeting of the Security
Capital board (attended by all of Security Capital's directors except Mr. Frank
Lowy, a non-voting advisory director, and Ms. Janet Hill), management and its
legal and financial advisors made presentations to the board concerning the
proposed merger and the status of negotiations with GE Capital. Goldman Sachs
made a financial presentation to the board and gave its oral opinion
(subsequently rendered in writing) to the board that the consideration to be
received in the transaction by the stockholders of Security Capital was fair
from a financial point of view. Legal counsel to Security Capital described the
consideration proposed to be paid in the merger and the other material terms of
the draft merger agreement, the support agreements and the employment
arrangements and other related matters. After discussion and consideration, the
Security Capital board determined that the merger was advisable, approved the
merger agreement and resolved to recommend to the stockholders of Security
Capital that they approve the merger agreement and the merger.
13
On the evening of December 14, 2001, after Security Capital's and GE
Capital's legal counsel had finalized the merger agreement and related matters,
Security Capital, GE Capital and EB Acquisition Corp. entered into the merger
agreement. On December 14, 2001, GE Capital and Security Capital issued a joint
press release announcing the merger and execution of the merger agreement.
On March 8, 2002 GE Capital informed Security Capital that its current plan
is to cause Security Capital to distribute approximately 32.8 million ProLogis
common shares as part of the Merger Consideration, or 0.19 ProLogis common
shares for each class B share. However, GE Capital has not made a formal
election, has informed Security Capital that it intends to continue to evaluate
its alternatives and could change its plans.
Security Capital's Reasons for the Merger; Recommendation of the Security
Capital Board
At a special board meeting on December 14, 2001, the Security Capital board
determined that the merger is advisable, fair to and in the best interests of
Security Capital and its stockholders and, by the unanimous vote of all the
directors present, approved and adopted the merger agreement, the support
agreements and the transactions contemplated by those agreements, including the
merger. Ms. Janet Hill, who was present at the December 12, 2001 meeting during
which the transaction was discussed, due to scheduling conflicts was not able
to attend the December 14th meeting during which the transaction was approved.
In addition, Mr. Frank Lowy (a non-voting advisory member of the board) was not
present at either the December 12th or the December 14th meetings. Ms. Hill and
Mr. Lowy have subsequently informed Security Capital that they agree with and
support the actions of the board. Accordingly, the Security Capital board
recommends that Security Capital stockholders vote for approval of the merger
agreement and the merger at the special meeting.
In reaching its decision to approve and adopt the merger agreement, the
support agreements and the transactions contemplated by those agreements, and
to recommend that Security Capital stockholders vote to approve the merger
agreement and the merger, the Security Capital board considered the following
material factors:
. the current and historical market prices of Security Capital class A and
class B stock relative to those of other industry participants and
general market indices, including the fact that the respective $1,300.00
and $26.00 per share values represent premiums of 22.6% and 25.6%,
respectively, over the closing prices per share on the last trading day
prior to the public announcement of the merger;
. the fact that the merger consideration provides $26.00 in value per share
of class B stock and 50 times the per share class B consideration per
share of class A stock, regardless of whether GE Capital elects to
distribute shares of ProLogis;
. the fact that although the transaction did not completely eliminate the
trading discount to Security Capital's net asset value, it would
substantially fulfill Security Capital's goal of effectively eliminating
the trading discount to its net asset value and would provide the
stockholders greater value than could reasonably be expected to be
generated in a reasonable time period if Security Capital were to remain
independent;
. the fact that the merger is not subject to any financing conditions;
. the fact that the merger is not subject to the approval of GE
stockholders;
. the presentations by Goldman Sachs on December 12, 2001 and its oral
opinion of December 14, 2001, which was confirmed in a written opinion
dated December 14, 2001, that, as of the date of such opinion, and based
on and subject to the matters set forth in that opinion, the $26.00 and
$1,300.00 per share in value to be received by holders of Security
Capital class A and class B stock, respectively, pursuant to the merger
agreement was fair from a financial point of view to such holders (see
"--Opinion of Goldman Sachs");
14
. the Security Capital board's familiarity with, and presentations by
Security Capital's management and its financial advisor regarding, the
business, operations, properties and assets, financial condition,
competitive position, business strategy and prospects of Security Capital
(as well as the risks involved in achieving those prospects), the
financial budgets prepared by management, and current industry, economic
and market conditions, both on an historical and on a prospective basis;
and
. the views of management that, based on the foregoing, Security Capital
stockholders could expect to realize greater value from the proposed
transaction with GE Capital than could be expected to be generated in a
reasonable time period if Security Capital were to remain independent.
The Security Capital board also considered potential drawbacks or risks
relating to the merger, including the following material drawbacks and risks:
. the fact that the only alternative to the merger considered by the
Security Capital board was remaining an independent public company and
continuing Security Capital's stated business strategy;
. the fact that as a result of the merger, Security Capital's current
stockholders would no longer hold an equity interest in the business of
Security Capital;
. the fact that the transaction would be taxable to Security Capital
stockholders for United States federal income tax purposes; and
. the possibility that the termination fee and other provisions of the
merger agreement, including GE Capital's right to match any superior
proposal, and the terms of the support agreements might discourage other
parties that might have an interest in a business combination with, or an
acquisition of, Security Capital (see "The Merger Agreement" and "Support
Agreements").
In addition, the directors of Security Capital were aware of the interests
of the officers and directors of Security Capital described under "--Interests
of Certain Persons in the Merger."
The foregoing discussion addresses the material information and factors
considered by the Security Capital board in its consideration of the merger,
including factors that support the merger as well as those that may weigh
against it. In view of the variety of factors and the amount of information
considered, the Security Capital board did not find it practicable to and did
not make specific assessments of, quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. In addition,
the Security Capital board did not undertake to make any specific determination
as to whether any particular factor, or any aspect of any particular factor,
was favorable or unfavorable to its ultimate determination. The determination
to approve the merger was made after consideration of all of the factors as a
whole. In addition, individual members of the Security Capital board may have
given different weights to different factors.
Projections
Security Capital has advised GE Capital that it does not as a matter of
course make public any projections as to future performance, earnings or net
asset value, and the projections set forth below are included in this proxy
statement/prospectus only because this information was provided to GE Capital.
The projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or forecasts. The projections do not purport to present operations
or financial condition in accordance with generally accepted accounting
principles, and Security Capital's independent auditors have not examined or
compiled the projections and accordingly assume no responsibility for them.
Security Capital has also advised GE Capital that its internal financial
forecasts (upon which the projections provided to GE Capital were based ) are,
in general, prepared solely for internal use and capital budgeting and other
management decisions and are subjective in many respects and thus susceptible
to interpretations and periodic revision based on actual experience and
business developments. The projections also reflect numerous assumptions made
by management of Security
15
Capital with respect to industry performance, general business, economic,
market and financial conditions and other matters, including effective tax
rates consistent with historical levels for Security Capital and the stock
prices of Security Capital's public investees, all of which are difficult to
predict, many of which are beyond Security Capital's control, and none of which
are subject to approval by GE Capital. Accordingly, there can be no assurance
that the assumptions made in preparing the projections will prove accurate. It
is expected that there will be differences between actual and projected
results, and actual results may be materially greater or less than those
contained in the projections. The inclusion of the projections herein should
not be regarded as an indication that any of GE Capital, or Security Capital or
their respective affiliates or representatives considered or consider the
projections to be a reliable prediction of future events, and the projections
should not be relied upon as such. The projections, which do not reflect the
redeployment of cash generated from asset sales, anticipate earnings before
depreciation, amortization and deferred taxes (EBDADT) of $240.1 million for
fiscal year 2002 (after payment of preferred stock dividends and interest on
convertible debt), EBDADT per share of $1.87 per share ($2.13 per share on a
pro forma basis giving effect to the completion of the Storage USA acquisition
in April 2002) for calendar year 2002, and post-tax net asset value (NAV) per
share as of December 31, 2002 of $29.21. None of Security Capital or GE Capital
or any of their respective affiliates or representatives has made or makes any
representation to any person regarding the ultimate performance of Security
Capital compared to the information contained in the projections, and none of
them intends to update or otherwise revise the projections to reflect
circumstances existing after the date when made or to reflect the occurrence of
future events even in the event that any or all of the assumptions underlying
the projections are shown to be in error.
Opinion of Goldman Sachs
On December 14, 2001, Goldman Sachs delivered to the Security Capital board
a written opinion, dated December 14, 2001, that, based upon and subject to the
matters set forth in the opinion, as of the date of such opinion, the
consideration to be received by the holders of the class A stock and the class
B stock of Security Capital pursuant to the merger agreement was fair from a
financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated December 14,
2001, which sets forth the assumptions made, matters considered and limitations
on the review undertaken in connection with the opinion, is attached to this
proxy statement/prospectus as Appendix C and is incorporated by reference in
this proxy statement/prospectus. Goldman Sachs provided its advisory services
and its opinion for the information and assistance of the Security Capital
board in connection with its consideration of the merger. The Goldman Sachs
opinion is not a recommendation as to how any holder of class A stock or class
B stock should vote with respect to the merger. Security Capital stockholders
are urged to read the Goldman Sachs opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things:
. the merger agreement and certain related documents;
. annual reports to stockholders and Annual Reports on Form 10-K of
Security Capital for the four years ended December 31, 2000;
. certain interim reports to stockholders and Quarterly Reports on Form
10-Q of Security Capital for periods during 1998, 1999, 2000 and 2001;
. certain other communications from Security Capital to its stockholders;
and
. certain internal financial analyses and budgets for Security Capital
prepared by its management. With respect to internal financial budgets
prepared by Security Capital management in connection with calendar year
2002, Goldman Sachs did not utilize these budgets in performing any of
the analyses described below because management's financial budgets did
not account for deployment of available cash.
16
Goldman Sachs also held discussions with members of the senior management of
Security Capital regarding their assessment of the strategic rationale for the
merger and the past and current business operations, financial condition and
future prospects of Security Capital. In addition, Goldman Sachs:
. reviewed the reported price and trading activity for the class A stock
and class B stock of Security Capital and the reported price and trading
activity for the equity securities of ProLogis;
. compared financial and stock market information for Security Capital with
similar information for other companies the securities of which are
publicly traded;
. reviewed the financial terms of recent business combinations in the real
estate industry specifically and in other industries generally; and
. performed other studies and analyses Goldman Sachs considered appropriate
(including where appropriate pro forma financial analyses as described
below).
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it,
and Goldman Sachs has assumed such accuracy and completeness for purposes of
rendering its opinion. In that regard, Goldman Sachs has assumed, with the
consent of Security Capital's board, that the internal financial budgets
prepared by the management of Security Capital have been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of
Security Capital. In addition, Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Security Capital or
any of its subsidiaries and was not furnished with any such evaluation or
appraisal. Goldman Sachs was not requested to solicit and did not solicit
interest from other parties with respect to an acquisition of or other business
combination with Security Capital.
The following is a summary of the material financial analyses presented by
Goldman Sachs to Security Capital's board on December 12, 2001 in connection
with the board's consideration of the merger. It does not purport to be a
complete description of the analyses performed by Goldman Sachs. The order of
the analyses described, and the results of those analyses, do not represent the
relative importance or weight given to the analyses by Goldman Sachs. Except as
otherwise noted, the following quantitative information, to the extent that it
is based on market data, is based on market data as it existed on or before
December 12, 2001, and is not necessarily indicative of current market
conditions.
17
The following summaries of financial analyses include information presented
in tabular format. You should read these tables together with the text of each
summary.
Selected Companies Comparison
Goldman Sachs reviewed and compared selected financial information, ratios
and multiples for Security Capital to corresponding financial information,
ratios and multiples for the four publicly traded portfolio companies of
Security Capital (ProLogis, Regency Realty Corporation, Storage USA and
CarrAmerica) and for other selected publicly traded companies from each of the
four real estate industry sectors in which the four portfolio companies
operate. On December 12, 2001, the day of Goldman's presentation to the
Security Capital board, CarrAmerica was still a portfolio company of Security
Capital. On November 19, 2001, CarrAmerica repurchased 32% of Security
Capital's holdings in CarrAmerica. Subsequently, on December 19, 2001, Security
Capital sold the remaining 68% of its holdings in CarrAmerica in an
underwritten offering.
The companies included in the analysis (including the four portfolio
companies) consisted of:
-------------------------------------------------------------
Industrial real estate
companies: Self storage companies:
CenterPoint
Properties Trust, Public Storage, Inc.,
Cabot Industrial
Trust, Storage USA, Inc.,
AMB Property Shurgard Storage
Corporation, Centers, Inc., and
ProLogis Trust, Sovran Self Storage,
Inc.
Liberty Property
Trust, and
First Industrial
Realty Trust, Inc.
-------------------------------------------------------------
Shopping center Office real estate
companies: companies:
Sizeler Property Alexandria Real
Investors, Inc., Estate Equities,
Inc.,
Center Trust, Inc., Boston Properties,
Inc.,
Kimco Realty SL Green Realty
Corporation, Corp.,
Weingarten Realty Equity Office
Investors, Properties Trust,
Pan Pacific Retail CarrAmerica Realty
Properties Inc., Corporation,
Saul Centers, Inc., Reckson Associates
Realty Corp.,
New Plan Excel Mack-Cali Realty
Realty Trust Inc., Corporation,
Regency Centers
Corp., Arden Realty, Inc.,
IRT Property Company, Kilroy Realty
Corporation,
Federal Realty TrizecHahn
Investment Trust, Corporation,
JDN Realty Prentiss Properties
Corporation, Trust,
Acadia Realty Trust, Parkway Properties
Inc.,
Developers
Diversified Realty Great Lakes REIT,
Corporation, Inc.,
JP Realty, Inc., Prime Group Realty
Trust, and
Kramont Realty Trust, Highwoods
Properties, Inc.
Konover Property
Trust, Inc., and
Glimcher Realty Trust
-------------------------------------------------------------
The multiples, ratios and other financial information reviewed by Goldman
Sachs were calculated based on the most recent publicly available information
and using closing share prices on December 7, 2001. The estimates of funds from
operations, or FFO, per share for Security Capital and for the forty-two other
companies included in the comparison were based on median estimates provided by
the Institutional Brokers Estimate System, or IBES, for 2001 and 2002. The
median IBES estimates for FFO per share for Security Capital was selected as
the most appropriate estimate for comparison purposes. Although Goldman Sachs
reviewed Security Capital management's financial budgets, they were not used in
the analysis because Security Capital's management's financial budgets did not
account for deployment of available cash, whereas the IBES estimates
18
reflect research analysts' opinions and assumptions as to how Security Capital
might use its available cash. In addition, the estimates of net asset value, or
NAV, per share for Security Capital and for the forty-two other companies
included in the comparison were based on estimates provided by Green Street
Advisors. Goldman Sachs' analysis of the selected companies compared the
following to the results for Security Capital:
. the December 7, 2001 closing share price as a percentage of the 52-week
high share price;
. the annual dividend yield (based on the most recently reported dividend);
. the ratio of net debt (total debt less cash) to total market
capitalization (the equity market value as of December 7, 2001 plus net
debt and preferred equity). Net debt for Security Capital includes the
cash proceeds from the sale of its full interest in Homestead and the
sale of 32% of its holdings in CarrAmerica Realty to CarrAmerica Realty
on November 19, 2001;
. the multiple of the closing share price on December 7, 2001 to estimated
FFO per share for 2001 and 2002;
. the growth rate reflected by estimated 2001 and 2002 FFO per share;
. the ratio of (1) the multiple of estimated 2002 FFO per share represented
by the closing share price on December 7, 2001 to (2) the growth rate
calculated as described in the preceding bullet; and
. the premium (discount) to net asset value per share represented by the
closing share price on December 7, 2001.
The results of these analyses for Security Capital, ProLogis and the group
of six industrial real estate companies (including ProLogis) are summarized as
follows:
-------------------------------------------------------------------------------------------
SECURITY GROUP
CAPITAL PROLOGIS MEDIAN
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
December 7, 2001 closing share price as a percentage of
52-week high 96.1% 97.6% 97.8%
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Annual dividend yield 0.0% 6.1% 6.1%
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Ratio of net debt to total market capitalization (11.1)% 33.5% 36.7%
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated
2001 FFO per share 7.9x 9.6x 9.8x
-------------------------------------------------------------------------------------------
------------------------------------------------------------------- ------
Multiple of December 7, 2001 closing share price to estimated
2002 FFO per share 7.2x 9.2x 9.4x
-------------------------------------------------------------------------------------------
Rate of growth from estimated 2001 to estimated 2002 FFO per
share 4.5% 4.3% 3.5%
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Ratio of (1) the multiple of 2002 estimated FFO per share
represented by the December 7, 2001 closing share price to (2) the
estimated 2001-2002 FFO per share growth rate 1.6x 2.2x 2.5x
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Premium/(discount) to NAV per share (18.0)% 10.2% 10.2%
-------------------------------------------------------------------------------------------
19
The results of these analyses for Security Capital, Regency Realty and the
group of seventeen shopping center companies (including Regency Realty) are
summarized as follows:
--------------------------------------------------------------------------------------------------
REGENCY
SECURITY REALTY GROUP
CAPITAL CORPORATION MEDIAN
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
December 7, 2001 closing share price as a percentage of 52-week
high 96.1% 99.4% 97.9%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Annual dividend yield 0.0% 7.4% 7.7%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Ratio of net debt to total market capitalization (11.1)% 38.6% 51.5%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated
2001 FFO per share 7.9x 9.7x 8.8x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated
2002 FFO per share 7.2x 9.3x 9.3x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Rate of growth from estimated 2001 to estimated 2002 FFO per
share 4.5% 5.0% 4.9%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Ratio of (1) the multiple of 2002 estimated FFO per share
represented by the December 7, 2001 closing share price to (2) the
estimated 2001-2002 FFO per share growth rate 1.6x 1.8x 1.5x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Premium/(discount) to NAV per share (18.0)% 8.1% 12.4%
--------------------------------------------------------------------------------------------------
The results of these analyses for Security Capital, Storage USA and the
group of four self storage real estate companies (including Storage USA) are
summarized as follows:
--------------------------------------------------------------------------------------------------
SECURITY GROUP
CAPITAL STORAGE USA MEDIAN
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
December 7, 2001 closing share price as a percentage of 52-week
high 96.1% 99.1% 99.5%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Annual dividend yield 0.0% 6.4% 7.0%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Ratio of net debt to total market capitalization (11.1)% 40.4% 32.2%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated
2001 FFO per share 7.9x 11.6x 10.8x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated
2002 FFO per share 7.2x 10.6x 10.0x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Rate of growth from estimated 2001 to estimated 2002 FFO per
share 4.5% 9.8% 9.3%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Ratio of (1) the multiple of 2002 estimated FFO per share
represented by the December 7, 2001 closing share price to (2) the
estimated 2001-2002 FFO per share growth rate 1.6x 1.1x 1.2x
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Premium/(discount) to NAV per share (18.0)% 7.1% 7.2%
--------------------------------------------------------------------------------------------------
20
The results of these analyses for Security Capital, CarrAmerica and the
group of fifteen office real estate companies (including CarrAmerica) are
summarized as follows:
----------------------------------------------------------------------------------------------
CARR
SECURITY AMERICA GROUP
CAPITAL REALTY MEDIAN
----------------------------------------------------------------------------------------------
December 7, 2001 closing share price as a percentage of 52-week high 96.1% 87.6% 89.9%
----------------------------------------------------------------------------------------------
Annual dividend yield 0.0% 6.3% 7.4%
----------------------------------------------------------------------------------------------
Ratio of net debt to total market capitalization (11.1)% 33.5% 43.5%
----------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated 2001
FFO per share 7.9x 8.9x 8.5x
----------------------------------------------------------------------------------------------
Multiple of December 7, 2001 closing share price to estimated 2002
FFO per share 7.2x 8.2x 8.1x
----------------------------------------------------------------------------------------------
Rate of growth from estimated 2001 to estimated 2002 estimated FFO
per share 4.5% 8.2% 7.3%
----------------------------------------------------------------------------------------------
Ratio of (1) the multiple of 2002 estimated FFO per share represented
by the December 7, 2001 closing share price to (2) the estimated 2001-
2002 FFO per share growth rate 1.6x 1.0x 1.1x
----------------------------------------------------------------------------------------------
Premium/(discount) to NAV per share (18.0)% 0.6% 4.6%
----------------------------------------------------------------------------------------------
Selected Transactions Analysis
Goldman Sachs reviewed 13 selected cash transactions in the real estate
industry since 1999 and 54 selected all stock or stock and cash transactions in
the real estate industry since 1994. The all stock or stock and cash
transactions were found not to be comparable to the proposed merger and were
not included in the analysis because: (i) in the proposed merger, a
substantial, if not the entire, part of the consideration will be cash, and
(ii) the buyer in the proposed merger is not a publicly traded real estate
investment trust whereas in the all stock or stock and cash transactions, the
universe of buyers was composed mostly of publicly traded real estate
investment trusts. The selected cash transactions consisted of acquisitions of
the following companies:
ACQUIRED COMPANY PROPERTY TYPE
----------------------------------------------------
Cabot Industrial Trust Industrial
----------------------------------------------------
Franchise Finance
Corporation Net Lease
----------------------------------------------------
Westfield America Regional Mall
----------------------------------------------------
First Washington Realty
Trust Shopping Center
----------------------------------------------------
Urban Shopping Centers Regional Mall
----------------------------------------------------
Pacific Gulf Properties Diversified
----------------------------------------------------
Bradley Real Estate Shopping Center
----------------------------------------------------
Cadillac Fairview Regional Mall
----------------------------------------------------
Walden Residential Apartment
----------------------------------------------------
Burnham Pacific Properties Shopping Center
----------------------------------------------------
Berkshire Realty Investors Apartment
----------------------------------------------------
Sunstone Hotel Investors Hotel
----------------------------------------------------
Irvine Apartment
Communities Apartment
Goldman Sachs analyzed and compared financial information relating to these
transactions to similar information for the proposed merger, including:
. the implied premium to the closing price of the acquired company's shares
on the day prior to announcement of the transaction;
21
. the transaction FFO multiple calculated as the multiple of the implied
price per share in the transaction to the estimated FFO per share for the
acquired company at the time of the announcement of the transaction; and
. the implied premium (discount) to the net asset value per share of the
acquired company (based on NAV estimates provided by Green Street
Advisors).
In comparing the selected transactions to the proposed merger, with respect
to the proposed merger, Goldman Sachs used (1) Security Capital's management's
estimates of 2001 per share earnings before depreciation, amortization and
deferred taxes, or EBDADT, which did not deviate materially from median First
Call FFO per share estimates for Security Capital, (2) a December 7, 2001
closing share price for the class B stock of Security Capital, and (3) an NAV
per share of $26.85 which was calculated by Goldman Sachs based on the
September 30, 2001 $26.65 NAV (as disclosed in Security Capital's September 30,
2001 quarterly supplemental information), as adjusted based on current public
market information and information provided by Security Capital's management as
described in the Net Asset Value Analysis section below. The results of this
analysis are summarized as follows:
------------------------------------------------------------------------------------
SELECTED
TRANSACTIONS
------------------------------------------------------------------------------------
---------------------------------------------------------- -----------------
PROPOSED
MERGER HIGH MEDIAN LOW
------------------------------------------------------------------------------------
---------------------------------------------------------- -----------------
Implied premium to target's closing price on day prior to
announcement (cash deals) 24.4% 39.4% 21.8% 5.4%
---------------------------------------------------------- -----------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
----
Transaction FFO/EBDADT multiple (cash deals) 10.4x 13.0x 9.2x 6.6x
----
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Premium/(discount) to NAV (cash deals) (3.2)% 34.9% 6.1% 0.0%
------------------------------------------------------------------------------------
Net Asset Value Analysis
Goldman Sachs reviewed historical weekly closing stock price and quarterly
NAV (before and after deferred taxes) per share data for Security Capital from
January 1, 1998 through December 10, 2001. Quarterly NAV data were provided by
Security Capital's management. The results of this review are summarized as
follows:
Share NAV Before Premium/ NAV After Premium/
Date Price Deferred Taxes (Discount) Deferred Taxes (Discount)
---- ------ -------------- ---------- -------------- ----------
Jan 02, 98 $32.25 $26.80 20% $25.01 29%
Apr 03, 98 30.38 26.80 13 25.01 21
Jul 03, 98 26.50 27.68 (4) 25.89 2
Oct 02, 98 17.00 22.57 (25) 20.78 (18)
Jan 01, 99 13.56 20.63 (34) 18.84 (28)
Apr 02, 99 12.56 19.08 (34) 17.29 (27)
Jul 02, 99 14.55 19.71 (26) 17.92 (19)
Oct 01, 99 14.44 18.19 (21) 16.40 (12)
Dec 31, 99 12.50 17.99 (31) 16.20 (23)
Mar 31, 00 14.44 19.31 (25) 17.52 (18)
Jun 30, 00 17.00 22.66 (25) 21.12 (19)
Oct 06,00 19.00 25.47 (25) 23.38 (19)
Jan 05, 01 19.00 25.91 (27) 23.84 (20)
Apr 06, 01 20.75 26.36 (21) 25.10 (17)
Jul 06, 01 21.46 28.31 (24) 26.38 (19)
Oct 05, 01 18.89 28.51 (34) 26.65 (29)
Weekly Mean-January 2, 1998-present (18) (11)
Quarterly Mean-January 2, 1998-present (20) (13)
Quarterly Mean For The Last 4 Quarters (26) (21)
22
Goldman Sachs performed an NAV analysis of Security Capital to arrive at a
range of estimates for NAV per share of class B stock based on information
provided to Goldman Sachs by the management of Security Capital and analyses
performed by research analysts who cover Security Capital. Goldman Sachs
utilized the following methodologies and assumptions in the NAV analysis:
. Security Capital's investments in publicly traded companies were valued
based on closing share prices as of December 7, 2001, with no liquidity
discount applied. CarrAmerica is valued at the price for which Security
Capital sold its shares; Storage USA was valued based on the per share
price of $42 proposed to be paid by Security Capital in its proposed
acquisition of the remaining outstanding shares of Storage USA;
. except for City Center Retail, Security Capital's investments in
non-public companies were valued at original Security Capital cost (which
may have the effect of understating NAV);
. the ongoing business of Security Capital Research and Management
(comprising less than 5% of Security Capital's total assets) was valued
in different ways by the several research analysts using the following
different methodologies: five times its estimated 2001 EBDADT, five times
its estimated 2001 EBITDA, 4% of its total assets and 1-3% of its assets
under management;
. all other assets were valued at book value;
. liabilities (other than deferred tax liability) were derived from
publicly available data as of September 30, 2001;
. all NAV calculations were reduced by an estimate of the deferred tax
liability which Security Capital would be obligated to pay if it
liquidated all of its investments; and
. all NAV calculations were adjusted to give effect to the sale of Security
Capital's investment in Homestead (based on pro forma financial
information contained in Security Capital's press release) and the sale
of Security Capital's investment in CarrAmerica and the pending purchase
by Security Capital of the remaining interest in Storage USA (based on
information provided by Security Capital's management). The adjustments
for the Storage USA transaction related primarily to Security Capital's
estimate of the transaction costs associated with such purchase.
The results of this analysis are summarized as follows:
--------------------------------------------------------------------------
HIGH MEDIAN LOW
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NAV NAV NAV
--------------------------------------------------------------------------
--------------------------------------------------------------------------
NAV per share of class B stock after deferred
taxes $27.35 $27.15 $26.85
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Premium (discount) to NAV per share of class B
stock after deferred taxes represented by class
B closing price on 12/7/2001 (23.6)% (23.0)% (22.2)%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Premium (discount) to NAV per share of class B
stock after deferred taxes represented by
$26.00 per share merger consideration (4.9)% (4.3)% (3.2)%
--------------------------------------------------------------------------
Goldman Sachs performed a "Look Through" NAV analysis, which values the
public portfolio companies based on their NAV as calculated by Green Street
Advisors, rather than based on their public market value. The resulting NAV per
share of class B stock after deferred taxes is reduced by $1.46 to $25.38.
Goldman Sachs conducted this analysis in order to adjust Security Capital's NAV
for any premiums or discounts ascribed by the market to the NAV of Security
Capital's public portfolio companies.
23
Subsequent to presenting its financial analyses to the Board of Directors of
Security Capital on December 12, 2001, Goldman Sachs noted the calculation of
Security Capital's net asset value per share contained an error. The discussion
set forth in the previous two paragraphs reflects the corrected analysis.
Goldman Sachs subsequently confirmed to Security Capital that it would have
delivered its fairness opinion if the corrected information had been included
in the original financial analyses.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses and did not
attribute any particular weight to any analysis or factor considered by it. No
company or transaction used in the above analyses as a comparison is directly
comparable to Security Capital or the merger.
The analyses were prepared solely for purposes of providing an opinion to
the Security Capital board as to the fairness from a financial point of view of
the consideration to be received by the holders of the class A stock and the
class B stock in the merger. The analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Security Capital, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecasted.
In reaching its decision to approve the merger, the Security Capital board
of directors considered a variety of factors, including the factors listed
under the caption "Security Capital Reasons for the Merger; Recommendation of
the Security Capital Board." Goldman Sachs and Security Capital cannot predict
the full range of hypothetical future events that could affect the board's view
of the transaction. However, the Security Capital's board, in connection with
their discharge of their fiduciary duty under applicable state law, continually
evaluates subsequent events as they evolve. The Security Capital board of
directors has not, however, sought an updated opinion from Goldman Sachs and
currently does not intend to request such an opinion.
As described above, the financial analysis presented by Goldman Sachs to the
Security Capital board was one of many factors taken into consideration by the
Security Capital board in making its determination to approve the merger.
Goldman Sachs, as part of its investment banking business, is continually
engaged in performing financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements as well as for estate, corporate and
other purposes. Goldman Sachs is familiar with Security Capital, having
provided investment banking services to Security Capital and its affiliates
from time to time, including having acted as:
. an agent for Security Capital's public offering of $100 million aggregate
principal amount of 7.75% Medium Term Notes, Series A in 1998;
. financial advisor in connection with the acquisition of Security Capital
U.S. Realty in 2001;
. sole book runner and co-lead manager of the secondary public offering of
Security Capital's 29.456 million shares of beneficial interest in
Archstone Communities Trust in 2001;
. sole book runner and sole lead manager of the secondary public offering
of Security Capital's 16.873 million shares of common stock of
CarrAmerica in 2001; and
. having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the merger
agreement.
24
Goldman Sachs also has provided, and is currently providing, certain
investment banking services to GE Capital and its affiliates (including General
Electric Company, the ultimate parent company of GE Capital) from time to time,
including, but not limited to, having acted as:
. financial advisor in connection with GE Capital's purchase of MET Life
Capital Credit Corporation in 1998;
. financial advisor in connection with GE Capital's purchase of Franchise
Finance Corporation of America in 2001;
. financial advisor in connection with GE Capital's purchase of Mellon
Financial Corporation in 2001; and
. underwriter of a significant number of financing transactions for GE
Capital.
In addition, Goldman Sachs may provide investment banking services to GE
Capital and its affiliates in the future. Goldman Sachs provides a full range
of financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
positions in securities, including derivative securities, of Security Capital
or General Electric Company for its own account and for the accounts of
customers.
Pursuant to a letter agreement, dated October 29, 2001, Security Capital
exclusively engaged Goldman Sachs to act as its financial advisor in connection
with the possible sale of all or a portion of Security Capital. Pursuant to the
terms of this letter agreement, Security Capital has agreed to pay Goldman
Sachs, upon completion of the merger, a fee of approximately $31 million.
Security Capital also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
Material United States Federal Income Tax Consequences
General
The following is a summary of the material United States federal income tax
consequences of the merger to Security Capital stockholders. This summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable current and proposed United States Treasury Regulations,
judicial authority, and administrative rulings and practice. Legislative,
judicial or administrative rules and interpretations are subject to change, at
any time, possibly on a retroactive basis, and, therefore, the following
statements and conclusions could be altered or modified. It is assumed that the
shares of Security Capital common stock are held as capital assets by a U. S.
person. For purposes of this discussion, a "U.S. person" means a citizen or
resident of the United States, a corporation created or organized in the United
States or under the laws of the United States or of any State or political
subdivision of the foregoing, any estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source, or a
trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust. This discussion does not address the aspects of United States federal
income taxation that may apply to pass-through entities. This discussion does
not address all aspects of United States federal income taxation that may be
relevant to a particular Security Capital stockholder in light of that
stockholder's personal investment circumstances, or those stockholders subject
to special treatment under the United States federal income tax laws (for
example, life insurance companies, tax-exempt organizations, financial
institutions, United States expatriates, foreign corporations and nonresident
alien individuals). In addition, this discussion does not address the aspects
of United States federal income taxation that may be relevant to Security
Capital stockholders who hold shares of Security Capital common stock as part
of a hedging, "straddle," conversion or other integrated transaction, or
Security Capital stockholders who acquired their shares of Security Capital
common stock through the exercise of employee stock options or other
compensation arrangements. In addition, the discussion does not address any
aspect of foreign, state or local taxation or estate and gift taxation that may
be applicable to a Security Capital stockholder.
25
Consequences of the Merger to Security Capital Stockholders
The receipt of the merger consideration in the merger will be a taxable
transaction for United States federal income tax purposes (and also may be a
taxable transaction under applicable state, local and other income tax laws).
In general, for United States federal income tax purposes, a holder of Security
Capital common stock will recognize gain or loss equal to the difference
between the stockholder's adjusted tax basis in Security Capital common stock
and the sum of the amount of cash and the fair market value of the ProLogis
common shares received or deemed received in respect thereof in the merger.
Gain or loss will be calculated separately for each block of shares converted
in the merger (i.e., shares acquired at the same cost in a single transaction).
The gain or loss will be capital gain or loss, and will be short-term gain or
loss if, at the effective time of the merger, the shares of Security Capital
common stock so converted were held for one year or less. If, at the effective
time of the merger, the shares of Security Capital common stock so converted
were held for more than one year, the gain or loss will be long-term capital
gain or loss. In the case of stockholders who are individuals, long-term
capital gain is currently eligible to be taxed at reduced rates for federal
income tax purposes. There are limitations on the deductibility of capital
losses. The tax basis of the ProLogis common shares received by a holder of
Security Capital common stock pursuant to the merger will be the fair market
value of such shares on the effective date of the merger.
Some states and localities, including the state and city of New York, impose
transfer, sales, use, excise, or similar taxes on certain indirect transfers
(including indirect transfers pursuant to corporate transactions such as the
merger) of an interest in real property (including leases) located therein
("Transfer Taxes"). GE Capital has agreed to pay any such Transfer Taxes that
would be imposed as a result of the consummation of the merger (excluding any
taxes based on the gross or net income of any Security Capital stockholder) or
cause such Transfer Taxes to be paid. For United States federal income tax
purposes, the payments of Transfer Taxes may result in the deemed receipt of
additional consideration by such stockholder. In such event, such stockholder
should be entitled to claim a tax deduction or a reduction in the gain or an
increase in the loss realized on the sale of its shares of Security Capital
common stock in an amount equal to the amount of any such additional
consideration deemed to have been received.
Backup Withholding Tax
Under the United States federal income tax backup withholding rules, unless
an exemption applies, GE Capital is required to and will withhold up to 30% of
all payments to which a Security Capital stockholder or other payee is entitled
in the merger, unless the Security Capital stockholder or other payee provides
a tax identification number, or "TIN" (social security number, in the case of
an individual, or employer identification number, in the case of other
stockholders), and certifies under penalties of perjury that its TIN is
correct, the stockholder is not subject to backup withholding and the
stockholder is a United States person. Each Security Capital stockholder and,
if applicable, each other payee should complete and sign the substitute Form
W-9 that will be part of the letter of transmittal to be returned to the
exchange agent (or other agent) in order to provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is otherwise proved in a manner satisfactory to the
exchange agent (or other agent). The exemptions provide that certain Security
Capital stockholders (including, among others, corporations and certain foreign
individuals) are generally not subject to backup withholding. In order for a
foreign individual to qualify as an exempt recipient, however, he or she must
submit a signed statement (such as a Certificate of Foreign Status on Form
W-8BEN) attesting to his or her exempt status. Any amounts withheld will be
allowed as a credit against the stockholder's United States federal income tax
liability for that year, provided that the appropriate information is furnished
to the Internal Revenue Service.
You should consult your own tax advisors to determine the United States
federal, state and local and foreign tax consequences of the merger to you in
view of your own particular circumstances.
26
FIRPTA
The following is a summary discussion of U.S. federal income tax
consequences under the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA") that applies to the receipt of merger consideration for
shares of class A stock and class B stock in the merger by a beneficial owner
of such shares that is not a U.S. person as defined above (a "non-U.S. holder").
Generally, unless FIRPTA applies, a non-U.S. holder will not be subject to
U.S. federal income tax on any gain resulting from the receipt of the merger
consideration unless (a) the gain is effectively connected with a U.S. trade or
business of the non-U.S. shareholder or (b) that shareholder is an individual
who has been present in the U.S. for 183 days or more during the taxable year
of disposition and certain other conditions are satisfied. Under current law,
subject to the exception discussed in the paragraph below, a non-U.S. holder
generally will be subject to U.S. federal income tax under FIRPTA on any gain
recognized on the receipt of the merger consideration for class A stock or
class B stock if Security Capital is or has been at any time within the shorter
of the five-year period preceding such disposition or such holder's holding
period a "United States real property holding corporation" (within the meaning
of section 897(c)(2) of the Code) for U.S. federal income tax purposes.
Non-U.S. holders should note that while not free from doubt, Security Capital
believes that at the effective time of the merger it will be or at some time
during the five-year period ending at the date of the merger it will have been
a United States real property holding corporation.
If, as expected, Security Capital is treated as a United States real
property holding corporation, (A) a non-U.S. holder of class A stock or class B
stock which owns or is deemed to own more than 5% of such class A stock or
class B stock during the five-year period preceding such sale or other
disposition would be subject to United States federal income tax (generally at
regular capital gain rates) on a sale or other disposition of such class A
stock or class B stock, and (B) a non-U.S. holder that does not own and is not
deemed to own more than 5% of the class A stock or class B stock during the
five-year period preceding such sale or other disposition would not be subject
to United States federal income tax under FIRPTA on gain with respect to such
shares provided that such shares are "regularly traded on an established
securities market" (within the meaning of Section 897(c)(3) of the Code).
Security Capital believes that both the class A stock and the class B stock are
"regularly traded on an established securities market" (within the meaning of
Section 897(c)(3) of the Code). No United States federal income tax withholding
under FIRPTA will be required so long as the class A stock and the class B
stock are regularly traded on an established securities market.
Each non-U.S. holder is urged to consult its own tax advisor with respect to
the particular U.S. federal, state and local consequences to it of the receipt
of the merger consideration in exchange for class A stock or class B stock, as
well as any tax consequences arising under the laws of any other taxing
jurisdiction. Each non-U.S. holder is also urged to consult its own tax adviser
with respect to the particular U.S. federal, state and local consequences to it
of the ownership and disposition of the stock of ProLogis. Non-U.S. holders
should also consult with their tax advisors concerning the possible application
of an income tax treaty that may modify certain of the U.S federal income tax
consequences described above. All non-U.S. holders should consult their own tax
advisors to determine the United States federal, state and local and foreign
tax consequences of the merger to them in view of their own particular
circumstances.
Governmental and Regulatory Approvals
Security Capital and GE Capital cannot complete the merger until they have
filed notifications with the Antitrust Division of the Department of Justice
and the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and the applicable rules of
the Federal Trade Commission, and specified waiting periods have expired or
terminated. Each of Security Capital and GE Capital filed a Premerger
Notification and Report Form on January 3, 2002. The applicable waiting period
was terminated effective as of January 14, 2002. GE Capital and Security
Capital do not believe the merger requires any other antitrust approvals, but
if any such approvals are determined to be necessary, the parties will make the
requisite filings expeditiously.
27
Security Capital and GE Capital believe that the proposed merger is
compatible with U.S. antitrust laws. However, at any time before or after
consummation of the merger, the Antitrust Division, the Federal Trade
Commission, other governmental authorities or private persons could take action
against the merger under the antitrust laws, including seeking to enjoin
consummation of the merger, rescind the merger, cause Security Capital or GE
Capital to divest, in whole or in part, any of their assets or businesses,
and/or recover monetary damages. We can give no assurance that a challenge to
the merger on antitrust grounds will not be made or, if such challenge is made,
that it would not be successful.
Accounting Treatment
The merger will be accounted for under the purchase method of accounting in
accordance with the Statement of Financial Accounting Standards No. 141,
"Business Combinations." Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the merger (with the excess of
the purchase price after such allocations being recorded as goodwill).
Interests of Certain Persons in the Merger
General
Some members of Security Capital management and the Security Capital board
have certain interests in the merger that are different from or in addition to
the interests of Security Capital stockholders generally. These additional
interests relate to provisions in the merger agreement or Security Capital
employee benefit plans, as well as:
. modification of change of control agreements and agreements regarding
employment terms;
. acceleration and payments in respect of outstanding Security Capital
stock options and restricted stock units; and
. indemnification of and provisions for liability insurance for Security
Capital directors and officers.
All of these additional interests, to the extent material, are described
below. The Security Capital board was aware of these interests and considered
them in approving and adopting the merger agreement and the merger.
Change of Control Agreements and Related Matters
Security Capital has entered into agreements, dated November 9, 2001 (the
"2001 Change of Control Agreements"), with William D. Sanders, Chairman and
Chief Executive Officer, C. Ronald Blankenship, Vice Chairman and Chief
Operating Officer, Thomas G. Wattles, Managing Director, Constance B. Moore,
Managing Director of the Capital Division, Paul E. Szurek, Managing Director of
SC Group Incorporated and Chief Financial Officer of Security Capital, Anthony
R. Manno, President and Managing Director of Security Capital Research and
Management Incorporated, A. Richard Moore, Managing Director of Security
Capital (EU) Management Incorporated, and Jeffrey A. Klopf, Senior Vice
President.
On December 14, 2001, GE Capital entered into agreements with each of the
above-named executives (the "December 14, 2001 Agreements"), which modified the
2001 Change of Control Agreements with each of these executives. However, only
the 2001 Change of Control Agreements with Messrs. Manno and Klopf, each as
modified by the December 14, 2001 Agreements, remain in place. The 2001 Change
of Control Agreements with the remaining executives, and the December 14, 2001
Agreements with such executives, were terminated and replaced by the Letter
Agreements as described below.
Each of the 2001 Change of Control Agreements, as in effect before the
modifications, provided for in the December 14, 2001 Agreements, provided for
continued employment of the executive for two years following a
28
"change of control" with position, duties, pay, benefits and perquisites no
less favorable than those that existed before the change of control. If the
executive experienced a Termination, as defined in the agreement, he would be
entitled to pay and benefits for a specified number of years. The number of
years is two for Mr. Manno and one for Mr. Klopf. In addition, if the executive
is subject to the federal excise tax on "excess parachute payments," he will be
made whole for that tax by Security Capital. Each of the 2001 Change of Control
Agreements defines a Termination as a termination by Security Capital (or its
successors) for any reason other than death, disability or cause or by the
executive upon: (a) a significant change in the Executive's authorities or
duties or a breach by Security Capital of its obligations under the agreement;
(b) relocation of the executive's office more than fifty (50) miles; (c) a
reasonable determination by the executive that, as a result of the change in
control, there has been a change in circumstances significantly affecting the
nature and scope of the executive's authorities and duties such that the
executive is unable to exercise the authorities, powers, functions or duties
associated with the executive's position; or (d) the failure of Security
Capital to obtain a satisfactory agreement from any successor to assume such
agreement.
The December 14, 2001 Agreements modified the 2001 Change of Control
Agreements by offering employment terms for each of the executives for a period
of one year following completion of the merger. Each December 14, 2001
Agreement also provides that the executive will receive a specified amount in
cash at the effective time of the merger, which has been calculated to be equal
to 50% of the cash severance the executive would have received under the 2001
Change of Control Agreement upon a Termination, plus an additional amount equal
to the pro-rata bonus for the portion of calendar year 2002 preceding the
effective time of the merger based on the executive's bonus for 2001. Each
December 14, 2001 Agreement further provides for an additional payment equal to
the same specified amount, at the end of the one-year term or upon a
Termination, whichever occurs first. In addition, following termination of the
executive's employment for any reason other than cause during the 1-year period
following the completion of the merger, the executive and/or his family will
continue to receive medical and other benefits for two years in the case of Mr.
Manno and one year in the case of Mr. Klopf. The 2001 Change of Control
Agreements, as modified by the December 14, 2001 Agreements, provide for total
cash payments (in the installments noted above) to Messrs. Manno and Klopf of
$2,700,750 and $698,333, respectively (each of which includes four (4) months
bonus based on an estimated May 1, 2001 closing date).
The 2001 Change of Control Agreements, as modified by the December 14, 2001
Agreements, provide that to the extent that Mr. Manno or Mr. Klopf is subject
to the parachute payment excise tax with respect to payments received from
Security Capital, such executive would receive excise tax gross-up payments.
Security Capital and GE Capital do not expect that any excise tax gross-up
payments to Messrs. Manno and Klopf will be required. The 2001 Change of
Control Agreements, as modified by the December 14, 2001 Agreements, provide,
however, that if a tax authority makes a final determination that a parachute
payment excise tax is due and owing by an executive, Security Capital will be
obligated to make an excise tax gross-up payment based on such final
determination at such time.
On March 22, 2002, Security Capital entered into letter agreements (the
"Letter Agreements") and GE Capital and Security Capital have together entered
into restrictive covenants agreements (the "Restrictive Covenants Agreements")
with Messrs. Sanders, Blankenship, Wattles, Szurek, A.R. Moore, and Ms. C.
Moore (collectively, the "Executives"). The Letter Agreements and Restrictive
Covenants Agreements supersede the 2001 Change of Control Agreements, as
modified by the December 14, 2001 Agreements, for each of the Executives.
Restrictive Covenants Agreements. Pursuant to the Restrictive Covenants
Agreements, each Executive has agreed, for a period of eighteen months
following the completion of the merger (the "Restricted Period"), not to become
associated as an executive or board member with, or otherwise actively
participate in the management of, any entity that owns and operates (i)
self-storage facilities, (ii) retail shopping centers anchored by
grocery-stores, drugstores, or certain general merchandise discount stores, or
(iii) central business district parking facilities (whether domestic or
international). The foregoing prohibition is applicable to businesses above
29
certain thresholds with respect to the value of its assets owned or acquired.
In addition, the Restrictive Covenants Agreements also include covenants with
respect to the non-solicitation of employees or customers, non-disparagement
and confidentiality. In consideration for entering into the Restrictive
Covenants Agreement, the Executives will be paid, at the completion of the
merger, the following amounts (less applicable withholding taxes): Mr. Sanders,
$7,338,800; Mr. Blankenship, $7,535,467; Mr. Wattles, $4,935,800; Mr. Moore,
$2,395,000; Ms. Moore, $2,395,000; and Mr. Szurek, $2,183,567.
Letter Agreements. Pursuant to the Letter Agreements, each Executive
agreed to terminate any rights he or she may have under (i) the Executive's
2001 Change of Control Agreement, as of immediately prior to the completion of
the merger, and (ii) such Executive's December 14, 2001 Agreement, as of the
date of the Letter Agreements. The Letter Agreements provide that each
Executive will continue in the employ of Security Capital for a period of one
year commencing at the completion of the merger (the "Term"), subject to the
termination provisions described in the next paragraph, with pay, benefits and
perquisites no less favorable than those which existed before completion of the
merger.
The Letter Agreements may be terminated by the Executive or Security Capital
with thirty days prior notice of termination by the terminating party. In the
event of a termination of the Executive's employment during the Term (i)
voluntarily by the Executive or (ii) by the Company for any reason other than
death, disability, or cause (as defined in the Letter Agreement), Security
Capital is required to (1) pay to the Executive all accrued and unpaid salary
through the date of the Executive's termination of employment and (2) continue
the Executive's welfare and other fringe benefits for the period commencing on
the date of such termination and ending three (3) years from the expiration of
the one-year term in the case of Mssrs. Sanders, Blankenship and Wattles and
two (2) years from the expiration of the one-year term in the case of Mssrs.
Moore and Szurek and Ms. Moore. If the completion of the merger occurs after
May 1, 2002, the company shall pay each executive a pro rata bonus for the
fiscal year in which the merger occurs, for the period commencing on May 1,
2002 and ending on the completion of the merger.
The Letter Agreements also provide that if any payment or benefit to which
the Executive is entitled becomes subject to the parachute payment excise tax
(whether under the Letter Agreement or any other arrangement), the Executive
will be entitled to receive excise tax gross-up payments. Security Capital and
GE Capital do not expect that any excise tax gross-up payments to any of the
Executives will be required. The Letter Agreements provide, however, that if a
tax authority makes a final determination that a parachute payment excise tax
is due and owing by an Executive, Security Capital will be obligated to make an
excise tax gross-up payment based on such final determination at such time. GE
Capital has agreed to cause Security Capital to honor its obligations under the
Letter Agreements after the completion of the merger.
Effect on Stock Options and Restricted Stock Units
Each outstanding option and warrant to purchase Security Capital common
stock, and each restricted stock unit based on Security Capital common stock,
whether vested or unvested, that was previously granted by Security Capital and
its subsidiaries, and each right to receive deferred delivery of shares of
Security Capital common stock pursuant to previously exercised options, will
automatically be canceled at the effective time of the merger. GE Capital will,
or will cause the surviving corporation in the merger to, provide the holder of
each Security Capital stock option, the consideration described in the section
entitled "Merger Agreement - Treatment of Security Capital Stock Options and
Restricted Stock Units." GE Capital has also agreed that the account balances
of all employees under Security Capital's 401(k) plan and Nonqualified Savings
Plan and of all non-employee directors under the Deferred Fee Plan for
Directors will vest upon completion of the merger. The portion of such account
balances under the Nonqualified Savings Plan and the Deferred Fee Plan for
Directors that are deemed invested in Security Capital common stock will be
converted upon completion of the merger into cash balances or, if GE Capital
elects to substitute ProLogis common shares for part of the cash consideration,
and the employee or director so elects, into an account deemed invested in the
applicable merger consideration.
30
Executive officers and directors hold equity-based awards that will vest in
the merger that can be summarized as follows:
Number of Shares Subject to Unvested Equity-Based Awards That Will Vest in the Merger
------------------------------------------------------------------------------------------------------------
Class A Shares Subject to Class B Shares Subject to Class B Shares
Options Options Represented by RSUs
-------------------------------------------------------------------------------------------------------
William D. Sanders 916 886,783 152,663
-------------------------------------------------------------------------------------------------------
C. Ronald Blankenship 811 796,592 179,155
-------------------------------------------------------------------------------------------------------
Thomas G. Wattles 707 465,114 131,884
-------------------------------------------------------------------------------------------------------
Anthony R. Manno Jr. 316 270,814 102,018
-------------------------------------------------------------------------------------------------------
A. Richard Moore Jr. 534 207,501 52,689
-------------------------------------------------------------------------------------------------------
Constance B. Moore 101 321,001 59,388
-------------------------------------------------------------------------------------------------------
Paul E. Szurek 133 222,811 66,725
-------------------------------------------------------------------------------------------------------
Jeffrey A. Klopf 138 110,919 15,108
-------------------------------------------------------------------------------------------------------
Outside Directors as a
Group 0 0 0
Indemnification of Officers and Directors
In the merger agreement, GE Capital has agreed that Security Capital, as the
surviving corporation in the merger, will, and GE Capital will cause the
surviving corporation to, indemnify and hold harmless, to the fullest extent
permitted under applicable law, each present and former director, officer and
employee of Security Capital or any of its subsidiaries for losses, expenses
(including reasonable attorneys' fees), claims, damages or liabilities, or
amounts paid in settlement (other than those effected without its written
consent), arising out of actions or omissions occurring at or prior to the
effective time of the merger and whether asserted or claimed prior to, at or
after the effective time of the merger that are in whole or in part (i) based
on, or arising out of, the fact that such person is or was a director, officer
or employee of such party or a subsidiary of such party or (ii) based on,
arising out of or pertaining to the merger.
For a period of six years after the effective time of the merger, GE Capital
shall cause to be maintained in effect the policies of directors' and officers'
liability insurance maintained by Security Capital for the benefit of those
persons who are covered by such policies at the effective time of the merger
(or GE Capital may substitute therefor policies of at least the same coverage
with respect to matters occurring prior to the effective time of the merger),
to the extent that such liability insurance can be maintained annually at a
cost to GE Capital not greater than two hundred percent of the premium for the
current Security Capital directors' and officers' liability insurance;
provided, however, that if such insurance cannot be so maintained or obtained
at such costs, GE Capital shall maintain or obtain as much of such insurance as
can be so maintained or obtained at a cost equal to two hundred percent of the
current annual premiums of Security Capital for such insurance.
The merger agreement also provides that the indemnification provisions in
the charter and bylaws of Security Capital in effect at the effective time of
the merger will not be amended or otherwise repealed for six years after the
effective time of the merger in any manner that would adversely affect the
rights of individuals who at the effective time of the merger were directors or
officers of Security Capital, among others.
Amendment to Security Capital Rights Agreement, Takeover Statutes
Security Capital amended the Rights Agreement, dated as of April 21, 1997,
between Security Capital and EquiServe Trust Company, N.A., as rights agent, to
provide that neither the merger nor the merger agreement will cause GE Capital
or any of its subsidiaries or affiliates to become an "acquiring person" under
the Rights Agreement, or a "distribution date" or "shares acquisition date" to
occur, and that the Rights Agreement will expire immediately prior to the
effective time of the merger. In addition, Security Capital has exempted GE
Capital from the ownership limits of the Security Capital charter and exempted
the support agreements, the merger agreement and the merger from Maryland
takeover statutes which might otherwise have been applicable.
No Dissenters' Appraisal Rights
Under Maryland law, because the class A stock and class B stock are listed
on the New York Stock Exchange and the series B preferred stock will remain
outstanding after the merger, Security Capital stockholders will not have
dissenters' rights to an appraisal of their shares in connection with the
merger.
31
THE MERGER AGREEMENT
The following is a summary of all the material terms of the merger
agreement. The summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached to this proxy statement/prospectus as
Appendix A.
STRUCTURE AND EFFECTIVE TIME
The merger agreement provides for the merger of Merger Sub with and into
Security Capital. Security Capital will survive the merger and continue as an
indirect wholly owned subsidiary of GE Capital. The merger will become
effective at the time the articles of merger are accepted for record by the
State Department of Assessments and Taxation of Maryland (or at a later time if
agreed in writing by the parties and specified in the articles of merger). The
parties will file the articles of merger on the second business day after the
satisfaction or waiver of all conditions in the merger agreement, or such other
date as Security Capital and GE Capital may agree. We cannot assure you when,
or if, all the conditions to completion of the merger will be satisfied or
waived. See "--Conditions to Consummation of the Merger." We intend to complete
the merger as promptly as practicable, subject to receipt of the Security
Capital stockholder approval and all requisite regulatory approvals. See "The
Merger--Governmental and Regulatory Approvals" and "--Reasonable Best Efforts;
Antitrust Law Matters" and "--Conditions to Consummation of the Merger."
MERGER CONSIDERATION
The merger agreement provides that each share of Security Capital class B
stock outstanding immediately prior to the effective time of the merger will be
converted at the effective time of the merger into the right to receive
consideration consisting, in all cases, of $26.00 in value from GE Capital.
Each holder of a share of class A stock will receive 50 times the class B
consideration per share. Except as provided below, the consideration will be
payable entirely in cash.
GE Capital may elect (but no later than the 15th day before the stockholder
meeting) to include some or all of the ProLogis common shares owned by Security
Capital as part of the consideration payable to Security Capital stockholders
in the merger. However, cash will be paid in lieu of fractional shares. GE
Capital notified Security Capital on March 8, 2002 that its current plan is to
cause Security Capital to distribute approximately 32.8 million ProLogis common
shares as part of the Merger Consideration. However, GE Capital has not made a
formal election, has informed Security Capital that it intends to continue to
evaluate its alternatives and could change its plans. If GE Capital so elects,
the holders of Security Capital class B stock will receive a combination of
cash and 0.19 common shares of beneficial interest of ProLogis Trust with an
agreed aggregate value of $26.00 per share. If GE Capital changes its current
plans and, for example, elects to include all of the ProLogis common shares
owned by Security Capital as part of the merger consideration, holders of
Security Capital class B stock would receive a combination of cash and
approximately 0.3 ProLogis common shares, with an agreed aggregate value of
$26. In any event, the value of the ProLogis common shares will be measured
during the 10 consecutive full trading days preceding May 10, 2002, and the
holders of class A stock would receive 50 times such amount per share. GE
Capital may also revoke its election to include ProLogis common shares as part
of the merger consideration. At and after the Closing, Security Capital
stockholders will bear all of the economic risk of fluctuations, if any, in the
market price of those shares below the average price during the measurement
period.
Prior to the consummation of the merger, GE Capital may (but no earlier than
the 18th day before the Security Capital stockholder meeting) direct the sale
of any or all of the ProLogis common shares owned by Security Capital,
including to ProLogis, pursuant to a registered offering, negotiated third
party purchase, or otherwise. No such sale, regardless of price or timing, will
change the $26.00 in cash to be received by Security Capital class B
stockholders for their shares, or the 50 times such amount to be received by
the class A stockholders.
GE Capital may also determine to cause Security Capital to retain its
ProLogis common shares, in which case holders of Security Capital class B stock
will still receive $26.00 in cash for their shares, and holders of Security
Capital class A stock 50 times such amount.
32
GE Capital may revoke its election to include ProLogis common shares as part
of the merger consideration, although GE Capital has informed Security Capital
that it will make any decision to revoke its election no later than the 10th
day prior to the stockholder meeting. GE Capital and Security Capital will
promptly issue a press release announcing any such revocation. All shares of
Security Capital common stock held by any subsidiary of Security Capital and
any shares owned by GE Capital, Merger Sub or any subsidiary of GE Capital or
Merger Sub will be canceled at the effective time of the merger, and no payment
will be made for those shares.
PAYMENT PROCEDURES
GE Capital will appoint a paying agent that will make payment of the merger
consideration in exchange for certificates representing shares of Security
Capital common stock. GE Capital will deposit sufficient cash with the paying
agent in order to permit the payment of the merger consideration and Security
Capital will make available to the paying agent ProLogis common shares in
amounts and at times necessary for the payment of the stock portion of the
merger consideration, if any. Promptly after the effective time of the merger,
the paying agent will send Security Capital stockholders a letter of
transmittal and instructions explaining how to send their stock certificates to
the paying agent. The paying agent will pay to the holder the cash portion of
the merger consideration and deliver the stock portion of the merger
consideration, if any, payable in the form of ProLogis common shares, minus any
withholding taxes required by law, to Security Capital stockholders promptly
following the paying agent's receipt and processing of Security Capital stock
certificates and properly completed transmittal documents. Security Capital
stockholders will not receive interest on the merger consideration that they
are entitled to receive pending disbursement of the merger consideration by the
paying agent, nor for any delays in consummating the transaction.
TREATMENT OF SECURITY CAPITAL STOCK OPTIONS AND RESTRICTED STOCK UNITS
The merger agreement provides that, upon the closing date of the merger, all
then-outstanding stock options, warrants, and restricted stock units will be
cancelled in exchange for either a cash payment or, in certain cases, payment
partly in cash and partly in ProLogis common shares, in either case to be paid
by Security Capital or, at GE Capital's election, by Merger Sub. The amount of
the cash payment for each option will equal the amount of the merger
consideration payable per share of the class of Security Capital common stock
subject to the option, less the per-share exercise price of the option, times
the number of shares subject to the option, reduced by applicable withholding
taxes. In addition, all then-outstanding restricted stock units will be
cancelled in exchange for either a cash payment or a payment partly in cash and
partly in ProLogis common shares. The amount of the cash payment for each unit
or deferred share pursuant to a previously exercised stock option will equal
the amount of the merger consideration payable per share of the class of
Security Capital common stock subject to the unit or represented by the
deferred share, times (in the case of a unit) the number of shares represented
by the unit. If GE Capital elects to substitute ProLogis common shares, the
holders of these awards will be permitted to elect to receive a reduced cash
payment plus the appropriate number of ProLogis common shares, based upon the
class of Security Capital common stock that is subject to their options, units
or deferred shares. If any taxes are required to be withheld, they will be
subtracted from the cash payment and, if the cash payment is insufficient, the
option holder will be required to make up the difference in cash.
DIRECTORS AND OFFICERS
The merger agreement provides that the directors of Merger Sub immediately
before the effective time of the merger will be the initial directors of the
surviving corporation in the merger. The officers of Security Capital will be
the initial officers of the surviving corporation in the merger until their
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by
Security Capital to GE Capital and Merger Sub, including representations and
warranties relating to:
. organization, qualification and subsidiaries, and other corporate matters;
33
. capitalization of Security Capital and its subsidiaries (the term
"subsidiaries" does not include the Public Investees, other than Storage
USA following consummation of the Storage USA transactions) and certain
information regarding Security Capital's Public Investees (Storage USA,
ProLogis, CarrAmerica, and Regency Realty);
. authorization, execution, delivery and enforceability of the merger
agreement, and required stockholder approval;
. reports and financial statements filed with the Securities and Exchange
Commission and the accuracy of the information in those documents;
. absence of undisclosed liabilities;
. absence of changes in Security Capital and its subsidiaries;
. accuracy of information in this proxy statement/prospectus;
. conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
. absence of default, compliance with organizational documents, agreements,
and foreign or domestic laws;
. litigation;
. compliance with applicable law;
. properties;
. employee plans;
. labor matters;
. environmental matters;
. tax matters;
. material contracts;
. absence of questionable payments;
. insurance;
. intellectual property;
. opinion of financial advisor;
. brokers' and finders' fees with respect to the merger;
. takeover statutes;
. ownership limit; and
. amendment to the Rights Agreement.
The merger agreement also contains representations and warranties made by GE
Capital and Merger Sub to Security Capital, including representations and
warranties relating to:
. organization, qualification and good standing, and other corporate
matters;
. authorization, execution, delivery and enforceability of the merger
agreement;
. accuracy of information for use in this proxy statement/prospectus;
34
. conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
. no prior activities engaged in by Merger Sub;
. brokers' and finders' fees with respect to the merger; and
. financial capacity to consummate the merger.
The representations and warranties of each of the parties to the merger
agreement will expire upon the effective time of the merger.
Covenants; Conduct of the Business of Security Capital Prior to the Merger
From the date of the merger agreement through the effective time of the
merger, Security Capital and its subsidiaries are required to comply with
certain restrictions on their conduct and operations. Security Capital has
agreed, and has agreed to cause its subsidiaries, and will use commercially
reasonable efforts to cause the Public Investees, to conduct their respective
operations in the ordinary and usual course of business consistent with past
practice and, to seek to preserve intact their respective business
organizations, seek to keep available the services of their respective current
officers and employees, and seek to preserve their relationships with
customers, suppliers and others having business dealings with it to the extent
that goodwill and ongoing business shall be unimpaired.
. Exceptions: (a) as otherwise expressly provided in the merger agreement,
(b) as consented to in writing by GE Capital, or (c) with respect to the
consummation of the Storage USA Acquisition (as defined in the merger
agreement), or as contemplated by the Storage USA Transaction Agreements
(as defined in the Merger Agreement) and the merger contemplated thereby.
The merger agreement provides that Security Capital will not increase the
price to be paid in connection with the Storage USA Acquisition or make
any material change to the Storage USA Transaction Agreements or grant
any material waiver, consent or election thereunder, except with GE
Capital's consent, which consent shall be given (or, in the absence of
any response, deemed to have been given) within 24 hours of the delivery
of such a request.
Security Capital has also agreed that, prior to the effective time of the
merger, except as provided in the disclosure schedules to the merger agreement,
Security Capital will not, and will use commercially reasonable efforts to
cause the Public Investees not to, and will not permit any of its subsidiaries
to:
(1)amend their respective charters or bylaws (or other similar governing
instruments);
(2)authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver any stock of any class or any other securities
convertible into or exchangeable for any stock or any equity equivalents;
. Exceptions: (a) the issuance or sale of shares pursuant to the
exercise of Security Capital stock options and conversion of series B
preferred stock and Security Capital's 6.5% Convertible Subordinated
Debentures due 2016 in accordance with the terms thereof, or (b) (1)
automatic grants of Security Capital stock options to directors of
Security Capital in accordance with plan terms in effect as of the
date of the merger agreement, (2) the grant of new Security Capital
stock options upon the exercise of outstanding Security Capital stock
options containing a reload feature requiring a new option grant upon
such exercise, (3) the grant of options, in the ordinary course
consistent with past practice, by subsidiaries of Security Capital,
or (4) the grant of restricted stock units pursuant to Security
Capital's matching share program;
(3)(a) split, combine or reclassify any shares of their respective stock;
(b) declare, set aside or pay any dividend or other distribution in
respect of their respective stock, except the declaration and payment of
regular quarterly cash dividends not in excess of the dividend amounts
provided for in the instrument
35
defining the rights of the preferred stock, with usual record and
payment dates in accordance with past dividend practice; (c) make any
other actual, constructive or deemed distribution in respect of any
shares of their respective stock or otherwise make any payments to
stockholders in their capacity as such; or (d) redeem, repurchase or
otherwise acquire any of their respective securities or any securities
of any of their respective subsidiaries;
(4)adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
(5)alter, through merger, liquidation, dissolution, reorganization,
restructuring or in any other fashion, their respective corporate
structures or ownership of any subsidiary or joint venture;
(6)(a) incur or assume any long-term or short-term indebtedness or issue
any debt securities, except for borrowings under existing lines of
credit in the ordinary and usual course of business consistent with past
practice in aggregate amounts not to exceed $50 million other than in
connection with the acquisition of Storage USA or as disclosed on the
disclosure schedule to the merger agreement; (b) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person,
except in the ordinary and usual course of business consistent with past
practice and in aggregate amounts not to exceed $50 million; (c) make
capital contributions to, or investments in, any other person, other
than to wholly owned subsidiaries; (d) pledge or otherwise encumber
shares of stock of Security Capital or its subsidiaries; or (e) mortgage
or pledge any of their respective material assets, tangible or
intangible, or create or suffer to exist any material lien thereupon;
(7)except as may be required by law, an existing agreement or as
contemplated by the merger agreement, (a) enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other
arrangement for the benefit or welfare of any director, officer or
employee in any manner except for any such actions taken in the ordinary
and usual course of business consistent with past practice and that, in
the aggregate, do not result in a material increase in Security
Capital's aggregate benefits and compensation expense, and (b) increase
in any manner the compensation or fringe benefits of any director or
officer of Security Capital or pay any benefit not required by any plan
and arrangement as in effect as of the date of the merger agreement or
as modified in accordance with this paragraph (including the granting of
stock appreciation rights or performance units);
(8)acquire, sell, lease or dispose of any assets valued in excess of $3
million individually or in the aggregate, enter into any commitment or
transaction outside the usual course of business consistent with past
practice or grant any exclusive distribution rights other than with
respect to the disposition of Security Capital's right, title and
interest in and to 19,403,417 shares of CarrAmerica;
(9)except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by them;
(10)revalue in any material respect any of their respective assets;
(11)(a) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (b) enter into any
contract or agreement other than in the ordinary and usual course of
business consistent with past practice or amend in any material respect
any material contracts or policies; (c) authorize any new capital
expenditures in excess of those contemplated by the budgets previously
provided by Security Capital to GE Capital; or (d) enter into or amend
any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited under the merger agreement;
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(12)make or revoke any tax election except as required by law, or settle or
compromise any tax liability material to Security Capital and its
subsidiaries taken as a whole (taking into account only Security
Capital's actual ownership in each of its subsidiaries), or change any
material aspect of their respective methods of accounting for tax
purposes;
(13)pay, discharge or satisfy any material claims, liabilities or
obligations other than the payment, discharge or satisfaction in the
ordinary and usual course of business consistent with past practice of
liabilities reflected or reserved against in the consolidated financial
statements of such person and its subsidiaries or incurred in the
ordinary and usual course of business consistent with past practice or
waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which such person or
any of its subsidiaries is a party;
(14)settle or compromise any pending or threatened suit, action or claim
relating to the merger;
(15)enter into any agreement or arrangement that limits or otherwise
restricts such person or any of its subsidiaries or any successor
thereto or that would after the effective time, limit the surviving
corporation and its affiliates including GE Capital or any successor
thereto from engaging or competing in any line of business or in any
geographic area;
(16)in any case where Security Capital has a contractual right to consent to
any matter requested or proposed by Storage USA or Regency, Security
Capital will not so consent without GE Capital's consent, which shall
not be unreasonably withheld or delayed; and
(17)take, propose to take, or agree in writing or otherwise to take, any of
the actions described above or any action which would make any of the
representations or warranties of Security Capital contained in the
merger agreement (a) which are qualified as to materiality untrue or
incorrect or (b) which are not so qualified untrue or incorrect in any
material respect.
With respect to the Public Investees, Security Capital is required to
exercise its voting rights, contractual rights and board rights (subject to
fiduciary duties), in compliance with the above covenants; however Security
Capital cannot, and is not obligated to, otherwise insure that the Public
Investees will in fact comply.
No Solicitation of Acquisition Transactions
The merger agreement provides that, from the date of the merger agreement
until the termination of the merger agreement and except as expressly permitted
by the following provisions, Security Capital will not, nor will it permit any
of its subsidiaries to, nor will it authorize or permit any officer, director
or employee of, or any investment banker, attorney, accountant or other advisor
or representative of, Security Capital or any of its subsidiaries to, directly
or indirectly:
(a)solicit, initiate or encourage the submission of any Acquisition
Proposal; or
(b)participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate, any Acquisition Proposal or any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal; provided, however, that the Security Capital
board may furnish information to, or enter into discussions or
negotiations with, any person that previously has made an unsolicited
bona fide written Acquisition Proposal if, and only to the extent that,
(1)the Security Capital board, after consultation with and having
considered the advice of independent legal counsel, determines in
good faith that (x) such Acquisition Proposal would, if consummated,
constitute a Superior Proposal (as hereinafter defined), and (y) such
action is necessary for the Security Capital board to comply with its
duties to Security Capital's stockholders under applicable law; and
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(2)prior to taking such action, Security Capital (x) provides reasonable
notice to GE Capital (but in any event no later than 24 hours prior
to taking such action) to the effect that it is taking such action
and (y) receives from such person an executed
confidentiality/standstill agreement in reasonably customary form,
the terms of which, as applicable to such person, in any event are at
least as stringent as those applicable to GE Capital in the
confidentiality agreement between GE Capital and Security Capital.
Prior to providing any information to or entering into discussions or
negotiations with any person in connection with an Acquisition Proposal by such
person, Security Capital shall notify GE Capital of any Acquisition Proposal
(including the material terms and conditions thereof and the identity of the
person making it) as promptly as practicable after its receipt thereof (and in
any event, no later than twenty-hours from receipt), and shall provide GE
Capital with a copy of any written Acquisition Proposal or amendments or
supplements thereto, and shall thereafter promptly inform GE Capital of the
status of any discussions or negotiations with such a third party, and any
material changes to the terms and conditions of such Acquisition Proposal, and
shall promptly give GE Capital a copy of any information delivered to such
person that has not previously been reviewed by GE Capital. Immediately after
the execution and delivery of the merger agreement, Security Capital will, and
will cause its subsidiaries and affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents to, cease and terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Acquisition Proposal.
The merger agreement provides that the Security Capital board will not
withdraw or modify, or propose to withdraw or modify, in a manner adverse to GE
Capital, its approval or recommendation of the merger agreement or the merger
unless the Security Capital board, after consultation with and having
considered the advice of independent legal counsel, determines in good faith
that such action is necessary for the Security Capital board to comply with its
duties to Security Capital's stockholders under applicable law. Except as set
forth in this provision, the Security Capital board will not approve or
recommend or permit Security Capital to enter into any agreement with respect
to any Acquisition Proposal (other than a confidentiality agreement as
described above) made by any person other than GE Capital or Merger Sub.
Notwithstanding the foregoing, if the Security Capital board, after having
considered the advice of independent legal counsel, determines in good faith
that failing to take such action would constitute a breach of the obligations
of the Security Capital board under applicable law, the Security Capital board
may approve or recommend an Acquisition Proposal (or amendment or supplement
thereto) or cause Security Capital to enter into an agreement with respect
thereto, but in each case only if:
(a)Security Capital provides written notice to GE Capital (a "Notice of
Superior Proposal"), which notice must be received by GE Capital at
least three business days (exclusive of the day of receipt by GE Capital
of the Notice of Superior Proposal) prior to the time it intends to
cause Security Capital to enter into such an agreement, advising GE
Capital in writing that the Security Capital board has received an
Acquisition Proposal (or amendment or supplement thereto) which it
believes constitutes a Superior Proposal and which it intends to accept
and, with respect to which, enter into a definitive agreement, subject
to the above, providing a copy of any written offer or proposal
describing the Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making
such Superior Proposal;
(b)as of the end of such three business day period referenced above, GE
Capital shall have failed to notify Security Capital in writing that it
has determined to revise the terms of the merger to provide that the
merger consideration will be equal to or greater than the consideration
to be paid to the Security Capital stockholders pursuant to the Superior
Proposal; and
(c)Security Capital terminates the merger agreement within 48 hours after
the lapse of the three business day period referenced above and
immediately thereafter enters into an agreement with respect to such
Superior Proposal.
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For purposes of the merger agreement, an "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
merger of Merger Sub with and into Security Capital) involving Security Capital:
(a)any merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction;
(b)any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or substantially all the assets of Security Capital
and its subsidiaries, taken as a whole, in a single transaction or
series of related transactions;
(c)any tender offer or exchange offer for twenty percent (20%) or more of
the outstanding Security Capital common stock or the filing of a
registration statement under the Securities Act in connection therewith;
or
(d)any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
A "Superior Proposal" means any bona fide Acquisition Proposal not directly
or indirectly initiated, solicited, encouraged or knowingly facilitated by
Security Capital after the date of the merger agreement in contravention of the
provisions thereof which the Security Capital board determines in good faith
judgment (based on the advice of an investment banker of nationally recognized
reputation), taking into account all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal:
(a)would, if consummated, result in a transaction that is more favorable to
Security Capital's stockholders (in their capacity as stockholders),
from a financial point of view, than the merger and
(b)is reasonably capable of being completed; provided, however, that for
purposes of this definition, the term Acquisition Proposal shall be
amended so that the reference to 20 percent shall be deemed to be a
reference to 100 percent.
Nothing prohibits Security Capital from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or from
making any disclosure to Security Capital's stockholders which, in the good
faith reasonable judgment of the Security Capital board, based on the advice of
independent legal counsel, is required under applicable law; provided, however,
that except as otherwise permitted, Security Capital does not withdraw or
modify, or propose to withdraw or modify, its position with respect to the
merger or approve or recommend, or propose to approve or recommend, an
Acquisition Proposal.
Employee Benefits
GE Capital will cause the surviving corporation to honor the obligations of
Security Capital or any of its subsidiaries under the provisions of the
employment, consulting, termination, severance, change in control and
indemnification agreements between and among Security Capital or any of its
subsidiaries and any current or former officer, director, consultant or
employee of Security Capital or any such subsidiaries.
Security Capital and GE Capital have agreed that, from the closing date of
the merger and until January 1, 2003, the compensation benefits to be provided
to current or former employees of Security Capital and any of its subsidiaries
will be, in the aggregate, no less favorable than those provided to them before
the merger or, in certain cases, those provided to similarly situated employees
of GE Capital, if greater.
Security Capital's employees' prior service to Security Capital will
generally be taken into account in determining their benefits after the merger,
except for accrual of benefits under defined benefit pension plans and except
if duplication of benefits would result, and they will generally not be subject
to waiting periods or other limitations on their participation in any welfare
benefit plans of GE Capital and its subsidiaries that may apply to them after
the merger.
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Reasonable Best Efforts; Antitrust Law Matters
GE Capital, Security Capital and Merger Sub have agreed to use reasonable
best efforts to take, or cause to be taken, in good faith, all actions and to
do, or cause to be done, all things necessary, proper or advisable under the
merger agreement and applicable laws and regulations to consummate the merger
and to cause to be satisfied all conditions precedent to their respective
obligations under the merger agreement in each case as soon as practicable
after the date of the merger agreement.
. Each party agrees to use its reasonable best efforts to prepare and file
as promptly as practicable following the date of the merger agreement all
documentation to effect all necessary applications, notices, petitions,
filings, and other documents and to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits,
rulings, authorizations and clearances necessary or advisable to be
obtained from any third party and/or governmental entity in order to
consummate the merger or any of the other transactions contemplated by
the merger agreement ("Required Approvals");
. Each party agrees to file a Notification and Report Form pursuant to the
HSR Act with respect to the merger as promptly as practicable and in any
event within 10 days of the merger agreement; and GE Capital agrees to
make any other requisite antitrust filings as soon as reasonably
practicable;
. GE Capital and Security Capital each shall use its reasonable best
efforts to cooperate in all respects with each other in connection with
any filing or submission to or any investigation or proceeding by a
private party, the Federal Trade Commission (the "FTC"), the Antitrust
Division of the Department of Justice (the "DOJ") or any other
governmental entity;
. GE Capital and Security Capital each shall use its reasonable best
efforts to (a) cooperate in all respects with each other in connection
with any filing or submission and in connection with any investigation or
other inquiry, including any proceeding initiated by a private party, (b)
subject to applicable law, permit the other party to review and discuss
in advance, and consider in good faith the views of the other in
connection with, any proposed written or material oral communication
between it and any governmental entity, (c) promptly inform each other of
and supply to such other party any communication received by such party,
or given by such party to, the DOJ, the FTC or any other governmental
entity and of any material communication received or given in connection
with any proceeding by a private party, in each case regarding the
merger; and (d) consult with each other in advance of any meeting or
conference with the DOJ, the FTC or any other governmental entity or, in
connection with any proceeding by a private party, with any other person,
and to the extent permitted by the DOJ, the FTC or such other applicable
governmental entity or other party, give the other party the opportunity
to attend and participate in such meetings and conferences;
. If any objections are asserted with respect to the merger under any
antitrust or competition law, GE Capital agrees to use its reasonable
best efforts to resolve any antitrust concerns, federal, state, foreign
or private, obtain all Required Approvals and obtain termination of the
waiting period under the HSR Act or any other applicable law and the
termination of any outstanding judicial or administrative orders
prohibiting the closing of the merger so as to permit consummation of the
merger as soon as practicable. If any administrative or judicial action
or proceeding, including any proceeding by a private party, is instituted
challenging any transaction contemplated by the merger agreement,
Security Capital agrees to cooperate with GE Capital in responding
thereto and GE Capital and Security Capital shall each use its reasonable
best efforts to contest, resist and/or attempt to resolve any such action
or proceeding and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order that prohibits, prevents or
restricts consummation of the merger and to have such statute, rule,
regulation, executive order, decree, injunction or administrative order
repealed, rescinded or made inapplicable so as to permit consummation of
the merger; and
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. Security Capital shall cooperate with GE Capital and use its reasonable
best efforts to obtain an opinion of counsel on or prior to the effective
time of the merger satisfying the requirements of Article 9 of the
Articles of Incorporation of Security Capital European Realty to allow GE
Capital to be treated as an "Excluded Holder" thereunder.
The merger agreement provides that GE Capital's "reasonable best efforts"
shall not require GE Capital to agree to or effect any divestiture, or to agree
to or to hold separate or hold in trust (or similar action involving) any part
of GE Capital's or Security Capital's business or operations, other than any of
Security Capital's business or operations with a net asset value in the
aggregate of no greater than $50 million.
Registration and Sale of ProLogis Shares
The Merger Agreement provides, that with the prior written consent of both
Security Capital and GE Capital, Security Capital may, at any time, sell any or
all of the 49,903,814 ProLogis common shares owned by Security Capital,
including to ProLogis, pursuant to a public offering or private placement,
negotiated third-party purchase or otherwise. In addition, Security Capital
will, at the written request of GE Capital, use its reasonable best efforts to
effect a sale of ProLogis common shares in the manner requested by GE Capital,
and subject to approval by GE Capital of any final pricing terms, provided that
Security Capital shall not be required to effect a sale of ProLogis common
shares, or enter into any binding agreement to effect a sale of ProLogis common
shares, prior to the date which is 18 days prior to the then-applicable
stockholders' meeting date. Security Capital will, after consultation with GE
Capital, determine the manager(s) and book runner(s) in the event of any sale
of ProLogis common shares that is an underwritten offering. In order to
facilitate a possible sale of ProLogis common shares and/or a distribution of
ProLogis common shares pursuant to the stock election, Security Capital will,
on or before December 17, 2001, exercise its registration rights under its
investors agreement with ProLogis and will use its reasonable best efforts to
assist ProLogis in filing and having declared effective one or more
registration statements, and any necessary supplements or amendments, with
respect to the ProLogis common shares, suitable for use in connection with the
stock election and/or sale of ProLogis common shares, and shall allow GE
Capital to participate in the process of registering the ProLogis common shares.
Storage USA Acquisition
If a third party seeks to acquire Storage USA for consideration in excess of
that agreed to be paid pursuant to the Storage USA Transaction Agreements,
Security Capital will determine either:
(a)to seek GE Capital's consent to offer to increase the price to be paid
by Security Capital in connection with the Storage USA acquisition; or
(b)not to do so.
If Security Capital decides not to so increase the price to be paid by
Security Capital in connection with the Storage USA Acquisition, then, at the
written request of GE Capital, Security Capital will nevertheless offer to
increase the price to be paid in connection with the Storage USA Acquisition on
such terms as GE Capital may designate. Immediately upon any termination of the
merger agreement, GE Capital will pay to Security Capital an amount equal to
the aggregate amount of any such increased price designated by GE Capital that
may have been agreed with or accepted by Storage USA.
Conditions to Consummation of the Merger
The obligations of Security Capital, GE Capital and Merger Sub to consummate
the merger are subject to the fulfillment, at or prior to the effective time,
of each of the conditions described below, any of which may be waived in whole
or in part by the party being benefited thereby, to the extent permitted by
applicable law.
(1)The merger and merger agreement have been approved by the affirmative
vote of the holders of a majority of the votes entitled to be cast by
the voting securities of Security Capital.
41
(2)There shall not be in effect any law of any governmental authority of
competent jurisdiction restraining, enjoining, or otherwise preventing
the consummation of the merger.
(3)(a) The waiting period applicable to completion of the merger under the
HSR Act has expired or been terminated, (b) any relevant statutory,
regulatory or other governmental waiting periods or approvals, whether
domestic, foreign or supranational, the failure of which to have expired
or been terminated or to be obtained or to be in full force and effect,
would, either (i) individually or in the aggregate, have a material
adverse effect on Security Capital or the surviving corporation or (ii)
result in any violation of law, shall have expired or been terminated or
been obtained and be in full force and effect, as the case may be, or
(c) in the event that the merger constitutes a concentration with a
community dimension within the scope of the European Community's Counsel
Regulation (EC) 4064/89 of December 21, 1989 (the "ECMR"), the European
Commission shall not have indicated prior to the closing date of the
merger that it intends to initiate proceedings under the ECMR in respect
of the merger nor refer the transactions or any matters arising
therefrom to the competent authority of a member state under Article
9(1) of the ECMR.
(4)Any registration statement with respect to the ProLogis common shares
owned by Security Capital and filed pursuant to the merger agreement
shall have been declared effective by the SEC, no stop order shall have
been issued with respect to such ProLogis registration statement and
such ProLogis registration statement shall not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading.
Unless waived by Security Capital, the obligation of Security Capital to
consummate the merger is subject to the satisfaction of the following
additional condition:
The representations and warranties of GE Capital or Merger Sub contained
in the merger agreement are true and accurate as of the closing date
(except for those representations and warranties that address matters
only as to a particular date or only with respect to a specific period
of time, which need only be true and accurate as of such date or with
respect to such period) and GE Capital and Merger Sub have not breached
or failed to perform or comply with any obligations, agreement or
covenant required by the merger agreement to be performed or complied
with by it except, in each case where the failure of such
representations and warranties to be true and accurate, or the failure
to perform or comply with such obligations, agreements or covenants, do
not or would not reasonably be expected to, individually or in the
aggregate, have a material adverse effect on GE Capital.
Unless waived by GE Capital, the obligations of GE Capital to consummate the
merger are subject to the satisfaction of both of the following additional
conditions:
(1)No material adverse effect on Security Capital has occurred; and
(2)The representations and warranties of Security Capital contained in the
merger agreement are true and accurate as of the closing date (except
for those representations and warranties that address matters only as to
a particular date or only with respect to a specific period of time,
which need only be true and accurate as of such date or with respect to
such period) and Security Capital has not breached or failed to perform
or comply with any obligation, agreement or covenant required by the
merger agreement to be performed or complied with by it except, in each
case where the failure of such representations and warranties to be true
and accurate, or the failure to perform or comply with such obligations,
agreements or covenants, do not or would not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on
Security Capital.
Important Definitions
In the merger agreement, the phrase "material adverse effect," when used in
connection with Security Capital or any of its subsidiaries or GE Capital and
any of its subsidiaries means any change, effect or circumstance that:
(1)is materially adverse to the business, assets, financial condition or
results of operations of Security Capital and its subsidiaries or GE
Capital and its subsidiaries, as the case may be, in each case taken as
42
a whole, excluding the effects of changes to the extent related to (A)
conditions in the United States, European or global economy or capital
or financial markets generally, including changes in interest or
exchange rates, (B) general changes in conditions (including changes in
legal, regulatory or business conditions or changes in GAAP) in or
otherwise affecting the industries in which Security Capital or GE
Capital, as the case may be, conducts business, (C) the merger
agreement, the announcement or performance of the merger agreement and
the merger, including the impact thereof on relationships with
customers, suppliers or employees, or (D) anything provided for or
contemplated by the budget previously provided by Security Capital to GE
Capital; or
(2)materially adversely affects the ability of Security Capital or GE
Capital and Merger Sub, as the case may be, to perform its obligations
under the merger agreement or consummate the merger.
Termination
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger (whether before or after
approval of the merger by Security Capital's stockholders):
(1)by mutual written consent of Security Capital and GE Capital;
(2)by either GE Capital or Security Capital if (A) a statute, rule or
executive order prohibits the merger substantially on the terms
contemplated by the merger agreement or (B) any governmental entity
issues an order, decree or ruling or takes any other action permanently
restraining, enjoining or otherwise prohibiting the merger on the terms
contemplated by the merger agreement and such order, decree, ruling or
other action has become final and nonappealable;
(3)by either GE Capital or Security Capital if the merger has not been
consummated by August 14, 2002, provided that the party seeking to
terminate the merger agreement has not breached in any material respect
its obligations under the merger agreement in any manner that
proximately contributed to the failure to consummate the merger on or
before such date;
(4)by GE Capital if the Security Capital board (A) publicly withdraws or
modifies its recommendation of the merger agreement or the merger in a
manner materially adverse to GE Capital, (B) fails to confirm its
recommendation to Security Capital's stockholders that they approve and
adopt the merger and the merger agreement within five business days
after a written request by GE Capital that it do so if such request is
made following the making of an Acquisition Proposal, or (C) approves or
recommends an Acquisition Proposal made by any person other than GE
Capital or Merger Sub;
(5)by Security Capital, if (A) the Security Capital board determines that
an Acquisition Proposal constitutes a Superior Proposal in accordance
with the requirements of the merger agreement, (B) Security Capital
delivers to GE Capital written notice of the determination by the
Security Capital board to terminate the merger agreement and follows the
procedures of the merger agreement, and (C) immediately prior to such
termination Security Capital makes payment of the full amounts required
by the merger agreement and immediately after such termination Security
Capital enters into a definitive acquisition, merger or similar
agreement to effect such Acquisition Proposal;
(6)by GE Capital if Security Capital breaches any of its representations,
warranties or covenants contained in the merger agreement, which breach
would give rise to the failure of the merger condition with respect to
representations, warranties or covenants and which breach is either (A)
reasonably capable of being cured within 30 business days after its
receipt of written notice thereof from GE Capital but has not been cured
within such time or (B) incapable of being cured by Security Capital
prior to August 14, 2002;
(7)by Security Capital if any of GE Capital's representations and
warranties contained in the merger agreement are not true and correct,
except for such failures to be true and correct that individually or in
43
the aggregate, would not reasonably be expected to have a material
adverse effect on the ability of GE Capital to consummate the merger or
perform its obligations under the merger agreement, and which failure is
either (A) reasonably capable of being cured within 30 business days
after its receipt of written notice thereof from Security Capital but
has not been cured within such time or (B) incapable of being cured by
GE Capital prior to August 14, 2002; or
(8)by Security Capital or GE Capital if the holders of a majority of the
votes entitled to be cast by the voting securities of Security Capital
fail to approve the merger agreement and the merger at the special
meeting.
Termination Fee
Security Capital must pay GE Capital a termination fee of $120 million if
the merger agreement is terminated by Security Capital pursuant to paragraph
(5) under "Termination" above or:
(1)the merger agreement is terminated by GE Capital because the Security
Capital board has publicly withdrawn or modified in a manner materially
adverse to GE Capital its recommendation of the merger agreement or the
merger, failed to reconfirm its recommendation to Security Capital's
stockholders that they approve and adopt the merger and the merger
agreement within five business days after a written request by GE
Capital that it do so if such request is made following the making of an
Acquisition Proposal or approved or recommended an alternative
Acquisition Proposal made by any person other than GE Capital or Merger
Sub (any of the foregoing a "Change in Recommendation"); or
(2)the merger agreement is terminated by either GE Capital or Security
Capital because the Security Capital stockholders fail to approve the
merger agreement and the merger after a Change in Recommendation;
and
(a)an Acquisition Proposal has previously been publicly proposed or
publicly announced or any person has previously publicly announced to
make an acquisition proposal; or
(b)within 12 months following the termination of the merger agreement,
Security Capital or any of its subsidiaries enters into any definitive
agreement with respect to, or consummates, any Acquisition Proposal.
Expenses
The merger agreement provides that all fees and expenses incurred in
connection with the merger agreement and the transactions contemplated thereby
will be paid by the party incurring the expenses, whether or not the merger is
consummated. Security Capital will reimburse GE Capital and Merger Sub for all
their expenses incurred in connection with the merger agreement and merger in
the event the merger agreement is terminated under circumstances in which a
termination fee would be required except that the aggregate amount of such
reimbursement together with the termination fee shall not exceed $160 million.
Amendment
Provisions of the merger agreement may be amended by action taken by
Security Capital, GE Capital and Merger Sub at any time before or after
approval of the merger by the stockholders of Security Capital but, after any
such approval, no amendment may be made which requires the approval of such
stockholders under applicable law without such approval.
44
STORAGE USA TRANSACTIONS
On December 4, 2001 the Security Capital board, acting by unanimous written
consent, approved a purchase and sale agreement, by and among Storage USA,
Inc., Storage USA Trust, SUSA Partnership, L.P. and Security Capital, which
provides for the sale of all of the assets of Storage USA, including its
interests in SUSA Partnership, L.P., its operating partnership, to Security
Capital, and the merger of Storage USA, Inc. with and into SUSA Partnership,
L.P. The Purchase and Sale Agreement was amended by a letter agreement, dated
as of January 17, 2002, to reflect the increase in the consideration payable to
Storage USA shareholders and the limited partners of the operating partnership
from $42.00 to $42.50 per share or unit as a result of the settlement of
shareholder class action litigation commenced in connection with the
transactions.
In the Storage USA transaction, each holder of shares of Storage USA common
stock, other than Security Capital and its affiliates, will be entitled to
receive $42.50 per share in cash, without interest, subject to increase by the
per share amount of the pro rata portion of normal quarterly dividends payable
in the ordinary course of business consistent with past practice, not to exceed
$0.71 per share, relating to the quarterly period in which the closing of the
Storage USA transaction occurs, and subject to reduction by the per share
amount of any dividends in excess of such normal quarterly dividends paid after
the date of the purchase agreement. All options to acquire Storage USA common
stock will vest and be exercisable immediately prior to the closing of the
Storage USA transactions.
Holders of limited partnership interests in the Storage USA operating
partnership, other than Security Capital and its affiliates, will also be
entitled to receive $42.50 per unit in cash, without interest, subject to
increase by the per unit amount of the pro rata portion of quarterly
distributions payable in the ordinary course of business consistent with past
practice, relating to the quarterly period in which the closing of the
transaction occurs, and subject to reduction by the per unit amount of any
distributions in excess of such normal quarterly distributions paid after the
date of the purchase agreement, unless such holders elect and are qualified to
continue as limited partners in the surviving partnership.
Each share of Storage USA common stock owned by Security Capital and its
affiliates will be redeemed prior to the merger for $42.50 per share of common
stock, either for cash and/or, to the extent any portion of the consideration
paid in the partnership sale and asset sale was paid by Security Capital in the
form of promissory notes, such notes. The Storage USA transaction is subject to
shareholder approval and other customary closing conditions.
After the completion of the Storage USA transactions, Security Capital will
own all of the assets, and assume the indebtedness, of Storage USA and Storage
USA will cease to exist as a separate legal entity. Storage USA shareholders
will have no continuing interest in, and will not share in the future earnings,
dividends or growth, if any, of, the surviving partnership. In addition,
Storage USA common stock will be cancelled and will no longer be listed on the
New York Stock Exchange or registered with the Securities and Exchange
Commission.
Security Capital owns approximately 41.3% of the common stock of Storage USA
and intends to vote its Storage USA shares in favor of the transactions.
Storage USA's directors and executive officers own approximately 2.3% of the
Storage USA common stock and to our knowledge also intend to vote their Storage
USA shares in favor of the purchase agreement and the transactions.
Accordingly, the affirmative vote of approximately an additional 6.4% of
Storage USA's outstanding shares will be sufficient to approve the Storage USA
transactions. No assurance can be given that the Storage USA transaction will
close or when it will close.
On March 12, 2002, a group of limited partners of the Storage USA operating
partnership filed suit against Storage USA, the operating partnership and
Security Capital. The plaintiffs purport to bring the action individually on
their own behalf and as a class action on behalf of all limited partners of the
operating partnership and on behalf of a subclass of those limited partners who
are parties to tax deferral agreements with the operating partnership. The
complaint purports to state causes of action against some or all of the
defendants for breach of
45
fiduciary duty, violation of the Tennessee Revised Uniform Limited Partnership
Act, breach of the existing partnership agreement and breach of the tax
deferral agreements, and against Security Capital for interference with
contractual relations and interference with economic advantages. The complaint
alleges these causes of action on the grounds that, among other things, the
vote of the minority limited partners is not being sought for the Transactions,
the limited partners are not being offered appraisal rights in the
transactions, the special committee did not contain any limited partners or
representatives of the limited partners, and the ownership of both general and
limited partnership interests by Storage USA amounts to a conflict of interest.
The relief sought in the complaint includes, among other things, preliminarily
and permanently enjoining the transactions, compensatory damages or, in the
event that the transactions are completed, rescinding and setting aside the
transactions. A hearing date of June 5, 2002 has been scheduled with respect to
the preliminary injunction sought by the plaintiffs.
The Storage USA transaction is conditioned upon, among other things, the
approval of the Storage USA shareholders at a special meeting scheduled for
April 26, 2002.
The transactions with Storage USA and GE Capital are independent and not
contingent upon each other. You are not being asked to vote on the Storage USA
transaction in this proxy statement/prospectus.
46
SUPPORT AGREEMENTS
Two of the directors (William D. Sanders and Ray L. Hunt) of Security
Capital have entered into a support agreement with GE Capital and have granted
to two employees of GE Capital irrevocable proxies to vote 90,790.112 shares of
class A stock and 262,037 shares of class B stock (representing 7.55% of the
voting power as of April 11, 2002) which are beneficially owned by them. These
stockholders have agreed that in the event they become the beneficial owners of
any additional shares of Security Capital, the support agreement will be
applicable to those shares as well. The stockholders have agreed to vote these
shares:
. for the adoption and approval of the merger agreement and all other
transactions contemplated by the merger agreement and the support
agreement;
. against any action, agreement, transaction or proposal that would result
in either GE Capital's or Security Capital's unilateral right to
terminate the merger agreement; and
. in favor of any other matter necessary to the consummation of the
transactions contemplated by the merger agreement and considered and
voted upon by the stockholders of Security Capital.
These stockholders have also agreed that neither they nor any affiliates
will:
. solicit or encourage the initiation of any inquiries or proposals
regarding any Acquisition Proposal (as defined in the merger agreement);
or
. have any discussions with or provide any confidential information or data
to any third party that would encourage, facilitate or further an
Acquisition Proposal, or engage in any negotiations concerning an
Acquisition Proposal, or knowingly facilitate any effort or attempt to
make or implement an Acquisition Proposal.
These stockholders have also agreed, until the termination of the support
agreement, not to:
. sell, assign, transfer, pledge, encumber or otherwise dispose of any of
the stockholders' interest in the securities of Security Capital (except
to charitable or similar organizations);
. deposit any of the stockholders' interest in the securities of Security
Capital into a voting trust or enter into a voting agreement or
arrangement or grant any proxy or power of attorney with respect thereto
which is inconsistent with the support agreement;
. enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, assignment, transfer or other
disposition of any of the stockholders' interest in the securities of
Security Capital (except as permitted above); or
. take any action that would make any representation or warranty of the
stockholder untrue or incorrect in any material respect or have the
effect of preventing or disabling the stockholder from performing its
obligations under the support agreement.
The support agreement will terminate on the earliest of:
. the date the merger agreement is terminated or modified in any manner
adverse to the stockholder;
. the date GE Capital terminates the support agreement; and
. the day after the stockholders' meeting.
A form of the Security Capital support agreement is attached as Appendix B
to this proxy statement/prospectus. You should read it in its entirety.
47
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 11, 2002, the beneficial
ownership of class A stock and class B stock for (i) each director and advisory
director of Security Capital, (ii) the Chief Executive Officer and the four
other most highly compensated executive officers of Security Capital (the
"Named Executive Officers"), (iii) each person known to Security Capital to be
the beneficial owner of more than 5% of the outstanding class A stock or class
B stock and (iv) the directors, an advisory director and executive officers of
Security Capital as a group. The last column shows the percentage of votes
represented by the outstanding voting securities held by such persons. Unless
otherwise indicated in the footnotes, the shares are owned directly, and the
indicated person or entity has sole voting and investment power. The address of
each director, the advisory director and Named Executive Officer is c/o
Security Capital Group Incorporated at the administrative offices of SCGroup
Incorporated located at 7777 Market Center Avenue, El Paso, Texas 79912.
Class A Stock Class B Stock
--------------- ------------------- Voting
Name and Address of Beneficial Owner Number(1) %(2) Number(3)(4) %(2)(5) Percentage(6)
------------------------------------ --------- ----- ------------ ------- -------------
C. Ronald Blankenship (7)....................... 13,108 2.01% 2,151,862 1.93% *
Hermann Buerger (8)............................. 375 * 6,654,955 5.74% 2.71%
John P. Frazee, Jr. (9)......................... 6,065 * 333,259 * *
Cyrus F. Freidheim, Jr. (10).................... 3,045 * 217,350 * *
H. Laurance Fuller (11)......................... 4,958 * 277,900 * *
Janet Hill...................................... 0 * 14,507 * *
Ray L. Hunt (12)................................ 27,660 4.30% 1,663,024 1.50% 2.16%
John T. Kelley, III (13)........................ 4,549 * 272,096 * *
Jay C. Light.................................... 0 * 44,509 * *
William D. Sanders (14)......................... 81,201 12.39% 5,637,475 4.91% 5.39%
Peter S. Willmott (15).......................... 4,219 * 322,904 * *
Frank P. Lowy, Jr. (16)......................... 0 * 4,585,786 4.20% 1.88%
Thomas G. Wattles (17).......................... 11,053 1.70% 1,460,040 1.32% *
Anthony R. Manno, Jr............................ 3,905 * 776,184 * *
Constance B. Moore.............................. 2,650 * 836,873 * *
Total directors (including a non-voting advisory
director) and executive officers as a group
(23 persons).................................. 171,814 24.27% 27,611,220 20.97% 13.34%
Commonwealth of Pennsylvania, Public School
Employees' Retirement System (18)
5 North 5th Street,
Harrisburg, PA 17101.......................... 97,723 15.27% 12,537,253 10.99% 11.15%
United States Steel and Carnegie Pension
Fund (19)
350 Park Avenue, 17th Floor,
New York, NY 10022............................ 74,285 11.61% 3,714,250 3.29% 6.09%
Pacific Financial Research, Inc. (20)
9601 Wilshire Blvd., Suite 800,
Beverly Hills, CA 90210....................... 12,857 2.01% 9,047,854 8.24% 4.24%
Wellington Management Company, LLP (21)
72 State Street,
Boston, MA 02100.............................. 0 * 5,862,850 5.37% 2.39%
--------
* Less than 1%.
(1) Includes class A stock which may be acquired upon conversion of convertible
debentures, or the exercise of options or warrants, within 60 days for
Messrs. Blankenship (12,722), Buerger (375), Frazee (2,553), Freidheim
(2,553), Fuller (2,553), Mrs. Hill (0), Messrs. Hunt (2,553), Kelley
(2,553), Light (0), Sanders (15,528), Willmott (1,189), Wattles (10,659),
Manno (3,498) and Ms. Moore (2,178), and all directors and executive
officers as a group (67,817).
48
(2)For each person who owns restricted stock units which vest within 60 days,
or options or convertible securities which are exercisable or convertible
within 60 days, the calculation of the percentage ownership assumes that
only that person has exercised all of his or her options or warrants and
converted all of his or her convertible securities and that no other person
has restricted stock units which have vested, has exercised any outstanding
options or has converted any convertible securities.
(3)Each share of class A stock may be converted at any time into 50 shares of
class B stock. Includes class B stock which may be acquired upon conversion
of class A stock, including class A stock which may be acquired upon the
exercise of options or warrants, or upon conversion of convertible
debentures, as described in footnote 1 above.
(4)Includes class B stock which may be acquired upon the exercise of options or
vesting of restricted stock units within 60 days for Messrs. Blankenship
(1,492,036), Buerger (30,000), Frazee (30,000), Freidheim (30,000), Fuller
(30,000), Mrs. Hill (14,507), Messrs. Hunt (30,000), Kelley (30,000), Light
(10,685), Sanders (1,565,306), Willmott (30,000), Wattles (899,003), Manno
(553,933) and Ms. Moore (663,888), and all Directors and executive officers
as a group (7,289,565). Includes class B stock held through the 401(k)
savings plan as of April 11, 2002 for Messrs. Blankenship (634), Sanders
(1,194), Wattles (1,184), Manno (1,001) and Ms. Moore (1,302), and all
executive officers as a group (13,338).
(5)For each person who owns class A stock, the calculation of the percentage
ownership assumes that only that person has converted all of his or her
class A stock into class B stock and that no other person has converted any
class A stock.
(6)Includes only outstanding class A stock, class B stock and/or series B
preferred stock beneficially owned by such person. The percentage is based
on one vote per share of class A stock, .005 vote per share of class B stock
and .1282 vote per share of series B preferred stock. On the record date,
the outstanding voting securities were entitled to cast a total of 1,219,123
votes.
(7)Includes 2,000 shares of class B stock held by a corporation of which Mr.
Blankenship is a controlling stockholder.
(8)Mr. Buerger is a regional board member of Commerzbank AG in New York.
Commerzbank Aktiengesellschaft, Grand Cayman Bank ("Commerzbank AG, Grand
Cayman Branch"), Corporate Center at Rye, 555 Theodore Fremd Ave. Suite
B-200, Rye, NY 10580, beneficially owns 6,606,205 shares of class B stock as
a result of owning 257,642 shares of series B preferred stock, with respect
to all of which it has sole power to vote or direct the vote and sole power
to dispose or direct the disposition, which shares are included in Mr.
Buerger's amount. Mr. Buerger disclaims beneficial ownership of these
shares. On March 22, 2002, GE Capital entered into a Stock Purchase
Agreement with Commerzbank AG, Grand Cayman Branch (the "Purchase
Agreement"), which provides for, among other things, GE Capital to purchase
from Commerzbank AG, Grand Cayman Branch, all of the shares of series B
preferred shares held of record and beneficially owned by Commerzbank AG,
Grand Cayman Branch. The purchase of the series B preferred shares by GE
Capital is conditioned upon, among other things, all conditions to the
consummation of the GE Capital merger having been satisfied or waived and
the GE Capital merger having been consummated immediately prior to the
purchase of the series B preferred shares. Subject to the terms and
conditions contained in the Purchase Agreement, GE Capital will purchase the
shares of series B preferred shares from Commerzbank AG, Grand Cayman Branch
for a per share amount equal to $1,000 plus all accrued and unpaid dividends
payable thereon (calculated at the dividend rate and otherwise in accordance
with the terms of the designations of the series B preferred shares) up to,
but excluding the date of purchase.
(9)Includes five shares of class A stock held by Mr. Frazee's children and
three shares of class A stock held by his wife.
(10)Includes 100 shares of class A stock held by a family trust and 5,750
shares of class B stock held by Mr. Freidheim's wife.
(11)Includes two shares of class A stock held by Mr. Fuller's wife.
(12)Includes eight shares of class A stock held by family trusts for which Mr.
Hunt is trustee and 7,352 shares of class A stock for which Mr. Hunt shares
beneficial ownership pursuant to a power of attorney. Excludes 3,521 shares
of class A stock which Mr. Hunt's wife owns as separate property, and
23,771 shares of class A stock held by Hunt Private Equity Group, Inc. and
3,672 shares of class A stock held by Mount Vernon Insurance Company, the
capital stock of which are held indirectly through a series of corporations
by trusts
49
for the benefit of Mr. Hunt and members of his family, as to which Mr. Hunt
disclaims beneficial ownership. Includes 250,000 shares of class B stock
held by family trusts which have granted Mr. Hunt authority with respect to
the voting and disposition of these shares.
(13)Includes 1,995 shares of class A stock and 14,655 shares of class B stock
held by a trust of which Mr. Kelley is trustee.
(14)Includes 778 shares of class A stock held by the Sanders Foundation; 5,775
shares of class A stock held by Sanders Partners Incorporated; 2,286 shares
of class A stock held by two family partnerships and 19,938 shares of class
A stock held by the William D. Sanders and Luanne Sanders Charitable
Remainder Trust.
(15)Includes three shares of class A stock held by Mr. Willmott's children and
two shares of class A stock held by Mr. Willmott's wife.
(16)Mr. Lowy is an advisory director. The shares of class B stock are held by
LFG Holding Pty., Limited, an Australian corporation in which interests
associated with Mr. Lowy and members of his family own a 100% interest.
(17)Includes two shares of class A stock held by Mr. Wattles' wife, eight
shares of class A stock held by his children, 149 shares of class A stock
and 7,203 shares of class B stock held in an IRA account.
(18)Information with respect to the beneficial ownership of Commonwealth of
Pennsylvania Public School Employees' Retirement System ("PSERS") is
included herein in reliance on an amended Schedule 13G dated February 1,
2002 and a Form 4 for March 2002, filed with the SEC. The filings indicate
that PSERS has sole power to vote or direct the vote of 97,723 shares of
class A stock and sole power to vote or direct the vote of 7,651,103 shares
of class B stock and sole power to dispose or direct the disposition of
97,723 shares of class A stock and sole power to dispose or direct the
disposition of 7,651,103 shares of class B stock. Prior to the commencement
of the Security Capital share repurchase program in 1999, PSERS had
purchased shares in the open market which represented a 9.8% ownership
interest. Because of the Security Capital share repurchase program and a
reduction in the number of shares outstanding, PSERS exceeded the 9.8%
ownership limit contained in Security Capital's charter. The Board of
Security Capital has approved PSERS holding more than 9.8% of the
outstanding shares, provided that PSERS does not purchase additional
shares. PSERS acquired additional shares as a result of its ownership of
Security Capital U.S. Realty ("US Realty") shares which were exchanged for
class B stock as a result of the business combination between Security
Capital and US Realty.
(19)Information with respect to beneficial ownership of United States Steel and
Carnegie Pension Fund is included herein in reliance on an amended Schedule
13G dated April 9, 2002, filed with the SEC. The Schedule 13G indicates
that United States Steel and Carnegie Pension Fund has sole power to vote
and sole power to dispose of shares of 74,285 class A stock.
(20)Information with respect to beneficial ownership of Pacific Financial
Research, Inc. is included herein in reliance on an amended Schedule 13G
dated February 14, 2002, filed with the SEC. The Schedule 13G indicates
that Pacific Financial Research, Inc. has sole power to vote 8,406,000
shares of class B stock, including 642,850 shares of class B stock issuable
upon conversion of class A stock; no voting power for 641,354 shares of
class B stock, including 23,700 shares of class B stock issuable upon
conversion of class A stock and 54,164 shares of class B stock issuable
upon conversion of convertible debentures; sole dispositive power of
8,993,690 shares of class B stock and shared dispositive power of 54,164
shares of class B stock.
(21)Information with respect to beneficial ownership of Wellington Management
Company, LLP is included herein in reliance on an amended Schedule 13G
dated February 11, 2002, filed with the SEC. The Schedule 13G indicates
that Wellington Management Company, LLP has shared power to vote or direct
the vote of 5,833,550 shares of class B stock and shared power to dispose
or direct the disposition of 5,862,850 shares of class B stock.
50
The following table sets forth, as of April 11, 2002, the beneficial
ownership of the outstanding common shares of each of ProLogis, Storage USA,
Regency and Security Capital European Realty ("SC-European Realty"), each of
which is an affiliate of Security Capital, for (i) each director and advisory
director of Security Capital, (ii) each Named Executive Officer and (iii) the
directors, advisory director and executive officers of Security Capital as a
group. The address of each person listed below is c/o Security Capital Group
Incorporated at the administrative offices of SCGroup Incorporated located at
7777 Market Center Avenue, El Paso, Texas 79912. Unless otherwise indicated in
the footnotes, all of the interests are owned directly, and the indicated
person or entity has sole voting and investment power.
SC-European
ProLogis Storage USA Realty Regency
------------ ----------- ------------ -----------
Name of Beneficial Owner Number %(1) Number %(1) Number %(1) Number %(1)
------------------------ ------- ---- ------ ---- ------- ---- ------ ----
C. Ronald Blankenship (2)............ 878 * 9,427 * 0 * 0 *
Hermann Buerger...................... 0 * 0 * 0 * 0 *
John P. Frazee, Jr. (3).............. 2,927 * 0 * 0 * 0 *
Cyrus F. Freidheim, Jr............... 14 * 0 * 0 * 0 *
H. Laurance Fuller (4)............... 2,846 * 0 * 0 * 0 *
Janet Hill........................... 0 * 0 * 0 * 0 *
Ray L. Hunt (5)...................... 0 * 0 * 382,500 * 480 *
John T. Kelley, III (6).............. 88,833 * 0 * 0 * 53,241 *
Jay O. Light......................... 1,601 * 0 * 0 * 0 *
William D. Sanders (7)............... 455 * 10,329 * 106,250 * 9,187 *
Peter S. Willmott (8)................ 6 * 1,000 * 0 * 0 *
Frank P. Lowy........................ 0 * 0 * 0 * 0 *
Thomas G. Wattles (9)................ 28,821 * 0 * 0 * 73 *
Anthony R. Manno, Jr................. 0 * 0 * 0 * 0 *
Constance B. Moore................... 0 * 0 * 0 * 0 *
All Directors (including a non-voting
advisory director) and executive
officers as a Group (23 persons).... 128,981 * 31,363 * 489,600 * 66,825 *
--------
* Less than 1%.
(1) For each person who owns options which are exercisable within 60 days, the
calculation of the percentage ownership assumes that only that person has
exercised all of his or her options and that no other person has exercised
any outstanding options.
(2) Storage USA shares include 7000 shares which may be acquired upon exercise
of options within 60 days.
(3)ProLogis common shares include 402 shares held by Mr. Frazee's wife and
1,206 shares held by his children.
(4)Includes 402 ProLogis common shares held by Mr. Fuller's wife.
(5)The SC-European Realty shares are shares for which Mr. Hunt shares
beneficial ownership pursuant to powers of attorney. Excludes 425,000 shares
of SC-European Realty owned by Hunt Securities Corporation, as to which Mr.
Hunt disclaims beneficial ownership.
(6)Regency shares and ProLogis common shares are held in a trust for which Mr.
Kelley is trustee. Regency shares include 6,293 shares which may be acquired
upon exercise of options within 60 days.
(7)ProLogis common shares are held by Mr. Sanders' wife. Storage USA shares
include 7,722 shares which may be acquired upon exercise of options within
60 days.
(8)Includes four ProLogis common shares held by Mr. Willmott's children and two
ProLogis common shares held by Mr. Willmott's wife.
(9)ProLogis common shares include 2,576 shares held by Mr. Wattles' children
and 8,040 shares held in an IRA account for Mr. Wattles and his wife.
Regency shares are held by one of Mr. Wattles' children.
51
MARKET PRICE OF SECURITY CAPITAL COMMON STOCK AND DIVIDEND INFORMATION
The class A stock is listed on the NYSE under the symbol "SCZ.A" and the
class B stock is listed on the NYSE under the symbol "SCZ". The table below
indicates the range of the high and low sales prices of the daily trading
prices of class A stock and the class B stock for the periods listed.
Class Class Class Class
A A B B
Stock Stock Stock Stock
High Low High Low
----- ----- ------ ------
2000:
First Quarter..................... $ 695 $ 600 $14.69 $12.00
Second Quarter.................... $ 850 $ 680 $17.00 $13.75
Third Quarter..................... $ 966 $ 825 $19.63 $16.63
Fourth Quarter.................... $ 990 $ 940 $20.06 $18.81
2001:
First Quarter..................... $1069 $ 936 $21.98 $18.94
Second Quarter.................... $1080 $ 998 $21.73 $19.77
Third Quarter..................... $1075 $ 825 $21.80 $16.80
Fourth Quarter.................... $1275 $ 900 $25.45 $17.95
2002:
First Quarter..................... $1282 $1266 $25.65 $25.34
Second Quarter (through April 12). $1280 $1278 $25.64 $25.47
At December 31, 2001, there were approximately 574 holders of record of the
class A stock and 209 holders of record of the class B stock. On December 14,
2001, the last full trading day before our announcement of the signing of the
merger agreement, the class A stock closed at $1,060 and the class B stock
closed at $20.70. On April 12, 2002, the last practicable trading day for which
information was available before the date of this document, the class A stock
closed at $1,278.50 and the class B stock closed at $25.62.
Holders of class A stock are entitled to receive ratably such dividends as
may be authorized by the Security Capital board out of funds legally available
therefor. Holders of class B stock are entitled to dividends equal to
one-fiftieth ( 1/50th) of the amount per share authorized by the Security
Capital board for each share of class A stock. Class B stock dividends will be
paid in the same form and at the same time as class A stock dividends, except
that, in the event of a stock split or stock dividend, holders of class A stock
will receive class A stock and holders of class B stock will receive class B
stock, unless otherwise specifically designated by resolution of the Security
Capital board.
Security Capital has not paid any dividends on its class A stock or class B
stock during 1999, 2000, 2001 or 2002.
52
MARKET PRICE OF PROLOGIS COMMON SHARES AND DIVIDEND INFORMATION
ProLogis common shares are listed on the New York Stock Exchange under the
symbol "PLD." On December 13, 2001, the day immediately preceding the
announcement of the merger, the closing price of the ProLogis common shares was
$21.88 per share. On April 12, 2002, the last practicable day for which
information was available before the date of this document, the ProLogis common
shares closed at $24.40 per share. The following table sets forth the high and
low sale prices of the ProLogis common shares as reported in the New York Stock
Exchange Composite Tape and distributions per share for the periods indicated.
Per Common
High Low Share Distribution
------- -------- ------------------
2000:
First Quarter..................... $19.875 $17.5625 $0.3350(1)
Second Quarter.................... 22.0625 18.8125 0.3350
Third Quarter..................... 24.6875 21.25 0.3350
Fourth Quarter.................... 23.75 19.4375 0.3350
2001:
First Quarter..................... $22.94 $19.73 $0.345 (2)
Second Quarter.................... 22.95 19.65 0.345
Third Quarter..................... 23.30 19.35 0.345
Fourth Quarter.................... 22.80 19.60 0.345
2002:
First Quarter..................... $24.15 $20.63 $0.355 (3)
Second Quarter (through April 12). $24.40 $23.03 --
--------
(1)Declared in the fourth quarter of 1999 and paid in the first quarter of 2000.
(2)Declared in the fourth quarter of 2000 and paid in the first quarter of 2001.
(3)Declared in the fourth quarter of 2001 and paid on February 28, 2002.
On April 11, 2002, ProLogis had approximately 177,526,876 common shares
outstanding which were held of record by approximately 10,355 shareholders. In
the event that ProLogis common shares are issued as consideration in the
merger, holders of Security Capital class A and class B stock who also own
ProLogis common shares will increase their proportionate ownership in ProLogis
as a result of the inclusion of ProLogis common shares as merger consideration.
No other shareholder of ProLogis common shares will be effected by the merger.
53
SECURITY CAPITAL GROUP INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following tables present unaudited pro forma condensed consolidated
statements of earnings for the year ended December 31, 2001 and the unaudited
pro forma condensed consolidated balance sheet as of December 31, 2001. The
information presented under the headings "Pro Forma Purchase Adjustments" give
effect to the proposed acquisition by Security Capital of the remaining
interests in Storage USA. The information set forth below should be read in
conjunction with the audited and unaudited financial statements of Security
Capital incorporated by reference in this document. This unaudited pro forma
condensed consolidated financial data is included only for the purpose of
illustration, and it does not necessarily indicate what the operating results
or financial position would have been if the various transactions had been
completed on the date indicated.
54
SECURITY CAPITAL GROUP INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
(in thousands)
Security Capital Storage USA Pro Forma
Historical Historical Purchase
(unaudited) (unaudited) Adjustments Pro Forma
---------------- ----------- ----------- ----------
ASSETS
Investments, at equity:
ProLogis Trust.................................... $ 513,508 $ -- $ -- $ 513,508
Regency Centers Corporation....................... 466,871 -- -- 466,871
Security Capital European Realty.................. 381,856 -- -- 381,856
Security Capital Research & Management:........... --
Security Capital Preferred Growth
Incorporated................................ 91,079 -- -- 91,079
SC-US Real Estate Shares...................... 14,967 -- -- 14,967
Storage USA, Incorporated......................... 208,036 -- (208,036)(b) --
---------- ---------- ----------- ----------
1,676,317 -- (208,036) 1,468,281
Real estate, less accumulated depreciation........... 1,081,643 1,717,111 386,821 (c) 3,185,575
Investments in publicly traded real estate
securities, at market value........................ 10,245 -- -- 10,245
---------- ---------- ----------- ----------
Total real estate investments..................... 2,768,205 1,717,111 178,785 4,664,101
Cash and cash equivalents............................ 1,468,020 3,164 (1,067,647)(d) 403,537
Note receivable...................................... 115,000 -- -- 115,000
Deferred income taxes................................ 281,845 -- -- 281,845
Other assets......................................... 125,452 36,059 (8,130)(e) 153,381
---------- ---------- ----------- ----------
Total assets...................................... $4,758,522 $1,756,334 $ (896,992) $5,617,864
========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Lines of credit...................................... $ -- $ 158,900 $ (158,900)(f) $ --
Mortgage and construction notes payable.............. 458,218 95,274 -- 553,492
Long-term debt....................................... 799,745 600,000 -- 1,399,745
6.5% Convertible debentures.......................... 196,329 -- -- 196,329
Accounts payable and accrued expenses................ 132,394 99,068 -- 231,462
---------- ---------- ----------- ----------
Total liabilities................................. 1,586,686 953,242 (158,900) 2,381,028
Minority interests................................... 10,895 128,599 (63,599)(g) 75,895
Shareholders' equity:
Class A stock..................................... 8 -- -- 8
Class B stock..................................... 981 283 (283)(h) 981
Series B preferred stock.......................... 257,642 -- -- 257,642
Additional paid-in capital........................ 2,824,338 751,687 (751,687)(h) 2,824,338
Accumulated other comprehensive income
(loss).......................................... (49,179) -- -- (49,179)
Retained earnings (accumulated deficit)........... 127,151 (77,477) 77,477 (h) 127,151
---------- ---------- ----------- ----------
Total shareholders' equity.................... 3,160,941 674,493 (674,493) 3,160,941
---------- ---------- ----------- ----------
Total liabilities and shareholders'
equity................................... $4,758,522 $1,756,334 $ (896,992) $5,617,864
========== ========== =========== ==========
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements
55
SECURITY CAPITAL GROUP INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 2001
(in thousands)
Impact of
acquisition of
SC-U.S.
Realty and sales Security
Security Capital of Archstone, Capital Storage USA Pro Forma
Historical Homestead, and Pro Historical Purchase Pro
(unaudited) CarrAmerica Forma (unaudited) Adjustments Forma
---------------- ---------------- -------- ----------- ----------- --------
Income:
Property revenues.................... $401,544 $(205,857)(a) $195,687 $282,065 $ -- $477,752
Equity in earnings of:
Archstone Communities Trust......... 7,308 (7,308)(a) -- -- -- --
CarrAmerica Realty Corporation...... 19,971 (19,971)(a) -- -- -- --
ProLogis Trust...................... 26,323 -- 26,323 -- -- 26,323
Regency Centers Corporation......... 62,927 -- 62,927 -- -- 62,927
Security Capital European Realty.... 516 -- 516 -- -- 516
Security Capital Research &
Management:
Security Capital Preferred Growth
Incorporated....................... 10,622 -- 10,622 -- -- 10,622
SC-US Real Estate Shares......... 1,066 -- 1,066 -- -- 1,066
Security Capital U.S. Realty..... (16,475) 16,475(a) -- -- -- --
Storage USA, Inc.................... 28,577 -- 28,577 -- (28,577)(b) --
Realized capital gains (losses)...... 122,522 (122,612)(a) (90) (291) -- (381)
Interest and other income, net....... 19,236 (1,511)(a) 17,725 23,044 -- 40,769
-------- --------- -------- -------- -------- --------
Total income........................ 684,137 (340,784) 343,353 304,818 (28,577) 619,594(j)
-------- --------- -------- -------- -------- --------
Expenses:
Property expenses.................... 192,442 (83,200)(a) 109,242 95,586 -- 204,828
General, administrative and other
expenses, net of reimbursements
from related parties................ 60,248 (22,465)(a) 37,783 31,364 -- 69,147
Depreciation and amortization........ 60,906 (34,050)(a) 26,856 41,649 9,671(c) 78,176
Interest expense..................... 122,544 (21,122)(a) 101,422 58,824 (10,476)(f) 149,770
-------- --------- -------- -------- -------- --------
Total expenses...................... 436,140 (160,837) 275,303 227,423 (805) 501,921
-------- --------- -------- -------- -------- --------
Earnings from operations before
minority interest and income taxes.... 247,997 (179,947) 68,050 77,395 (27,772) 117,673
Minority interest in net earnings of
subsidiaries........................ (3,494) -- (3,494) (13,163) 7,430(g) (9,227)
Provision for income tax benefit
(expense)........................... (39,259) 62,981 (i) 23,722 -- (15,362)(i) 8,360
-------- --------- -------- -------- -------- --------
Earnings from operations............... 205,244 (116,966) 88,278 64,232 (35,704) 116,806
Preferred share dividends............ (18,035) -- (18,035) -- -- (18,035)
-------- --------- -------- -------- -------- --------
Net earnings from operations
attributable to common shares......... $187,209 $(116,966) $ 70,243 $ 64,232 (35,704) $ 98,771(j)
======== ========= ======== ======== ======== ========
Weighted average common shares
outstanding:
Basic................................ 139,432 139,432 139,432
======== ======== ========
Diluted.............................. 151,371 141,472 141,472
======== ======== ========
Per share net earnings from operations
attributable to common shares:
Basic................................ $ 1.34 $ 0.50 $ 0.71(j)
Diluted.............................. $ 1.30 $ 0.50 $ 0.70(j)
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements
56
Security Capital Group Incorporated
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
December 31, 2001
(in thousands)
On December 6, 2001, Security Capital announced it had entered into a
definitive agreement with Storage USA. The agreement, as amended, provides for
a transaction in which all of the holders of Storage USA common stock and
operating partnership units (other than Security Capital) will receive $42.50
in cash per share or partnership unit. The accompanying pro forma financial
information has been prepared as if this transaction had occurred on December
31, 2001 for balance sheet purposes and prior to January 1, 2001 for statement
of earnings purposes. The historical 2001 financial information is preliminary
and unaudited. The acquisition was accounted for using the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No.
141. The pro forma adjustments consist of:
(a)Represents the adjustments to record the effects on revenues and
expenses of the following 2001 transactions: the purchase of Security
Capital U.S. Realty, the sale of Archstone Communities Trust shares, the
sale of Homestead Village and the sales of CarrAmerica shares. Revenues
and expenses of Homestead Village, net gains on sales of Archstone and
Homestead Village and equity in earnings (loss) of Archstone,
CarrAmerica and SC-U.S. Realty are eliminated. Interest expense is
reduced as short-term debt is paid off with the Archstone proceeds.
(b)Security Capital's investment in Storage USA and equity in earnings from
Storage USA are eliminated as Storage USA would be consolidated after
the purchase.
(c)Represents the step-up in basis of Storage USA's real estate assets
based on the assumed purchase price (see footnote (d)). The basis
step-up is depreciated over 40 years, which represents the estimated
average life of Storage USA's real estate assets.
(d))The assumed purchase price and related amounts will be paid in cash and
is computed as follows:
Cash payments to Storage USA's common shareholders for the 16,512
shares not owned by Security Capital............................ $ 701,760
Cash payment to Storage USA's common operating partnership unit
holders for the 2,666 common units outstanding.................. 113,305
Payment for Storage USA stock options and severance costs......... 32,507
Income taxes paid by Security Capital on its shares of Storage USA 40,725
Transaction costs incurred by Security Capital.................... 20,450
Pay off and retirement of Storage USA's line of credit............ 158,900
----------
Assumed purchase price..................................... $1,067,647
==========
(e)Represents the elimination of Storage USA's deferred financing costs.
(f)Represents the pay off and retirement of Storage USA's line of credit.
(g)The elimination of the carrying amount of Storage USA's common operating
partnership units assumes that all such units will elect cash payment.
Minority interest expense is reduced for the amount attributable to the
common operating partnership units. The remaining minority interest
expense relates to the preferred operating partnership units.
(h)Represents the elimination of Storage USA's shareholders' equity.
(i)The provision for income tax expense is based on the statutory tax rate
of 35%.
(j)As a result of the sale of Archstone, CarrAmerica and Homestead Village,
Security Capital would have had cash on hand in excess of short-term
borrowings. Under the SEC regulations governing the preparation of the
pro forma financial statements, interest income from the use of proceeds
from these
57
sales is not considered to be an appropriate pro forma adjustment
and,therefore, is not included in the pro forma financial statements. If
interest income on cash proceeds in excess of short-term borrowings
(using a rate of 3.0%) were included in the pro forma financial
statements, Security Capital's pro forma income, net earnings from
operations attributable to common shares, and per share net earnings
from operations attributable to common shares before and after the
acquisition of Storage USA would be as follows:
Before the acquisition of After the acquisition of
Year Ended December 31, 2001 Storage USA Storage USA
---------------------------- ------------------------- ------------------------
Total Income................................................. $379,316 $624,124
Net earnings from operations attributable to common shares... $ 93,619 $101,717
Per share net earnings from operations attributable to common
shares:
Basic..................................................... $ 0.67 $ 0.73
Diluted................................................... $ 0.66 $ 0.72
58
COMPARISON OF RIGHTS OF HOLDERS OF SECURITY CAPITAL COMMON STOCK AND PROLOGIS
COMMON SHARES
Upon completion of the merger, at GE Capital's election, holders of Security
Capital common stock may become entitled to receive ProLogis common shares.
Security Capital is a corporation organized under the Maryland General
Corporation Law ("MGCL") and ProLogis is a real estate investment trust
organized under the Maryland REIT Law ("MRL").
The following is a summary of some material differences between the rights
of holders of Security Capital common stock and the holders of ProLogis common
shares. These differences arise from differences between the MGCL, the Security
Capital charter and the Security Capital bylaws, on the one hand, and the MRL,
the ProLogis declaration of trust and the ProLogis bylaws, on the other hand.
This summary is qualified by the full text of each document. For information as
to how to get those documents, see "Where You Can Find More Information" on
page 66.
RIGHTS OF SECURITY RIGHTS OF PROLOGIS
CAPITAL STOCKHOLDERS SHAREHOLDERS
------------------------------------ -----------------------------------
AUTHORIZED STOCK/SHARES The authorized stock of Security The authorized shares of beneficial
OF BENEFICIAL INTEREST Capital consists of: (i) 15,543,012 interest of ProLogis consist of
shares of class A stock; (ii) 275,000,000 shares, of which: (i)
234,199,346 shares of class B 243,000,000 shares are classified
stock; (iii) 65,973 shares of series as common shares; (ii) 2,300,000
A junior participating preferred shares are classified as Series C
stock; and (iv) 257,642 shares of Cumulative Redeemable Preferred
Series B preferred stock. Shares; (iii) 11,500,000 shares are
classified as Series D Cumulative
Any amendment to the Security Redeemable Preferred Shares; (iv)
Capital charter to increase its 2,750,000 shares are classified as
number of authorized shares of Junior Participating Preferred
stock must be approved by both Shares; and (v) 2,000,000 shares
the Security Capital board and are classified as Series E
stockholders. Cumulative Redeemable Preferred
Shares.
The ProLogis declaration of trust
provides that the board, without
any action by the ProLogis
shareholders, may amend the
declaration of trust from time to
time to increase or decrease the
aggregate number of shares or the
number of shares of any class or
series that ProLogis has authority
to issue.
VOTING The class A stock has one vote per Each common share carries one
share, the class B stock has .005 vote.
votes per share, and votes together
with the class A stock on all
matters.
SIZE AND CLASSIFICATION OF The charter of Security Capital The declaration of trust of
THE BOARD OF DIRECTORS/ provides that the number of ProLogis provides that the board
TRUSTEES directors of the corporation may be shall be comprised of not less than
59
increased or decreased from time three nor more than fifteen
to time by the vote of a majority of persons, which may be changed
the entire board of directors but from time to time.
may not be less than three. ProLogis' board is classified.
Security Capital's board is
classified.
REMOVAL OF Section 2-406 of the MGCL The declaration of trust of
DIRECTORS/TRUSTEES; provides that stockholders of a ProLogis provides that a trustee
VACANCIES corporation may remove any may be removed only for cause by
director with or without cause by the shareholders by the affirmative
the affirmative vote of a majority vote of two-thirds of all of the
of all votes entitled to be cast votes entitled to be cast in the
generally for the election of election of trustees or by the
directors, except that a director on trustees then in office by a two-
a classified board may not be thirds vote (which action shall be
removed without cause unless the taken only by a vote at a meeting
charter of the corporation provides and not by authorization without a
otherwise. The charter of Security meeting).
Capital does not.
The declaration of trust of
The bylaws of Security Capital ProLogis provides that any
provide that any vacancy on the vacancy created for whatever
board for any cause other than an cause may be filled a) at a special
increase in the number of directors meeting of shareholders called for
shall be filled by a majority of the such purpose, b) by the trustees
remaining directors, although such remaining in office, or c) at the
majority may be less than a next annual meeting of
quorum. A vacancy in the number shareholders. Trustees elected at a
of directors created by an increase special meeting of shareholders to
in the number of directors may be fill vacancies or appointed by the
filled by a majority vote of the remaining trustees to fill vacancies
entire board. will hold office until the next
annual meeting of shareholders.
MEETINGS OF The Security Capital bylaws The declaration of trust of
STOCKHOLDERS/ provide that a special meeting may ProLogis provides that a special
SHAREHOLDERS be convened at any time by the meeting may be convened at any
chairman, the president, CEO or time by a majority of the trustees,
the board. The Security Capital the chairman, or upon the written
bylaws provide that special request of the holders of shares
meetings shall also be called by the entitled to cast not less than a
Secretary upon the written request majority of the votes entitled to be
of the holders of shares entitled to cast at such meeting.
cast not less than a majority of the
votes entitled to be cast at such
meeting.
RIGHTS PLAN Security Capital has entered into a ProLogis has entered into a rights
rights agreement with EquiServe agreement with EquiServe Trust
Trust Company, N.A., as successor Company, N.A., as successor
60
rights agent, pursuant to which rights agent, pursuant to which
each share of Security Capital each ProLogis common share is
class A stock is entitled to a right entitled to a right to purchase one
to purchase one one-hundredth of a one-hundredth of a Series A Junior
share of Series A Junior Participating Preferred Share
Participating Preferred stock and exercisable at such time when: (a)
each share of Security Capital ten days after a person or group of
class B stock is entitled to a right persons publicly announces that
to purchase one five-hundredth of they have acquired 20% or more of
a share of Series A Junior the outstanding ProLogis common
Participating Preferred Stock; in shares; (b) fifteen days after the
both cases the right to purchase is commencement by a person or
exercisable at such time when: (a) group of persons of, or of the first
ten days after a person or group of public announcement of the
persons publicly announces that intention of any person to
they have acquired 20% or more of commence a tender or exchange
Security Capital common stock; offer the consummation of which
(b) fifteen days after a person or would result in any person owning
group of persons commences or 25% or more of the outstanding
publicly announces an intention to ProLogis common shares; or (c)
commence a tender offer or ten business days after the date of
exchange offer that would result in filing by any person or the first
the person or group owning 25% public announcement of the
or more of Security Capital intention of any person to file any
common stock; or (c) ten days application, request, submission or
after the filing or public other document with any federal or
announcement of the intention to state regulatory authority seeking
file any application, request, approval of any transaction the
submission or other document with consummation of which would
any federal or state regulatory result in any person owning 25%
authority seeking approval of any or more of the outstanding
transaction which would result in ProLogis common shares.
the person or group owning 25%
or more of the Security Capital
common stock.
In connection with the proposed
merger, Security Capital has
amended its rights agreement to
except the transactions
contemplated by the merger
agreement from triggering such
rights and to provide for the
termination of the rights agreement
at the effective time of the merger.
STANDARDS OF CONDUCT The MGCL requires a director of a The MRL does not contain any
FOR DIRECTORS AND Maryland corporation to perform similar provision concerning the
TRUSTEES his or her duties as a director in standard of conduct for trustees;
good faith, in a manner he or she however a Maryland court might
reasonably believes to be in the look to the MGCL by analogy.
best interests of the corporation
61
and with the care that an ordinarily
prudent person in a like position
would use under similar
circumstances.
DETERMINATIONS The MGCL provides that a The MRL contains no comparable
REGARDING FINANCIAL determination relating to stated provision.
MATTERS capital, surplus, capital surplus,
earned surplus or any other
account or matter relating to the
financial position or results of
operations of a Maryland
corporation is prima facie proper
and in accordance with law if the
MGCL does not provide otherwise
and the determination is made in
good faith in accordance with
generally accepted accounting
principles.
DIVIDENDS AND OTHER The MGCL allows the payment of Under the MRL, there are no limits
DISTRIBUTIONS a dividend or other distribution on the payment of dividends or
unless, after giving effect to the other distributions. In addition, the
dividend or other distribution, MRL contains no provisions
(i) the corporation would not be regarding personal liability of
able to pay its debts as they trustees for improper distributions.
become due in the usual course of However, a Maryland court could
business or (ii) the corporation's consider the MGCL provision
total assets would be less than the relevant to its decision as to the
corporation's total liabilities plus validity of a dividend or
(unless the corporation's charter distribution made by a Maryland
provides otherwise, which the real estate investment trust, such as
charter of Security Capital does) ProLogis, and as to the personal
the amount that would be needed, liability of a trustee for an
if the corporation were to be improper distribution.
dissolved at the time of the
distribution, to satisfy the
preferential rights upon dissolution
of stockholders whose preferential
rights upon dissolution are superior
to those receiving the distribution.
In addition, the MGCL provides
that a director who approves a
distribution made in violation of
the corporation's charter or the
MGCL will be personally liable to
the corporation for the amount of
the distribution that exceeds what
could have been made without
violating the charter or the MGCL,
but only if the director did not
perform his or her
62
duties in compliance with the ProLogis has historically paid
three-part standard of conduct for dividends
directors discussed above.
Security Capital has not
historically paid dividends (See
"Market Price of Security Capital
Common Stock and Dividend
Information").
DELEGATION TO BOARD The MGCL provides that a board The MRL provides that a board of
COMMITTEES of directors of a Maryland trustees of a Maryland real estate
corporation, such as Security investment trust, such as ProLogis,
Capital, may appoint from among may establish committees
its members an executive composed of one or more trustees
committee and other committees and delegate to those committees
composed of one or more directors any of the powers of the board of
and delegate to those committees trustees.
any of the powers of the board,
except the power to (i) authorize
dividends on stock; (ii) issue stock
(unless the board has given general
authorization for the issuance of
stock providing for or establishing
a method or procedure for
determining the maximum number
of shares to be issued); (iii)
recommend to stockholders any
action requiring stockholder
approval; (iv) amend the bylaws;
and (v) approve any merger or
share exchange which does not
require stockholder approval.
ADVANCE NOTICE OF The bylaws of Security Capital The bylaws of ProLogis provide
DIRECTOR/TRUSTEE provide that (a) with respect to an that (a) with respect to an annual
NOMINATIONS AND OTHER annual meeting, a stockholder's meeting, a shareholder's notice of
PROPOSALS notice of a director nomination or a trustee nomination or other
other proposal must be delivered to proposal must be delivered to the
the secretary of Security Capital secretary of ProLogis not less than
not less than 75 nor more than 100 90 nor more than 120 days prior to
days prior to the first anniversary the first anniversary of the
of the preceding year's annual preceding year's annual meeting
meeting and (b) with respect to a and (b) with respect to a special
special meeting, a stockholder's meeting, a stockholder's notice of
notice of a director nomination a trustee nomination must be
must be delivered to the secretary delivered to the secretary of
of Security Capital no earlier than ProLogis no earlier than the 120th
the 100th day prior to the special day prior to the special meeting
meeting and not later than the and not later than the close of
63
close of business on the later of the business on the later of the 90th
75th day prior to the special day prior to the special meeting or
meeting or the 10th day following the tenth day following public
public announcement of the announcement of the meeting.
meeting.
AMENDMENT OF Except as specifically provided by The declaration of trust of
CHARTER/DECLARATION law or the Security Capital charter, ProLogis may be amended by the
OF TRUST the charter of Security Capital may approval of the ProLogis board
be amended only by the approval and by the affirmative vote or
of the Security Capital board and written consent of the holders of at
by the affirmative vote of the least a majority of all the votes
holders of at least a majority of all entitled to be cast on the matter. In
the votes entitled to be cast on the addition, as discussed above, the
matter. ProLogis declaration of trust
provides that the board, without
action by the ProLogis
shareholders, may amend the
declaration of trust from time to
time to increase or decrease the
aggregate number of shares or the
number of shares of any class or
series that ProLogis has authority
to issue. The ProLogis declaration
of trust also provides that the
trustees, by a two-thirds vote, may
amend the declaration of trust from
time to time to enable ProLogis to
qualify as a real estate investment
trust under the Internal Revenue
Code or the MRL.
64
RESALE RESTRICTIONS
Any ProLogis common shares received by Security Capital stockholders in the
merger will be freely transferable under the Securities Act, except that
ProLogis common shares received by persons who are deemed to be "affiliates" of
ProLogis or of Security Capital under the rules and regulations of the
Securities Act at the time of the special meeting may be resold by them only in
transactions permitted by Rule 145 of the rules and regulations of the
Securities Act or as otherwise permitted thereunder. Persons who may be deemed
to be affiliates of ProLogis or Security Capital for such purposes generally
include individuals or entities that control, are controlled by or are under
common control with ProLogis or Security Capital, as the case may be, and
generally include certain officers, directors, trustees and significant
shareholders of ProLogis and Security Capital.
This proxy statement/prospectus does not cover any resales of the ProLogis
common shares to be received by the Security Capital stockholders upon
consummation of the merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any such resale.
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes and incorporates by reference
statements that are not historical facts. These statements are "forward-looking
statements" (as defined in the Private Securities Litigation Reform Act of
1995) based, among other things, on our current plans and expectations relating
to analyses of value and expectations of anticipated growth in the future and
future success under various circumstances, and, as such, these forward-looking
statements involve uncertainty and risk. These forward-looking statements
should be read in conjunction with the section entitled "Forward-Looking
Statements" in Item 7 of our Annual Report on Form 10-K/A for the year ended
December 31, 2001, which describes many of the external factors that could
cause our actual results to differ materially from our expectations. Our Form
10-K is on file with the SEC, and a copy is available without charge upon
written request to: Jeffrey A. Klopf, Senior Vice President, Security Capital
Group Incorporated, 125 Lincoln Avenue, Santa Fe, New Mexico 87501. The Form
10-K is also available via the Internet at www.sec.gov.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in any forward-looking
statement. We do not undertake any obligation to update the forward-looking
statements contained or incorporated in this proxy statement/prospectus to
reflect actual results, changes in assumptions, or changes in other factors
affecting these forward-looking statements.
All information contained in this proxy statement/prospectus with respect to
GE Capital and Merger Sub has been supplied by and is the responsibility of GE
Capital.
FUTURE STOCKHOLDER PROPOSALS
Security Capital intends to hold an annual meeting in 2002 only if the
merger is not completed. Any Security Capital stockholder intending to submit a
proposal for inclusion in the proxy statement/prospectus and form of proxy for
our 2002 annual meeting of stockholders, in the event that it is held, must
have submitted the proposal to the attention of our Secretary at our principal
executive office sufficiently far in advance so that it was received by us not
later than December 13, 2001. In addition, Security Capital stockholders may
present proposals which are proper subjects for consideration at an annual
meeting, including nominees for election to the board, even if the proposal is
not submitted by the deadline for inclusion in the proxy statement/prospectus.
To do so, the stockholder must comply with the procedures specified by Security
Capital's bylaws, a copy of which will be furnished to any stockholder without
charge. Security Capital's bylaws require that all stockholders who intend to
make proposals at an annual stockholders' meeting submit their proposals to the
Secretary of Security Capital during the period 75 to 100 days before the
anniversary date of the previous year's annual meeting. To be eligible for
consideration at the 2002 annual meeting, proposals which have not been
submitted by the deadline for inclusion in the proxy statement/prospectus must
have been received by the Secretary of Security Capital between February 6,
2002 and March 3, 2002.
65
WHERE YOU CAN FIND MORE INFORMATION
Each of Security Capital and GE Capital is subject to the informational
requirements of the Exchange Act. Each company files reports, proxy statements
and other information with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website, located at www.sec.gov, that
contains reports, proxy statements and other information regarding companies
and individuals that file electronically with the SEC.
You may also read reports, proxy statements and other information relating
to Security Capital and GE at the offices of the NYSE at 20 Broad Street, New
York, New York 10005.
66
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Security Capital incorporates by reference into this proxy
statement/prospectus the following documents that Security Capital has filed
with the SEC (File No. 1-13355):
(1)Annual Report on Form 10-K for the year ended December 31, 2001, and
amended on Form 10-K/A filed on April 15, 2002.
All documents and reports filed by Security Capital pursuant to Section
13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this proxy
statement/prospectus and on or prior to the date of the special meeting are
deemed to be incorporated by reference in this proxy statement/prospectus from
the date of filing of those documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this proxy
statement/prospectus will be deemed to be modified or superseded for purposes
of this proxy statement/prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference in this proxy statement/prospectus modifies or
supersedes that statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this proxy
statement/prospectus.
Any person receiving a copy of this proxy statement/prospectus may obtain,
without charge, upon written or oral request, a copy of any of the documents
incorporated by reference except for the exhibits to such documents (other than
the exhibits expressly incorporated in those documents by reference). Requests
should be directed to: Jeffrey A. Klopf, Senior Vice President, Security
Capital Group Incorporated, 125 Lincoln Avenue, Santa Fe, New Mexico 87501,
telephone number: (505) 982-9292. A copy will be provided by first class mail
or other equally prompt means within one business day after receipt of your
request.
We have authorized no one to give you any information or to make any
representation about the merger or our company that differs from or adds to the
information contained in this proxy statement/prospectus or in the documents we
have publicly filed with the SEC. Therefore, if anyone should give you any
different or additional information, you should not rely on it.
The information contained in this proxy statement/prospectus speaks only as
of the date indicated on the cover of this proxy statement/prospectus unless
the information specifically indicates that another date applies.
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INFORMATION CONCERNING PROLOGIS TRUST
The information contained in pages 69 to 98 is a prospectus relating to
ProLogis Trust and is important information if GE Capital elects to cause
Security Capital to distribute some or all of the ProLogis common shares, and
we urge you to read this information carefully. This information has been
prepared by ProLogis, from the perspective of ProLogis Trust. Accordingly
references to "we," "us," "our" or "the Company" on pages 69 to 98 are
references to ProLogis.
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PROSPECTUS
PROLOGIS TRUST
49,903,814 COMMON SHARES
-----------------
This prospectus relates to the public offering from time to time of up to
49,903,814 of our common shares of beneficial interest by Security Capital
Group Incorporated, which is currently our largest shareholder. Additionally,
some or all of the common shares may be transferred by Security Capital, at the
direction of General Electric Capital Corporation, to Security Capital
stockholders as part of the consideration to be received by them in connection
with the merger transaction described in this prospectus.Accordingly, General
Electric Capital Corporation may also be considered a selling shareholder. We
will not receive any of the proceeds from any sale or transfer of the shares.
Our common shares are listed on the New York Stock Exchange under the symbol
"PLD". Our principal executive offices are located at 14100 East 35th Place,
Aurora, Colorado 80011, and our telephone number is (303) 375-9292.
PLEASE SEE PAGE 73 FOR RISK FACTORS RELATING TO THE PROLOGIS COMMON SHARES
WHICH YOU SHOULD CONSIDER.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------------
The date of this prospectus is April 16, 2002.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH ANY OFFERING
OF THESE COMMON SHARES. THIS PROSPECTUS IS NOT AN OFFER TO SELL ANY SECURITY
OTHER THAN THESE COMMON SHARES AND IT IS NOT SOLICITING AN OFFER TO BUY ANY
SECURITY OTHER THAN THESE COMMON SHARES. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE COMMON SHARES TO ANY PERSON AND IT IS NOT SOLICITING AN OFFER FROM
ANY PERSON TO BUY THESE COMMON SHARES IN ANY JURISDICTION WHERE THE OFFER OR
SALE TO THAT PERSON IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THE DATE
OF THIS PROSPECTUS, EVEN THOUGH THIS PROSPECTUS IS DELIVERED OR THESE COMMON
SHARES ARE OFFERED OR SOLD ON A LATER DATE.
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FORWARD-LOOKING STATEMENTS
This prospectus, including the documents we incorporate by reference,
contains "forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on our current expectations, estimates and projections about the industry
and markets in which we operate. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions, which are difficult to predict
and many of which are beyond our control. Therefore, actual outcomes and
results may differ materially from what is expressed, forecasted or implied in
such forward-looking statements. Information concerning expected investment
balances, expected funding sources, planned investments and revenue and expense
growth assumptions are examples of forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
applicable law.
Important factors that could cause actual results to differ materially from
current expectations reflected in these forward-looking statements include,
among others, the factors discussed in the filings made by us that are
identified under the caption "Where You Can Find More Information" and
incorporated by reference in this prospectus.
PROLOGIS TRUST
ProLogis Trust is a real estate investment trust that operates a global
network of industrial distribution facilities. Our business strategy is
designed to achieve long-term sustainable growth in cash flow and increase the
overall return on equity for our shareholders. Our business is organized into
two primary operating segments: property operations and corporate distribution
facilities services business, which we refer to as the CDFS business. In 2001,
we began the initial steps to dispose of significant portions of our third
operating segment, temperature-controlled distribution operations.
The property operations segment includes the long-term ownership, management
and leasing of industrial distribution facilities. As of December 31, 2001, our
network consisted of 1,542 operating facilities aggregating 180.8 million
square feet in North America (our investments in North America are located only
in the United States and Mexico) and seven countries in Europe. Of these, 1,208
operating facilities aggregating 123.4 million square feet are owned directly
by us and 334 operating facilities aggregating 57.4 million square feet are
owned by six unconsolidated real estate funds (which we refer to as the Funds)
in which we have ownership interests ranging from 20% to 50%. The property
operations segment generates income from rents and reimbursement of property
operating expenses from unaffiliated customers. Also, our share of the earnings
of the Funds, and the fee income that we receive for managing the facilities
owned by the Funds, is included in the property operations segment. In addition
to these property and asset management fees earned, we earn fees for leasing
activities on behalf of the Funds.
The CDFS business segment represents the development of industrial
distribution facilities that are either sold to unaffiliated customers or
contributed to real estate funds in which we maintain an ownership interest and
act as manager. Our activities in this business segment in the United Kingdom
are performed by an unconsolidated entity that we account for under the equity
method. Income from the CDFS business segment is primarily generated through
the profits realized from the sales or contributions of developed facilities.
We also earn fees from customers for development activities performed on their
behalf and realize profits from sales of land parcels when our development
plans no longer include these parcels. As of December 31, 2001, we had 29
facilities under development aggregating 7.8 million square feet (including
facilities being developed by our unconsolidated entity). The total investment
in these facilities upon completion is expected to be $516.7 million. These
development projects are located in the United States, in seven countries in
Europe and in Japan (we began development of our first project in Asia in
2001). Our undeveloped land positions in North America and nine countries in
Europe aggregate 2,162 acres with the capacity for development of approximately
40.2 million
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square feet of distribution facilities (including land positions of our
unconsolidated entity). Additionally, we control (either through contracts,
options or letters of intent) 2,889 acres with the capacity for the development
of approximately 45.8 million square feet of distribution facilities in the
United Sates, in seven countries in Europe and in Japan (including land
positions of our unconsolidated entity). We intend to use this land for the
development of distribution facilities. Such facilities will eventually be sold
to third parties or contributed to real estate funds in which we will retain an
ownership interest and which we will manage.
Our temperature controlled-distribution operations segment consists of
investments in two companies that operate temperature-controlled distribution
and logistics networks in the United States and in nine countries in Europe. As
of December 31, 2001, these entities owned or operated 332.8 million cubic feet
of facilities (including 35.5 million cubic feet of non-temperature-controlled
distribution space located in their facilities). We account for our investment
in these two entities under the equity method. These entities earn revenues
from unaffiliated customers for various services associated with the
temperature-controlled distribution environment. In 2001, substantially all of
the operating assets in Germany and all of the operating assets in the Czech
Republic were sold. In March 2002, all of the operating assets in Sweden,
Denmark, Finland, Norway and the Netherlands, as well as the remaining German
assets of the European company in which we invested were sold from this
operating segment. Negotiations are ongoing related to the sale of
substantially all of the operating assets of the company operating in the
United States and certain of the remaining operating assets of the European
company.
We manage our business by utilizing the ProLogis Operating System(R), an
organizational structure and service delivery system that is built around our
customers. The ProLogis Operating System(R) is made up of the Market Services
Group, the Global Services Group, the Global Development Group and the ProLogis
Solutions Group. When combined with our international network of distribution
facilities, the ProLogis Operating System(R) enables us to meet our customers'
distribution space needs on a global basis. We believe that by integrating
international scope and expertise with strong local presence in our markets we
have become an attractive choice for our targeted customer base which is made
up of the largest global users of distribution facilities.
We are organized under Maryland law and have elected to be taxed as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Our world headquarters are located in Denver, Colorado, our European
headquarters are located in Luxembourg, with our European customer service
headquarters located in Amsterdam, Netherlands, and our Asian headquarters are
located in Tokyo, Japan.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission under the Securities Act of 1933. This
prospectus and any accompanying prospectus supplement do not contain all of the
information included in the registration statement. For further information, we
refer you to the registration statement, including its exhibits. While all
material terms of the agreements and documents described in this prospectus
have been provided, statements contained in this prospectus and any
accompanying prospectus supplement about the provisions or contents of any
agreement or other document are not necessarily complete. If the SEC's rules
and regulations require that such agreement or document be filed as an exhibit
to the registration statement, please see such agreement or document for a
complete description of these matters. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of each document.
This prospectus provides you with a general description of the offered
common shares. Each time the selling shareholder sells any of these offered
shares of if the shares are transferred in connection with the merger
transaction described in this prospectus, the selling shareholder will provide
you with this prospectus and a prospectus supplement, if applicable, that will
contain specific information about the terms of that sale or transfer. The
prospectus supplement also may add, update or change any information contained
in this prospectus. You should read both this prospectus and any prospectus
supplement, together with additional information described under the heading
"Where You Can Find More Information."
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and, in accordance therewith, file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the Securities and Exchange Commission at
1-800-SEC-0330. Such material can also be obtained from the Securities and
Exchange Commission's worldwide web site at http://www.sec.gov. Our outstanding
common shares, Series D cumulative redeemable preferred shares of beneficial
interest and Series E cumulative redeemable preferred shares of beneficial
interest, are listed on the New York Stock Exchange under the symbols "PLD",
"PLD-PRD" and "PLD-PRE", respectively, and all such reports, proxy statements
and other information filed by us with the New York Stock Exchange may be
inspected at the New York Stock Exchange's offices at 20 Broad Street, New
York, New York 10005. You can also obtain information about us at our website,
www.prologis.com.
There are incorporated by reference in this prospectus the following
documents previously filed by us with the Securities and Exchange Commission:
(a)Annual Report on Form 10-K for the fiscal year ended December 31, 2001,
filed on April 5, 2002, as amended by Form 10-K/A filed on April 16,
2002; and
(b)The description of the common shares and the related preferred share
purchase rights contained in our registration statement on Form 8-A
filed on February 23, 1994.
The Securities and Exchange Commission has assigned file number 1-12846 to
reports and other information that we file with the Securities and Exchange
Commission.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act of 1934 prior to the termination of the offering
of the offered securities shall be deemed to be incorporated by reference in
this prospectus and to be a part of this prospectus from the date of filing of
such documents. Any statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference in this prospectus shall
be deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus, or in any subsequently
filed document which is incorporated or deemed to be incorporated by reference
in this prospectus, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference in this prospectus, other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to:
Secretary
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
(303) 375-9292
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RISK FACTORS
Risks factors include the occurrence of any of the events described below
that could adversely affect our financial condition, results of operations,
cash flow, ability to pay distributions on common shares and the market price
of common shares.
We Are Exposed To The General Economic Conditions and The Local, Regional,
National and International Conditions That Affect The Markets In Which We Own
Industrial Distribution Facilities.
Our operating performance depends on the economic conditions of markets in
which our distribution facilities are concentrated. While we do not have in
excess of 10% of our total portfolio in any one market, we do have significant
holdings in Atlanta, Chicago, Dallas/Ft. Worth, Los Angeles, Paris, San
Francisco and the United Kingdom. Our operating performance could be adversely
affected if conditions in these larger markets, such as an oversupply of
distribution space or a reduction in demand for industrial distribution
facilities, become less favorable relative to other geographic areas. Any
material oversupply of distribution space or material reduction of demand for
distribution space could adversely affect our operating income and the value of
our common shares.
Our Investments Are Subject To Risks Particular To Real Estate.
Value of Real Estate Dependent on Numerous Factors
Real property investments are subject to varying degrees of risk. While we
seek to minimize these risks through our market research and property
management capabilities, these risks cannot be eliminated. The factors that can
affect real estate values include:
. changes in the general economic climate;
. local conditions, such as an oversupply of space or a reduction in demand
industrial for real estate in an area;
. the quality and philosophy of management;
. the attractiveness of our facilities to potential customers;
. competition from other available facilities;
. our ability to provide adequate maintenance and insurance on our
facilities;
. our ability to control variable operating costs;
. governmental regulations, including zoning, usage and tax laws and
changes in these laws;
. interest rate levels at which we may borrow funds and the availability of
funds to us; and
. potential liability under, and changes in, environmental, zoning, and
other laws.
Risks Associated with Concentration of our Investments in the Industrial
Sector
Our property operations and CDFS business segments are concentrated in the
industrial distribution sector. This concentration may expose us to the risk of
economic downturns in this sector to a greater extent than if our business
activities included other types of real estate investments.
Risks Associated with our Development Activities
We have developed a significant number of distribution facilities since our
inception and intend to continue to pursue development activities as
opportunities arise. Such development activities generally require various
73
government and other approvals. We may not receive such approvals. We will be
subject to risks associated with such development activities. These risks
include:
. the risk that development opportunities explored by us may be abandoned
with the related investment written off;
. the risk that construction costs of a facility may exceed original
estimates or may not be concluded on schedule (including the possibility
of contract default, the effect of local weather conditions and local or
national strikes or shortages in materials, building supplies or energy
and fuel for equipment) which could make the project less profitable than
originally estimated; and
. the risk that occupancy rates and rents of a completed project will not
make the project as profitable as originally estimated.
Risks Associated with the Disposition of our Facilities
We have disposed of or contributed to real estate funds, a significant
number of distribution facilities in recent years and intend to continue to
pursue disposition activities as opportunities arise, particularly in the CDFS
business segment. Our ability to dispose of facilities on advantageous terms is
dependent upon several factors, some of which are beyond the control of our
management, primarily competition from other owners of facilities that are also
trying to dispose of their facilities. Our ability to complete and lease
developed facilities will impact our ability to dispose of or contribute these
facilities. Should we not have sufficient facilities available that meet the
investment criteria of future real estate funds or of ProLogis European
Properties Fund, then the dispositions could be delayed resulting in adverse
effects on our liquidity and on our ability to meet projected earnings levels
in a particular reporting period. Failure to meet our projected earnings levels
could have an adverse effect on the market price of our common shares. Further,
our inability to redeploy the proceeds from our divestitures in accordance with
our investment strategy could have an adverse affect on us.
Risks Associated with Acquisition of Facilities
We acquire distribution facilities from time to time. The acquisition of
facilities involves risks including the risk that the acquired facility will
not perform as anticipated and the risks that the expected costs for renovation
and improvements identified in the pre-acquisition due diligence process prove
to be inaccurate. There is, and it is expected that there will continue to be,
significant competition for investment opportunities that meet our investment
criteria as well as risks associated with obtaining financing for acquisition
activities, if necessary.
Tenant Default
Our income and distributable cash flow would be adversely affected if a
significant number of our tenants are unable to meet their obligations to us.
In the event of default by a significant number of tenants, we may experience
delays, and incur substantial costs, in enforcing our rights as landlords.
Ability to Renew Leases or Re-let Space as Leases Expire
Our income and distributable cash flow would be adversely affected if we are
unable to lease, on economically favorable terms, a significant amount of space
in our distribution facilities. We have 21.2 million square feet (a total of
106.7 million square feet leased) of distribution space with leases that expire
in 2002 and the real estate funds have a combined 4.1 million square feet (a
total of 55.4 million square feet leased) of distribution space with leases
that expire in 2002. The number of distribution facilities in a market or
submarket could adversely affect both our ability to lease distribution space
and the rental rates that can be obtained in new leases.
Real Estate Investments Are Not As Liquid As Other Types of Assets
Real estate investments are not as liquid as other types of assets and that
may tend to limit our ability to react promptly to changes in economic or other
conditions. In addition, significant expenditures associated with real estate
investments, such as mortgage payments, real estate taxes and maintenance
costs, are generally not reduced when circumstances cause a reduction in income
from the investments. Like other companies qualifying
74
as REITs under the Internal Revenue Code, we must comply with the safe harbor
rules relating to the number of facilities disposed of in a year, their tax
bases and the cost of improvements made to the facilities, or meet other tests
which enable a REIT to avoid punitive taxation on the sale of assets. Thus, our
ability at any time to sell assets, or contribute assets to real estate funds
or other entities in which we have an ownership interest may be restricted.
Our Insurance Coverage Does Not Include All Potential Losses
We and our unconsolidated entities currently carry comprehensive insurance
coverage including property liability, fire, flood, earthquake, environmental,
extended coverage and rental loss, as appropriate for the markets where each
entity's facilities and business operations are located. The insurance coverage
contains policy specifications and insured limits customarily carried for
similar facilities. We believe our facilities and the facilities of our
unconsolidated entities are adequately insured. However, there are certain
losses, including losses from floods and losses from earthquakes, acts of war
or riots, that are not generally insured against or that are not generally
fully insured against because it is not deemed to be economically feasible or
prudent to do so. Should an uninsured loss or a loss in excess of insured
limits occur with respect to one or more of our facilities, we could experience
a significant loss of capital invested and potential revenues in these
properties and could potentially remain obligated under any recourse debt
associated with the facility.
Potential Environmental Liability
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of hazardous or toxic substances at,
on, under or in its property. The costs of removal or remediation of such
substances could be substantial. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release or presence of such hazardous substances. We conduct Phase I
environmental assessments as part of our due diligence activities. We have not
been notified nor are we aware of any environmental condition with respect to
our real estate investments that are likely to be material to our financial
condition. However, we cannot give any assurance that such conditions do not
exist or may not arise in the future. The presence of such substances on our
real estate investments could adversely affect our ability to sell such
investments or to borrow using such investments as collateral and may also have
an adverse effect on our cash flow and, consequently, our ability to pay
distribution to our shareholders.
Financing and Capital Risks
Access to Capital
As a REIT, we are required to distribute at least 90% of our taxable income
to our shareholders. Consequently, we are, as are all REITs, dependent on
external capital to fund our development and acquisition activities. Due to the
reduced availability during the last several years of direct public debt and
public equity capital at favorable prices in the real estate industry, we have
been accessing private debt and equity capital through the establishment of
real estate funds that acquire facilities from us. Our ability to access
private debt and equity capital on favorable terms or at all is dependent upon
a number of factors, including general market conditions and competition from
other real estate companies. Further, we generate significant profits as a
result of these dispositions. To the extent that private capital is not
available to acquire facilities from us, these profits may not be realized
which could result in an earnings stream that is less predictable than some of
our competitors and result in our not meeting our projected earnings levels in
a particular reporting period. Failure to meet our projected earnings level
could have an adverse effect on the market price of our common shares.
We are obligated to contribute all of the facilities we develop within
certain specified markets in Europe to ProLogis European Properties Fund,
subject to these facilities meeting specified investment criteria. ProLogis
European Properties Fund's investors have entered into subscription agreements
whereby they have committed to provide capital to ProLogis European Properties
Fund through September 2002. Should any of the investors in
75
ProLogis European Properties Fund default on this commitment or should we not
secure funding commitments after September 2002, our ability to dispose of our
development pipeline in Europe will be jeopardized and our ability to meet our
projected earnings levels and generate cash flow would be adversely affected.
Limitations on Debt
We currently have a policy of incurring debt only if, upon such incurrence,
our debt-to-book capitalization ratio, as adjusted, would not exceed 50%. Our
board of trustees could alter or eliminate this policy without shareholder
approval and would do so if, for example, it were necessary in order for us to
continue to qualify as a REIT under the Internal Revenue Code. If this policy
were changed, we could become more highly leveraged, resulting in an increase
in debt service that could adversely affect the cash available for distribution
to shareholders.
Debt Financing
We are subject to risks normally associated with debt financing, including
the risk that our cash flow will be insufficient to meet required payments of
principal and interest and the risk that we will not be able to refinance
existing indebtedness or that the terms of such refinancings will not be as
favorable as the terms of the existing indebtedness. There can be no assurance
that we will be able to refinance any indebtedness or otherwise obtain funds by
selling assets or raising equity to make required payments on maturing
indebtedness. Currently, we utilize our short-term borrowing capability (over
$1.0 billion available) under four credit agreements, in addition to operating
cash flow and proceeds from dispositions, to fund our development, acquisition
and distribution requirements. Our short-term credit agreements have maturities
during 2002 ($60.0 million), 2003 ($287.0 million), 2004 ($500.0 million) and
2005 ($188.0 million). Our ability to refinance these credit agreements in a
timely manner and at favorable terms is dependent on several factors, including
general economic conditions and interest rate levels. Our short-term credit
agreements bear interest at variable rates. Increases in interest rates would
increase our interest rate expense under these agreements. If we are unable to
refinance our indebtedness at maturity or meet our payment obligations, the
amount of cash available for distribution may be adversely affected.
Requirements of Credit Facilities
The terms of our indebtedness require us to comply with a number of
customary financial and other covenants, such as maintaining debt service
coverage and leverage ratios and maintaining insurance coverage. These
covenants may limit our flexibility in our operations, and breaches of these
covenants could result in defaults under the instruments governing the
applicable indebtedness even if we have satisfied our payment obligations. If
we are unable to refinance our indebtedness at maturity or meet our payment
obligations, the amount of cash available for distribution may be adversely
affected.
Federal Income Tax Risks
Failure to Qualify as a REIT Could Adversely Affect Shareholders
We have elected to be taxed as a REIT under the Internal Revenue Code
commencing with our taxable year ended December 31, 1993. To maintain REIT
status, we must meet a number of highly technical requirements on a continuing
basis. Those requirements seek to ensure, among other things, that the gross
income and investments of a REIT are largely real estate related, that a REIT
distributes substantially all its ordinary taxable income to shareholders on a
current basis and that the REIT's ownership is not overly concentrated. Due to
the complex nature of these rules, the available guidance concerning
interpretation of the rules, the importance of ongoing factual determinations
and the possibility of adverse changes in the law, administrative
interpretations of the law and developments at ProLogis, no assurance can be
given that we will qualify as a REIT for any particular year.
76
If we fail to qualify as a REIT, we will be taxed as a regular corporation,
and distributions to shareholders will not be deductible in computing our
taxable income. The resulting corporate income tax liabilities could materially
reduce the funds available for distribution to our shareholders or for
reinvestment. Moreover, we might not be able to elect to be treated as a REIT
for the four taxable years after the year during which we ceased to qualify as
a REIT. In addition, if we later requalified as a REIT, we might be required to
pay a full corporate-level tax on any unrealized gain in our assets as of the
date of requalification and to make distributions to shareholders equal to any
earnings accumulated during the period of non-REIT status. In the absence of
REIT status, distributions to shareholders would no longer be required.
Potential Adverse Effect of REIT Distribution Requirements
To maintain our qualification as a REIT under the Internal Revenue Code, we
must annually distribute to our shareholders at least 90% of our ordinary
taxable income, excluding net capital gains. This requirement limits our
ability to accumulate capital. We may not have sufficient cash or other liquid
assets to meet the distribution requirements. Difficulties in meeting the
distribution requirements might arise due to competing demands for our funds or
to timing differences between tax reporting and cash receipts and
disbursements, because income may have to be reported before cash is received,
because expenses may have to be paid before a deduction is allowed or because
deductions may be disallowed or limited. In those situations, we might be
required to borrow funds or sell facilities on adverse terms in order to meet
the distribution requirements. If we fail to make a required distribution, we
would cease to be a REIT.
Prohibited Transaction Income Could Result From Certain Property Transfers
We dispose of and contribute facilities from both our property operations
segment and from within our CDFS business to third parties and to real estate
funds. Some of these dispositions and contributions are made from our taxable
subsidiaries. Under the Internal Revenue Code, if the disposition or
contribution of facilities is deemed to be a prohibited transaction, a 100%
penalty tax on the resulting income could be assessed. The question of what
constitutes a prohibited transaction is based on the facts and circumstances
surrounding each transaction. The Internal Revenue Service could contend that
certain dispositions or contributions by us are prohibited transactions. While
our management does not believe that the Internal Revenue Service would prevail
in such a dispute, if the matter was successfully argued by the Internal
Revenue Service, the 100% penalty tax could be assessed against the profits
from these transactions. Additionally, any income from a prohibited transaction
may adversely affect our ability to satisfy the income tests for qualification
as a REIT.
Influence of our Principal Shareholder May Impact our Management and Operations
We and Security Capital are parties to a Third Amended and Restated Investor
Agreement, dated as of September 9, 1997. Pursuant to the investor agreement,
Security Capital has the right, so long as it owns between 10% and 25% of our
common shares, to nominate one person to our board of trustees. So long as
Security Capital owns 25% or more of our common shares, Security Capital will
be entitled to nominate a proportionate number of persons to our board of
trustees subject to a maximum of three nominees if the size of the board does
not increase above the current size of ten trustees. Under the investor
agreement, so long as it owns at least 25% of our common shares, Security
Capital also has the right of prior approval with respect to the following
matters:
. the issuance of equity securities or securities convertible into equity
securities, other than issuances in connection with option, dividend
reinvestment and similar plans, for less than the fair market value of
such securities;
. the issuance of any preferred shares which would result in the fixed
charge coverage ratio being less than 1.4 to 1.0;
. adopting any employee benefit plans under which common shares may be
issued;
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. the compensation of our senior officers; and
. the incurrence of additional indebtedness which would result in the
interest expense coverage ratio being less than 2.0 to 1.0.
We are Dependent on Key Personnel
Our executive and senior officers have a significant role in our success.
Our ability to retain our management group or to attract suitable replacements
should any members of the management group leave us is dependent on the
competitive nature of the employment market. The loss of services from key
members of the management group or a limitation in their availability could
adversely affect our financial condition and cash flow. Further, such a loss
could be negatively perceived in the capital markets and have an adverse affect
on the market price of our common shares.
Share Prices May be Affected by Market Interest Rates
The annual distribution rate on our common shares as a percentage of their
market price may influence the trading price of the common shares. An increase
in market interest rates may lead investors to demand a higher annual
distribution rate, which could adversely affect the market price of our common
shares. A decrease in the market price of our common shares could reduce our
ability to raise additional equity capital in the public markets.
Foreign Currency Risk
We have pursued and intend to continue to pursue growth opportunities in
international markets and often invest in countries where the U.S. dollar is
not the national currency. As a result, we are subject to foreign currency risk
due to potential fluctuations in exchange rates between foreign currencies and
the U.S. dollar. For example, a significant depreciation in the value of the
foreign currencies of one or more countries where we have a significant
investment may materially adversely affect our performance. We attempt to
mitigate such effects through the use of debt denominated in foreign currencies
and foreign currency put option contracts, although there can be no assurance
that such attempts will be successful.
Government Regulations and Actions
There are many laws and governmental regulations that are applicable to us
and our facilities. Changes in these laws and governmental regulations, or
their interpretation by agencies or the courts, could occur. Further, economic
and political factors, including civil unrest, governmental changes and
restrictions on the ability to transfer capital across borders, in the United
States but primarily in the foreign countries in which we have invested, can
have a major impact on us as a global company.
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USE OF PROCEEDS
We will not receive any proceeds from the sale by Security Capital of the
common shares nor will we receive any proceeds if the shares are transferred to
stockholders of Security Capital in the merger transaction described under
"Selling Shareholder". We will pay all expenses of the registration and sale of
the common shares, other than selling commissions and fees and other than fees
and disbursements of counsel for Security Capital.
DESCRIPTION OF COMMON SHARES
General
Our declaration of trust authorizes us to issue up to 275,000,000 shares of
beneficial interest, par value $0.01 per share, consisting of common shares,
preferred shares and such other types or classes of shares of beneficial
interest as our board of trustees may create and authorize from time to time.
The board of trustees may amend the declaration of trust without shareholder
consent to increase or decrease the aggregate number of shares or the shares of
any class which we have authority to issue. At April 11, 2002, 177,526,876
common shares were issued and outstanding and held of record by approximately
10,355 shareholders.
The following description of certain general terms and provisions of the
common shares is not complete and you should refer to our declaration of trust
and bylaws for more information. The outstanding common shares are fully paid
and non-assessable. Each common share entitles the holder to one vote on all
matters requiring a vote of shareholders, including the election of trustees.
Holders of common shares do not have the right to cumulate their votes in the
election of trustees, which means that the holders of a majority of the
outstanding common shares can elect all of the trustees then standing for
election. Holders of common shares are entitled to such distributions as may be
declared from time to time by the board of trustees out of funds legally
available therefor. Holders of common shares have no conversion, redemption,
preemptive or exchange rights to subscribe to any of our securities. In the
event of a liquidation, dissolution or winding up of our affairs, the holders
of the common shares are entitled to share ratably in our assets remaining
after provision for payment of all liabilities to creditors and payment of
liquidation preferences and accrued dividends, if any, on the Series C
cumulative redeemable preferred shares, Series D cumulative redeemable
preferred shares and Series E cumulative redeemable preferred shares, and
subject to the rights of holders of other series of preferred shares, if any.
The rights of holders of the common shares are subject to the rights and
preferences established by the board of trustees for the Series C preferred
shares, Series D preferred shares and Series E preferred shares and any other
series of preferred shares which may subsequently be issued by us.
Purchase Rights
On December 7, 1993, the board of trustees declared a dividend of one
preferred share purchase right for each common share outstanding, payable to
holders of common shares of record at the close of business on December 31,
1993. The holders of any additional common shares issued after such date and
before the redemption or expiration of the purchase rights are also entitled to
receive one purchase right for each such additional common share. Each purchase
right entitles the holder under set circumstances to purchase one one-hundredth
of a share of Series A junior participating preferred shares, par value $0.01
per share at a price of $40.00 per one one-hundredth of a Series A junior
preferred share, subject to adjustment. Purchase rights are exercisable when a
person or group of persons, other than Security Capital, acquires 20% or more
of the outstanding common shares or announces a tender offer or exchange offer
for 25% or more of the outstanding common shares. Under set circumstances, each
purchase right entitles the holder to purchase, at the purchase right's then
current exercise price, a number of common shares having a market value of
twice the purchase right's exercise price. The acquisition of ProLogis pursuant
to some types mergers or other business transactions would entitle each holder
to purchase, at the purchase right's then current exercise price, a number of
the
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acquiring company's common shares having a market value at that time equal to
twice the purchase right's exercise price. The purchase rights held by 20%
shareholders, other than Security Capital, would not be exercisable. The
purchase rights will expire on December 7, 2003 and are subject to redemption
in whole, but not in part, at a price of $0.01 per purchase right payable in
cash, shares or any other form of consideration determined by the board of
trustees.
Transfer Agent
The transfer agent and registrar for the common shares is EquiServe Trust
Company, N.A., 150 Royall Street, Canton, Massachusetts 02021. The common
shares are listed on the New York Stock Exchange under the symbol "PLD".
Restriction on Size of Holdings
Our declaration of trust restricts beneficial ownership, or deemed ownership
by virtue of the attribution provisions of the Internal Revenue Code or Section
13(d) of the Securities Exchange Act of 1934, of our outstanding shares of
beneficial interest by a single person, or persons acting as a group, to 9.8%
of such shares. The purposes of the restriction are to assist in protecting and
preserving our real estate investment trust status under the Internal Revenue
Code and to protect the interest of shareholders in takeover transactions by
preventing the acquisition of a substantial block of shares unless the acquiror
makes a cash tender offer for all outstanding shares. For us to qualify as a
real estate investment trust under the Internal Revenue Code, not more than 50%
in value of our outstanding shares of beneficial interest may be owned by five
or fewer individuals at any time during the last half of any taxable year. The
restriction in our declaration of trust permits five persons to acquire up to a
maximum of 9.8% each, or an aggregate of 49% of the outstanding shares, and,
thus, assists the board of trustees in protecting and preserving our real
estate investment trust status under the Internal Revenue Code.
The ownership restriction does not apply to Security Capital, which counts
as numerous holders for purposes of the tax rule, because its shares are
attributed to its shareholders for purposes of this rule. Additionally, the
ownership limit is subject to an exception for holders who were the beneficial
owners of shares, or who possessed securities convertible into shares, in
excess of the ownership limit on and immediately after the adoption of our
declaration of trust by the board of trustees on June 24, 1999. These holders
may beneficially own shares or possess securities convertible into shares, only
up to their respective existing holder limits. The existing holder limit for
any such holder is equal to the percentage of outstanding shares beneficially
owned, or which would be beneficially owned upon the exchange of convertible
securities, by the holder on and immediately after the adoption of the
declaration of trust.
The board of trustees, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to our board of
trustees and upon such other conditions as our board of trustees may direct,
may exempt a proposed transferee from the ownership limit. The proposed
transferee must give written notice to us of the proposed transfer at least 30
days prior to any transfer which, if consummated, would result in the proposed
transferee owning an amount of our shares in excess of the ownership limit. The
board of trustees may require such opinions of counsel, affidavits,
undertakings or agreements as it determines to be necessary or advisable in
order to determine or ensure our status as a real estate investment trust. Any
transfer of our shares that would:
(1) create a direct or indirect ownership of shares in excess of the
ownership limit or excess holder limits;
(2) result in our shares being beneficially owned by fewer than 100
persons, determined without reference to any rules of attribution, as
provided in Section 856(a) of the Internal Revenue Code;
(3) result in us being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code;
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(4) result in a non-U.S. person, other than Security Capital, owning 50%
or more of the market value of our issued and outstanding shares;
(5) create an ownership of shares by a party that has a 9.9% or greater
interest in one of our tenants, but only if such ownership would cause us to
fail the 95% or 75% gross income tests under the Internal Revenue Code; or
(6) result in the our disqualification as a real estate investment trust
under the Internal Revenue Code, will not have any effect, and the intended
transferee will acquire no rights to the shares.
These restrictions on transferability and ownership will not apply if the
board of trustees determines that it is no longer in our best interests to
attempt to qualify, or to continue to qualify, as a real estate investment
trust under the Internal Revenue Code. Notwithstanding the previous
restrictions, any purported transfer of shares or event which would:
(1) result in a person owning shares in excess of the ownership limit or
the existing holder limits;
(2) cause us to become "closely held" under Section 856(h) of the
Internal Revenue Code;
(3) result in 50% or more of the outstanding shares being held by a
person, as defined in section 7701(a)(30) of the Internal Revenue Code;
(4) result in 9.9% or more of the outstanding shares being held by a
person that constructively owns 9.9% or more of the voting power, shares or
assets of one of our tenants; or
(5) result in the our disqualification as a real estate investment trust
under the Internal Revenue Code,
will result in those shares being constituted excess shares which will be
transferred pursuant to the declaration of trust to a party not affiliated with
us that we have designated as the trustee of a trust for the exclusive benefit
of an organization or organizations described in Sections 170(b)(1)(A) and
170(c) of the Internal Revenue Code and identified by the board of trustees as
the charitable beneficiary or beneficiaries of the trust, until such time as
the excess shares are transferred to a person whose ownership will not violate
the restrictions on ownership. While these excess shares are held in trust, we
will pay any distributions on the excess shares to the trust for the benefit of
the charitable beneficiary and the excess shares may only be voted by the
trustee for the benefit of the charitable beneficiary.
Subject to the ownership limit, the trustee will transfer the excess shares
at our direction to any person if those shares would not be excess shares in
the hands of that person. The purported transferee will receive the lesser of:
(1) the price paid by the purported transferee for the excess shares or,
if no consideration was paid, the fair market value of the excess shares on
the day of the event which caused the excess shares to be held in trust; and
(2) the price received from the sale or other disposition of the excess
shares.
Any distribution paid to the purported transferee which the purported
transferee was obligated to repay to the trustee, shall be subtracted from this
payment. The trustee will pay any proceeds from the sale or other disposition
of the excess shares in excess of the amount payable to the purported
transferee to the charitable beneficiary. In addition, we will have the right
to purchase the excess shares held in trust for a 90-day period at a purchase
price equal to the lesser of:
(1) the price paid by the purported transferee for the excess shares or,
if no consideration was paid, the fair market value of the excess shares on
the day of the event which caused the excess shares to be held in trust; and
(2) the fair market value of the excess shares on the date we elect to
purchase them.
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Fair market value, for these purposes, means the last reported sales price
on the New York Stock Exchange on the trading day immediately preceding the
relevant date, or if those shares are not then traded on the New York Stock
Exchange, the last reported sales price on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system on
which those shares are then traded. If the shares are not then traded on any
exchange or quotation system, the fair market value will be the market price on
the relevant date as determined in good faith by the board of trustees. From
and after the purported transfer to the purported transferee of the excess
shares, the purported transferee will cease to be entitled to distributions
voting rights and other benefits with respect to the excess shares except the
right to payment on the transfer of the excess shares as described above;
however, the purported transferee remains entitled to liquidation
distributions. If the purported transferee receives any distributions on excess
shares prior to our discovery that those excess shares have been transferred in
violation of the provisions of the declaration of trust, the purported
transferee must repay those distributions to us upon demand, and we will pay
those amounts to the trust for the benefit of the charitable beneficiary. If
the restrictions on transferability and ownership are determined to be void,
invalid or unenforceable by any court of competent jurisdiction, then we may
treat the purported transferee of any excess shares to have acted as an agent
on our behalf in acquiring those excess shares and to hold those excess shares
on our behalf.
All certificates evidencing shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code, more than 5%, or such other percentage between 0.5%
and 5% as provided in the rules and regulations of the Internal Revenue Code,
of the number or value of our outstanding shares must give a written notice
containing certain information to us by January 31 of each year.
In addition, upon demand each shareholder is required to disclose to us in
writing such information with respect to its direct, indirect and constructive
ownership of shares as the board of trustees deems reasonably necessary to
comply with the provisions of the Internal Revenue Code applicable to a real
estate investment trust, to determine our status as a real estate investment
trust to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
The restrictions on share ownership in the declaration of trust are designed
to protect our status as a real estate investment trust. The restrictions could
have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the common shares might receive a premium
for their shares over the then prevailing market price or which such holders
might believe to be otherwise in their best interest.
Indemnification of Trustees and Officers
The Maryland statutory law governing real estate investment trusts permits a
real estate investment trust to indemnify or advance expenses to trustees,
officers, employees and agents of the real estate investment trust to the same
extent as is permitted for directors, officers, employees and agents of a
Maryland corporation under Maryland statutory law. Under the declaration of
trust, we are required to indemnify each trustee, and may indemnify each
officer, employee and agent to the fullest extent permitted by Maryland law, as
amended from time to time, in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she was a trustee, officer,
employee or agent of ours or is or was serving at our request as a director,
trustee, officer, partner, employee or agent of another foreign or domestic
corporation, partnership, joint venture, limited liability company, trust,
other enterprise or employee benefit plan, from all claims and liabilities to
which such person may become subject by reason of service in that capacity and
to pay or reimburse reasonable expenses, as those expenses are incurred, of
each trustee, officer, employee and agent in connection with any of those
proceedings. The board of trustees believes that the indemnification provision
enhances our ability to attract and retain superior trustees and officers
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for us and our subsidiaries. We have entered into indemnity agreements with
each of our officers and trustees which provide for reimbursement of all
expenses and liabilities of the officer or trustee, arising out of any lawsuit
or claim against the officer or trustee due to the fact that he was or is
serving as an officer or trustee, except for liabilities and expenses, the
payment of which is judicially determined to be unlawful, relating to claims
under Section 16(b) of the Securities Exchange Act of 1934 or relating to
judicially determined criminal violations. In addition, we have entered into
indemnity agreements with each of its trustees who is not also an officer of
ours which provide for indemnification and advancement of expenses to the
fullest extent permitted by Maryland law in connection with any pending or
completed action, suit or proceeding by reason of serving as a trustee and we
have established a trust to fund payments under the indemnification agreements.
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FEDERAL INCOME TAX CONSIDERATIONS
We intend to operate in a manner that permits us to satisfy the requirements
for taxation as a real estate investment trust under the applicable provisions
of the Internal Revenue Code. No assurance can be given, however, that such
requirements will be met. The following is a description of the federal income
tax consequences to us and our shareholders of our treatment as a real estate
investment trust. Since these provisions are highly technical and complex, each
prospective purchaser of the common shares is urged to consult his or her own
tax advisor with respect to the federal, state, local, foreign and other tax
consequences of the purchase, ownership and disposition of the common shares.
Based upon our representations with respect to the facts as set forth and
explained in the discussion below, in the opinion of Mayer, Brown, Rowe & Maw,
we have been organized in conformity with the requirements for qualification as
a real estate investment trust beginning with our taxable year ending December
31, 1993, and our actual and proposed method of operation described in this
prospectus and as represented by management will enable us to satisfy the
requirements for such qualification.
This opinion is based on representations made by us as to factual matters
relating to our organization and intended or expected manner of operation. In
addition, this opinion is based on the law existing and in effect on the date
of this prospectus. Our qualification and taxation as a real estate investment
trust will depend upon our ability to meet on a continuing basis, through
actual operating results, asset composition, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Internal
Revenue Code discussed below. Mayer, Brown, Rowe & Maw will not review
compliance with these tests on a continuing basis. No assurance can be given
that we will satisfy such tests on a continuing basis.
In brief, if the conditions imposed by the real estate investment trust
provisions of the Internal Revenue Code are met, entities, such as us, that
invest primarily in real estate and that otherwise would be treated for federal
income tax purposes as corporations, are allowed a deduction for dividends paid
to shareholders. This treatment substantially eliminates the "double taxation"
at both the corporate and shareholder levels that generally results from the
use of corporations. However, as discussed in greater detail below, entities,
such as us, remain subject to tax in certain circumstances even if they qualify
as a real estate investment trust.
If we fail to qualify as a real estate investment trust in any year,
however, we will be subject to federal income taxation as if we were a domestic
corporation, and our shareholders will be taxed in the same manner as
shareholders of ordinary corporations. In this event, we could be subject to
potentially significant tax liabilities, and therefore the amount of cash
available for distribution to our shareholders would be reduced or eliminated.
We elected real estate investment trust status effective beginning with our
taxable year ended December 31, 1993 and the board of trustees believes that we
have operated and currently intend that we will operate in a manner that
permits us to qualify as a real estate investment trust in each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a real estate investment trust depends on our
continuing to satisfy numerous asset, income and distribution tests described
below, which in turn will be dependent in part on our operating results.
The following summary is based on the Internal Revenue Code, its legislative
history, administrative pronouncements, judicial decisions and Treasury
regulations, subsequent changes to any of which may affect the tax consequences
described in this prospectus, possibly on a retroactive basis. The following
summary is not exhaustive of all possible tax considerations and does not give
a detailed discussion of any state, local, or foreign tax considerations, nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective shareholder in light of his or her particular
circumstances or to various types of shareholders, including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States, subject to special treatment under the federal income tax laws.
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Taxation of ProLogis
General
In any year in which we qualify as a real estate investment trust, in
general we will not be subject to federal income tax on that portion of our
real estate investment trust taxable income or capital gain which is
distributed to shareholders. We may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed. To the
extent that we elect to retain and pay income tax on our net long-term capital
gain, shareholders are required to include their proportionate share of the
undistributed long-term capital gain in income but receive a credit for their
share of any taxes paid on such gain by us.
Notwithstanding our qualification as a real estate investment trust, we may
also be subject to taxation in other circumstances. If we should fail to
satisfy either the 75% or the 95% gross income test, as discussed below, and
nonetheless maintains our qualification as a real estate investment trust
because other requirements are met, we will be subject to a 100% tax on the
greater of the amount by which we fail to satisfy either the 75% test or the
95% test, multiplied by a fraction intended to reflect our profitability. We
will also be subject to a tax of 100% on net income from any "prohibited
transaction", as described below, and if we have net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or other non-qualifying income
from foreclosure property, we will be subject to tax on such income from
foreclosure property at the highest corporate rate. We will also be subject to
a tax of 100% on the amount of any rents from real property, deductions or
excess interest that would be reapportioned under Internal Revenue Code Section
482 to one of our "taxable REIT subsidiaries" in order to more clearly reflect
income of the taxable REIT subsidiary. A taxable REIT subsidiary is any
corporation for which a joint election has been made by a real estate
investment trust and such corporation to treat such corporation as a taxable
REIT subsidiary with respect to such real estate investment trust. See "--Other
Tax Considerations--Investments in taxable REIT subsidiaries". In addition, if
we should fail to distribute during each calendar year at least the sum of:
(1) 85% of our real estate investment trust ordinary income for such year;
(2) 95% of our real estate investment trust capital gain net income for
such year, other than capital gains we elect to retain and pay tax on as
described below; and
(3) any undistributed taxable income from prior years,
we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. To the extent that we elect
to retain and pay income tax on our long-term capital gain, such retained
amounts will be treated as having been distributed for purposes of the 4%
excise tax.
A real estate investment trust is permitted to designate in a notice mailed
to shareholders within 60 days of the end of the taxable year, or in a notice
mailed with its annual report for the taxable year, such amount of
undistributed net long-term capital gains it received during the taxable year,
which its shareholders are to include in their taxable income as long-term
capital gains. Thus, if we made this designation, our shareholders would
include in their income as long-term capital gains their proportionate share of
the undistributed net capital gains as designated by us and we would have to
pay the tax on such gains within 30 days of the close of its taxable year. Each
of our shareholders would be deemed to have paid such shareholder's share of
the tax paid by us on such gains, which tax would be credited or refunded to
the shareholder. A shareholder would increase his tax basis in his shares by
the difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by us. We may
also be subject to the corporate "alternative minimum tax", as well as tax in
various situations and on some types of transactions not presently
contemplated. We will use the calendar year both for federal income tax
purposes and for financial reporting purposes.
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In order to qualify as a real estate investment trust, we must meet, among
others, the following requirements:
Share ownership test
Our shares must be held by a minimum of 100 persons for at least 335 days in
each taxable year or a proportional number of days in any short taxable year.
In addition, at all times during the second half of each taxable year, no more
than 50% in value of our shares may be owned, directly or indirectly and by
applying constructive ownership rules, by five or fewer individuals, which for
this purpose includes some tax-exempt entities. Any stock held by a qualified
domestic pension or other retirement trust will be treated as held directly by
its beneficiaries in proportion to their actuarial interest in such trust
rather than by such trust. Pursuant to the constructive ownership rules,
Security Capital's ownership of shares is attributed to its shareholders for
purposes of the 50% test. For taxable years beginning after August 5, 1997, if
we comply with the Treasury regulations for ascertaining its actual ownership
and did not know, or exercising reasonable diligence would not have reason to
know, that more than 50% in value of our outstanding shares were held, actually
or constructively, by five or fewer individuals, then we will be treated as
meeting such requirement.
In order to ensure compliance with the 50% test, we have placed restrictions
on the transfer of the shares to prevent additional concentration of ownership.
Moreover, to evidence compliance with these requirements under Treasury
regulations, we must maintain records which disclose the actual ownership of
our outstanding shares and such regulations impose penalties against us for
failing to do so. In fulfilling our obligations to maintain records, we must
and will demand written statements each year from the record holders of
designated percentages of shares disclosing the actual owners of such shares as
prescribed by Treasury regulations. A list of those persons failing or refusing
to comply with such demand must be maintained as a part of our records. A
shareholder failing or refusing to comply with our written demand must submit
with his or her tax returns a similar statement disclosing the actual ownership
of shares of stock and other information. In addition, the declaration of trust
provides restrictions regarding the transfer of shares that are intended to
assist us in continuing to satisfy the share ownership requirements. We intend
to enforce the percentage limitations on ownership of shares to assure that our
qualification as a real estate investment trust will not be compromised.
Asset tests
At the close of each quarter of our taxable year, we must satisfy tests
relating to the nature of our assets determined in accordance with generally
accepted accounting principles. Where we invest in a partnership or limited
liability company taxed as a partnership or disregarded entity, we will be
deemed to own a proportionate share of the partnership's or limited liability
company's assets. First, at least 75% of the value of our total assets must be
represented by interests in real property, interests in mortgages on real
property, shares in other real estate investment trusts, cash, cash items,
government securities, and qualified temporary investments. Second, although
the remaining 25% of our assets generally may be invested without restriction,
we are prohibited from owning securities representing more than 10% of either
the vote or value of the outstanding securities of any corporation other than a
qualified real estate investment trust subsidiary, another real estate
investment trust or a taxable REIT subsidiary. Further, no more than 20% of the
value of our total assets may be represented by securities of one or more
taxable REIT subsidiaries and no more than 5% of the value of our total assets
may be represented by securities of any non-government issuer other than a
taxable REIT subsidiary.
Gross income tests
There are currently two separate percentage tests relating to the sources of
our gross income which must be satisfied for each taxable year. For purposes of
these tests, where we invest in a partnership or limited liability company
taxed as a partnership or disregarded entity, we will be treated as receiving
our share of the income and loss of the partnership or limited liability
company, and the gross income of the partnership or limited liability company
will retain the same character in our hands as it has in the hands of the
partnership or limited liability company. The two tests are as follows:
1. The75% Test. At least 75% of our gross income for the taxable year must be
"qualifying income".
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Qualifying income generally includes:
(1)rents from real property, except as modified below;
(2)interest on obligations secured by mortgages on, or interests in, real
property;
(3)gains from the sale or other disposition of non-"dealer property", which
means interests in real property and real estate mortgages, other than
gain from property held primarily for sale to customers in the ordinary
course of our trade or business;
(4)dividends or other distributions on shares in other real estate
investment trusts, as well as gain from the sale of such shares;
(5)abatements and refunds of real property taxes;
(6)income from the operation, and gain from the sale, of "foreclosure
property", which means property acquired at or in lieu of a foreclosure
of the mortgage secured by such property;
(7)commitment fees received for agreeing to make loans secured by mortgages
on real property or to purchase or lease real property; and
(8)certain qualified temporary investment income attributable to the
investment of new capital received by us in exchange for its shares
during the one-year period following the receipt of such capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test, or the 95% gross income test described
below, if we, or an owner of 10% or more of our shares directly or
constructively owns 10% or more of such tenant, unless the tenant is a taxable
REIT subsidiary of ours and certain other requirements are met with respect to
the real property being rented. In addition, if rent attributable to personal
property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued will not qualify as rents
from real property or as interest income for purposes of the 75% and 95% gross
income tests if it is based in whole or in part on the income or profits of any
person, although an amount received or accrued generally will not be excluded
from "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Finally, for rents received to
qualify as rents from real property, we generally must not furnish or render
services to tenants, other than through a taxable REIT subsidiary, or an
"independent contractor" from whom we derive no income, except that we may
directly provide services that are "usually or customarily rendered" in
connection with the rental of properties for occupancy only, or are not
otherwise considered "rendered to the occupant for his convenience". For
taxable years beginning after August 5, 1997, a real estate investment trust is
permitted to render a de minimis amount of impermissible services to tenants,
or in connection with the management of property, and still treat amounts
received with respect to that property as rent from real property. The amount
received or accrued by the real estate investment trust during the taxable year
for the impermissible services with respect to a property may not exceed 1% of
all amounts received or accrued by the real estate investment trust directly or
indirectly from the property. The amount received for any service or management
operation for this purpose shall be deemed to be not less than 150% of the
direct cost of the real estate investment trust in furnishing or rendering the
service or providing the management or operation. Furthermore, we may furnish
such impermissible services to tenants through a taxable REIT subsidiary and
still treat amounts otherwise received with respect to the property as rent
from real property.
2.The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of our gross income for the taxable year
must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends, other than on real estate
investment trust shares, and interest on any obligations not secured by an
interest in real property are included for purposes of the 95% test, but not
for purposes of the 75% test. In addition, payments to us under an interest
rate swap, cap agreement, option, futures contract, forward rate
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agreement or any similar financial instrument entered into by us to hedge
indebtedness incurred or to be incurred, and any gain from the sale or other
disposition of these instruments, are treated as qualifying income for purposes
of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether we comply with the 75% and 95% income
tests, gross income does not include income from prohibited transactions. A
"prohibited transaction" is a sale of property held primarily for sale to
customers in the ordinary course of a trade or business, excluding foreclosure
property, unless such property is held by us for at least four years and other
requirements relating to the number of properties sold in a year, their tax
bases, and the cost of improvements made to the property are satisfied. See
"--Taxation of ProLogis--General".
Even if we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may still qualify as a real estate investment trust
for such year if we are entitled to relief under provisions of the Internal
Revenue Code. These relief provisions will generally be available if:
(1)Our failure to comply was due to reasonable cause and not due to willful
neglect;
(2)We report the nature and amount of each item of our income included in
the tests on a schedule attached to our tax return; and
(3)any incorrect information on this schedule is not due to fraud with
intent to evade tax.
If these relief provisions apply, however, we will nonetheless be subject to
a special tax upon the greater of the amount by which we fail either the 75% or
95% gross income test for that year.
Annual distribution requirements
In order to qualify as a real estate investment trust, we are required to
make distributions, other than capital gain dividends, to our shareholders each
year in an amount at least equal to the sum of 90% of our real estate
investment trust taxable income, computed without regard to the dividends paid
deduction and real estate investment trust net capital gain, plus 90% of our
net income after tax, if any, from foreclosure property, minus the sum of some
items of excess non-cash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
we timely file our tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that we do not
distribute all of our net capital gain or distribute at least 90%, but less
than 100%, of our real estate investment trust taxable income, as adjusted, we
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. For taxable years beginning
after August 5, 1997, a real estate investment trust is permitted, with respect
to undistributed net long-term capital gains it received during the taxable
year, to designate in a notice mailed to shareholders within 60 days of the end
of the taxable year, or in a notice mailed with its annual report for the
taxable year, the amount of such gains which its shareholders are to include in
their taxable income as long-term capital gains. Thus, if we made this
designation, our shareholders would include in their income as long-term
capital gains their proportionate share of the undistributed net capital gains
as designated by us and we would have to pay the tax on such gains within 30
days of the close of our taxable year. Each of our shareholders would be deemed
to have paid such shareholder's share of the tax paid by us on such gains,
which tax would be credited or refunded to the shareholder. A shareholder would
increase his tax basis in his shares by the difference between the amount of
income to the holder resulting from the designation less the holder's credit or
refund for the tax paid by us.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. It is possible that we may not have sufficient cash
or other liquid assets to meet the 90% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such
expenses in computing our real estate investment trust taxable income on the
other hand. To avoid any problem with the 90% distribution requirement, we will
closely monitor the relationship between our real estate investment trust
taxable income and cash flow and, if necessary,
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intend to borrow funds in order to satisfy the distribution requirement.
However, there can be no assurance that such borrowing would be available at
such time.
If we fail to meet the 90% distribution requirement as a result of an
adjustment to our tax return by the Internal Revenue Service, we may
retroactively cure the failure by paying a "deficiency dividend", plus
applicable penalties and interest, within a specified period.
Tax aspects of ProLogis' investments in partnerships
A significant portion of our investments are owned through various limited
partnerships. We will include our proportionate share of each partnership's
income, gains, losses, deductions and credits for purposes of the various real
estate investment trust gross income tests and in our computation of our real
estate investment trust taxable income. We will include our proportionate share
of each partnership's assets for purposes of the real estate investment trust
asset tests.
Our interest in the partnerships involves special tax considerations,
including the possibility of a challenge by the Internal Revenue Service of the
status of the partnerships as partnerships, as opposed to associations taxable
as corporations, for federal income tax purposes. If a partnership were to be
treated as an association, such partnership would be taxable as a corporation
and therefore subject to an entity-level tax on its income. In such a
situation, the character of our assets and items of gross income would change,
which may preclude us from satisfying the real estate investment trust asset
tests and may preclude us from satisfying the real estate investment trust
gross income tests. See "--Failure to qualify" below, for a discussion of the
effect of our failure to meet such tests. Based on our factual representations,
in the opinion of Mayer, Brown, Rowe & Maw, under existing federal income tax
law and regulations, ProLogis Limited Partnership-I, ProLogis Limited
Partnership-II, ProLogis Limited Partnership-III and ProLogis Limited
Partnership-IV will be treated for federal income tax purposes as partnerships,
and not as associations taxable as corporations. Such opinion, however, is not
binding on the Internal Revenue Service.
Failure to qualify
If we fail to qualify for taxation as a real estate investment trust in any
taxable year and relief provisions do not apply, we will be subject to tax,
including applicable alternative minimum tax, on our taxable income at regular
corporate rates. Distributions to shareholders in any year in which we fail to
qualify as a real estate investment trust will not be deductible by us, nor
generally will they be required to be made under the Internal Revenue Code. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and subject
to limitations in the Internal Revenue Code, corporate distributees may be
eligible for the dividends-received deduction. Unless entitled to relief under
specific statutory provisions, we also will be disqualified from re-electing
taxation as a real estate investment trust for the four taxable years following
the year during which qualification was lost.
Taxation of ProLogis Shareholders
Taxation of taxable domestic shareholders
As long as we qualify as a real estate investment trust, distributions made
to our taxable domestic shareholders out of current or accumulated earnings and
profits, and not designated as capital gain dividends, will be taken into
account by them as ordinary income and will not be eligible for the
dividends-received deduction for corporations. Distributions, and for tax years
beginning after August 5, 1997, undistributed amounts, that are designated as
capital gain dividends will be taxed as long-term capital gains, to the extent
they do not exceed our actual net capital gain for the taxable year, without
regard to the period for which the shareholder has held its shares. However,
corporate shareholders may be required to treat up to 20% of some capital gain
dividends as
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ordinary income. To the extent that we make distributions in excess of current
and accumulated earnings and profits, these distributions are treated first as
a tax-free return of capital to the shareholder, reducing the tax basis of a
shareholder's shares by the amount of such distribution, but not below zero,
with distributions in excess of the shareholder's tax basis taxable as capital
gains, if the shares are held as a capital asset. In addition, any dividend
declared by us in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by us and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by us during January of the
following calendar year. Shareholders may not include in their individual
income tax returns any of our net operating losses or capital losses. Federal
income tax rules may also require that minimum tax adjustments and preferences
be apportioned to our shareholders.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less, after applying holding period
rules, will be treated as a long-term capital loss, to the extent of
distributions from us required to be treated by such shareholder as long-term
capital gains. Gain from the sale or exchange of shares held for more than one
year is taxed at a maximum capital gain rate of 20%. Pursuant to Internal
Revenue Service guidance, we may classify portions of our capital gain
dividends as gains eligible for the 20% capital gains rate or as unrecaptured
Internal Revenue Code Section 1250 gain taxable at a maximum rate of 25%.
Shareholders should consult their tax advisor with respect to taxation of
capital gains and capital gain dividends and with regard to state, local and
foreign taxes on capital gains.
Backup withholding
We will report to our domestic shareholders and to the Internal Revenue
Service the amount of distributions paid during each calendar year, and the
amount of tax withheld, if any, with respect to the paid distributions. Under
the backup withholding rules, a shareholder may be subject to backup
withholding at applicable rates with respect to distributions paid unless such
shareholder is a corporation or comes within other exempt categories and, when
required, demonstrates this fact or provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the Internal Revenue
Service. Any amount paid as backup withholding will be credited against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to us.
Taxation of tax-exempt shareholders
The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a real estate investment trust to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income.
Subject to the discussion below regarding a "pension-held real estate
investment trust", based upon the ruling, the analysis in the ruling and the
statutory framework of the Internal Revenue Code, distributions by us to a
shareholder that is a tax-exempt entity should also not constitute unrelated
business taxable income, provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the
meaning of the Internal Revenue Code, and that the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that we,
consistent with our present intent, do not hold a residual interest in a real
estate mortgage investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a "pension-held real estate investment trust" at any time during a
taxable year, a portion of the dividends paid to the qualified pension trust by
such real estate investment trust may constitute unrelated business taxable
income. For these purposes, a "pension-held real estate investment trust" is
defined as a real estate investment trust if such real estate investment trust
would not have qualified as a real estate investment trust but for the
provisions of the Internal Revenue Code which look through such a qualified
pension trust in determining ownership of stock of the real estate investment
trust and at least
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one qualified pension trust holds more than 25% by value of the interests of
such real estate investment trust or one or more qualified pension trusts, each
owning more than a 10% interest by value in the real estate investment trust,
hold in the aggregate more than 50% by value of the interests in such real
estate investment trust.
Taxation of foreign shareholders
We will qualify as a "domestically controlled real estate investment trust"
so long as less than 50% in value of our shares is held by foreign persons, for
example, nonresident aliens and foreign corporations, partnerships, trust and
estates. It is currently anticipated that we will qualify as a domestically
controlled real estate investment trust. Under these circumstances, gain from
the sale of the shares by a foreign person should not be subject to U.S.
taxation, unless such gain is effectively connected with such person's U.S.
business or, in the case of an individual foreign person, such person is
present within the U.S. for more than 182 days in such taxable year.
Distributions of cash generated by our real estate operations, but not by our
sale or exchange of such properties, that are paid to foreign persons generally
will be subject to U.S. withholding tax at a rate of 30%, unless an applicable
tax treaty reduces that tax and the foreign shareholder files with us the
required form evidencing such lower rate or unless the foreign shareholder
files an Internal Revenue Service Form W-8ECI with us claiming that the
distribution is "effectively connected" income. Under applicable Treasury
regulations, foreign shareholders generally have to provide the Internal
Revenue Service Form W-8ECI beginning January 1, 2000 and every three years
thereafter unless the information on the form changes before that date.
Distributions of proceeds attributable to the sale or exchange by us of U.S.
real property interests are subject to income and withholding taxes pursuant to
the Foreign Investment in Real Property Tax Act of 1980, and may be subject to
branch profits tax in the hands of a shareholder which is a foreign corporation
if it is not entitled to treaty relief or exemption. We are required by
applicable Treasury regulations to withhold 35% of any distribution to a
foreign person that could be designated by us as a capital gain dividend; this
amount is creditable against the foreign shareholder's Foreign Investment in
Real Property Tax Act tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors should consult their own tax advisors regarding the income and
withholding tax considerations with respect to their investment in us.
Other Tax Considerations
Investments in taxable REIT subsidiaries
CSI/Frigo LLC, ProLogis Logistics Services Incorporated, GOProLogis
Incorporated, Vizional Corporation, ProLogis-Broadband (1) Incorporated and
PhatPipe, Inc. have elected to be treated as taxable REIT subsidiaries of
ProLogis effective January 1, 2001, ProLogis Development Services Incorporated
has elected to be treated as a taxable REIT subsidiary of ours effective March
30, 2001, and ProLogis Investment Incorporated has elected to be treated as a
taxable REIT subsidiary of ours effective April 27, 2001. As taxable REIT
subsidiaries of ours, these entities will pay federal and state income taxes at
the full applicable corporate rates on their income prior to payment of any
dividends. Additionally, Frigoscandia Holding S.A. and Kingspark LLC will be
treated as taxable REIT subsidiaries of ours effective January 1, 2001, and may
be subject to foreign income taxes. Our taxable REIT subsidiaries will attempt
to minimize the amount of such taxes, but there can be no assurance whether or
the extent to which measures taken to minimize taxes will be successful. To the
extent a taxable REIT subsidiary is required to pay federal, state or local
taxes, the cash available for distribution by such taxable REIT subsidiary to
its shareholders will be reduced accordingly.
Taxable REIT subsidiaries are subject to full corporate level taxation on
their earnings, but are permitted to engage in certain types of activities,
such as those performed by taxable entities in which we own an interest, which
cannot be performed directly by real estate investment trusts without
jeopardizing their real estate investment trust status. Taxable REIT
subsidiaries are subject to limitations on the deductibility of payments
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made to the associated real estate investment trust which could materially
increase the taxable income of the taxable REIT subsidiary and are subject to
prohibited transaction taxes on certain other payments made to the associated
real estate investment trust. We will be subject to a tax of 100% on the amount
of any rents from real property, deductions or excess interest that would be
reapportioned under Internal Revenue Code Section 482 to one of our taxable
REIT subsidiaries in order to more clearly reflect income of the taxable REIT
subsidiary.
Under the taxable REIT subsidiary provision, we and any taxable entity in
which we own an interest are allowed to jointly elect to treat such entity as a
"taxable REIT subsidiary". As described above, taxable REIT subsidiary
elections have been made for certain entities in which we own an interest.
Additional taxable REIT subsidiary elections may be made in the future for
additional entities in which we own an interest.
Tax on built-in gain
Pursuant to Notice 88-19, 1988-1 C.B. 486, a C corporation that elects to be
taxed as a real estate investment trust has to recognize any gain that would
have been realized if the C corporation had sold all of its assets for their
respective fair market values at the end of its last taxable year before the
taxable year in which it qualifies to be taxed as a real estate investment
trust and immediately liquidated unless the real estate investment trust elects
to be taxed under rules similar to the rules of Section 1374 of the Internal
Revenue Code.
Since we have made this election, if during the "recognition period", being
the 10-year period beginning on the first day of the first taxable year for
which we qualify as a real estate investment trust, we recognize gain on the
disposition of any asset held by us as of the beginning of the recognition
period, then, to the extent of the excess of the fair market value of such
asset as of the beginning of the recognition period over adjusted basis in such
asset as of the beginning of the recognition period, such gain will be subject
to tax at the highest regular corporate rate. Because we acquire many of our
properties in fully taxable transactions and presently expects to hold each
property beyond the recognition period, it is not anticipated that we will pay
a substantial corporate-level tax on our built-in gain.
Possible legislative or other actions affecting tax consequences
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in us may be modified by legislative, judicial
or administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury,
resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal tax
laws and interpretations of these laws could adversely affect the tax
consequences of an investment in us.
State and local taxes
We and our shareholders may be subject to state or local taxation in various
jurisdictions, including those in which we or they transact business or reside.
The state and local tax treatment of us and our shareholders may not conform to
the federal income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in our securities.
Foreign taxes
Frigoscandia Holding S.A., a Luxembourg corporation, the ProLogis European
Properties Fund, an entity formed under the laws of Luxembourg, Kingspark
Holding S.A., a Luxembourg corporation, PLD International Incorporated, a
Delaware corporation, ProLogis-France Developments Incorporated, a Delaware
corporation, International Industrial Investment Incorporated, a Maryland
corporation, ProLogis Japan Incorporated, a Delaware corporation, ProLogis
Japan Management Incorporated, a Delaware corporation, and ProLogis Japan
Holdings LLC, a Delaware limited liability company, and each of their
subsidiaries and affiliates, may be subject
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to taxation in various foreign jurisdictions. Each of the parties will pay any
such foreign taxes prior to payment of any dividends. Each entity will attempt
to minimize the amount of such taxes, but there can be no assurance whether or
the extent to which measures taken to minimize taxes will be successful. To the
extent that any of these entities is required to pay foreign taxes, the cash
available for distribution to its shareholders will be reduced accordingly.
Each prospective purchaser is advised to consult with his or her tax advisor
regarding the specific tax consequences to him or her of the purchase,
ownership, and sales of common shares, including the federal, state, local,
foreign, and other tax consequences of such purchase, ownership, sale and
election and of potential changes in applicable tax laws.
SELLING SHAREHOLDER
Security Capital, including its permitted pledges, transferees or other
successors in interest may from time to time offer and sell any or all of the
common shares offered by this prospectus. Some or all of the common shares may
be transferred by Security Capital, at the direction of GE Capital, to Security
Capital stockholders as part of the consideration to be received by them in
connection with the merger described below. Accordingly, GE Capital may also be
considered a selling shareholder. Our registration of the common shares does
not necessarily mean that Security Capital will sell any or all of the shares
or that the merger will be completed.
As of April 11, 2002, Security Capital beneficially owned 49,903,814 common
shares, representing approximately 28.1% of our outstanding common shares at
that time. All of these common shares are available for resale under this
prospectus. If Security Capital sells all of the common shares covered by this
prospectus, it will no longer own any of our outstanding common shares. Since
Security Capital may sell all, some or none of the offered shares, no estimate
can be made of the number of offered shares that will be sold by Security
Capital or that will be owned by Security Capital upon completion of any
offering.
On December 14, 2001, Security Capital entered into an Agreement and Plan of
Merger with GE Capital and EB Acquisition Corp., an indirect wholly owned
subsidiary of GE Capital. Pursuant to the merger agreement, and subject to the
terms and conditions contained therein, EB Acquisition Corp. will merge with
and into Security Capital with Security Capital as the surviving company and an
indirect wholly owned subsidiary of GE Capital.
As a result of the merger, shares of Security Capital class B common stock
will be converted into the right to receive consideration consisting of $26 in
cash per share, subject to the substitution therefor as described below and in
the merger agreement of a combination of cash and ProLogis common shares with
an agreed aggregate value of $26 per share (the "Class B Consideration"), and
shares of Security Capital Class A common stock will be converted into the
right to receive 50 times the Class B consideration (the "Class A
Consideration").
GE Capital may elect (but no later than the 15th day before the stockholder
meeting) to include some or all of the ProLogis common shares owned by Security
Capital as part of the consideration payable to Security Capital stockholders
in the merger. However, cash will be paid in lieu of fractional shares. GE
Capital notified Security Capital on March 8, 2002 that its current plan is to
cause Security Capital to distribute approximately 32.8 million ProLogis common
shares as part of the Merger Consideration. However, GE Capital has not made a
formal election, has informed Security Capital that it intends to continue to
evaluate its alternatives and could change its plans. If GE Capital so elects,
the holders of Security Capital class B stock will receive a combination of
cash and 0.19 common shares of ProLogis with an agreed aggregate value of
$26.00 per share. If GE Capital changes its current plans and, for example,
elects to include all of the ProLogis common shares owned by Security Capital
as part of the merger consideration, holders of Security Capital class B stock
would receive a combination of cash and approximately 0.3 ProLogis common
shares, with an agreed aggregate value of $26. In any event, the value of the
ProLogis common shares will be measured during the 10 consecutive full trading
days
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preceding May 10, 2002, and the holders of class A stock would receive 50 times
such amount per share. GE Capital may also revoke its election to include
ProLogis common shares as part of the merger consideration. At and after the
Closing, Security Capital stockholders will bear all of the economic risk of
fluctuations, if any, in the market price of those shares below the average
price during the measurement period.
With the prior written consent of GE Capital, Security Capital may at any
time sell any or all of its ProLogis common shares, including to ProLogis,
pursuant to a public offering or private placement, negotiated third-party
purchase or otherwise (a "ProLogis Sale"). In addition, Security Capital will,
at the written request of GE Capital, use its reasonable best efforts to effect
a ProLogis Sale in the manner requested by GE Capital, subject to approval by
GE Capital of any final pricing terms, provided that Security Capital will not
be required to effect a ProLogis Sale, or enter into any binding agreement to
effect a ProLogis Sale, prior to the date which is 18 days prior to the
then-applicable date of the Group Stockholders Meeting (provided that if a
"road show" with respect to a ProLogis Sale to be effected by a public offering
shall have been commenced on or after the date which is 22 days prior to the
then-applicable date of the Group Stockholders Meeting, and there is a
subsequent delay or postponement of the date of the Group Stockholders Meeting,
the relevant date which is 18 days prior to the previously-applicable date of
the Group Stockholders Meeting will not be changed for purposes of these
obligations). Security Capital will, after consultation with GE Capital,
determine the manager(s) and book runner(s) in the event of any ProLogis Sale
that is an underwritten offering.
During the past three years, we have had the following material
relationships with Security Capital, GE Capital and their respective affiliates.
Investor Agreement
We and Security Capital are parties to a Third Amended and Restated Investor
Agreement. Pursuant to the investor agreement, Security Capital has the right,
so long as it owns between 10% and 25% of the common shares, to nominate one
person to the board of trustees. So long as Security Capital owns 25% or more
of the common shares, Security Capital will be entitled to nominate a
proportionate number of persons to the board of trustees subject to a maximum
of three nominees if the size of the board of trustees does not increase above
ten members. In addition, we are required to consult with Security Capital's
nominees to the board of trustees prior to taking any action with respect to
the following:
(1) finalization of the annual budget and deviations, in respect of any
expense line item, greater than $500,000 or 20% of such line item, or
greater than 15% of the total expenses;
(2) the acquisition or sale of assets in a single transaction or group of
related transactions where the price exceeds $25 million;
(3) any contract for investment, property management or leasing services;
and
(4) any service contract providing for payments in excess of $1.0 million.
We have no obligation to follow the advice of Security Capital with respect
to the foregoing matters.
Under the investor agreement, so long as it owns at least 25% of the common
shares, Security Capital also has the right of prior approval with respect to
the following matters:
(1) the issuance of equity securities or securities convertible into
equity securities (other than issuances in connection with option, dividend
reinvestment and similar plans) for less than the fair market value of such
securities;
(2) the issuance of any preferred shares which would result in the fixed
charge coverage ratio (as defined in the investor agreement) being less than
1.4 to 1.0;
(3) adopting any employee benefit plans under which common shares may be
issued;
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(4) the compensation of our senior officers; and
(5) the incurrence of additional indebtedness which would result in the
interest expense coverage ratio (as defined in the investor agreement) being
less than 2.0 to 1.0.
If GE Capital were to maintain its current plans to cause Security Capital
to distribute approximately 32.8 million common shares as merger consideration,
Security Capital would own approximately 9.8% of the common shares after such
distribution and neither Security Capital nor GE Capital would have any of the
aforementioned rights after such distribution.
In addition, the investor agreement provides Security Capital with
registration rights pursuant to which Security Capital has requested this
registration of all of its common shares. All expenses incurred in the
registration of common shares will be borne by us. These expenses include the
expense of preparing the registration statement and prospectus, all printing
and photocopying expenses and all registration and filing fees under federal
and state securities laws, but do not include any underwriting discounts,
commissions or fees or any fees or expenses of counsel for Security Capital. We
have also agreed to indemnify Security Capital and its officers, directors and
controlling persons, against various liabilities, including liabilities that
may arise under the Securities Act of 1933.
Administrative Services Agreement
We and a subsidiary of Security Capital entered into an administrative
services agreement, pursuant to which Security Capital provides us with certain
administrative and other services with respect to certain aspects of our
business, as selected from time to time by us at our option. These services
include, but are not limited to, payroll and human resources, cash management,
accounts payable, specified information systems support, research and insurance
services. These services are provided in exchange for a fee based on negotiated
rates for each service provided. Total fees incurred under the administrative
services agreement were $0.8 million in 2001, $2.5 million in 2000, and $3.5
million in 1999. We began transitioning these functions from Security Capital
during 2000 and we have assumed substantially all of the functions previously
provided by Security Capital. The administrative services agreement expired on
December 31, 2000. Security Capital is continuing to provide a limited number
of services under a month-to-month agreement, for which we paid Security
Capital $820,995 through December 31, 2001. We believe that the terms and
conditions of the administrative services agreement are as favorable as those
that could have been obtained from unaffiliated third parties.
Financial Advisory Fees
Macquarie Capital Partners LLC (formerly Security Capital Markets Group
Incorporated), an affiliate of Security Capital, has provided us with financial
advisory and investment banking services. During 2001, financial advisory fees
were paid to Macquarie Capital Partners in three separate transactions, in
which Macquarie Capital Partners provided financial advisory and investment
banking services in connection with the formation of three separate joint
ventures and the raising of over $555 million of third party equity and debt by
us and by entities in which we have an ownership interest. Macquarie Capital
Partners received fees of $1,707,910, $1,240,000 and $942,085 in connection
with the transactions.
During 2000, we paid investment advisory fees of $104,000 to Security
Capital Markets Group (now known as Macquarie Capital Partners LLC) related to
additional equity contributed by The New York State Common Retirement Fund to
ProLogis California I LLC, a limited liability company whose members are us and
The New York State Common Retirement Fund.
Following the completion of the merger of Meridian in 1999, we paid Security
Capital Markets Group a fee of $650,000 for financial advisory services.
Security Capital Markets Group assisted us with the financial analysis of
Meridian and of the combined entity that was ultimately created with the
successful completion of the merger.
95
Security Capital Markets Group provided financial advisory and investment
banking services to us in connection with the formation of ProLogis California
I LLC in 1999. We paid Security Capital Markets Group a fee of $2,632,883 for
services in this transaction. Security Capital Markets Group also provided
financial advisory and investment banking services in connection with the
formation of ProLogis European Properties Fund and the raising of over $1
billion of third party equity in the fund. We paid $12,291,010 in fees to
Security Capital Markets Group for such services.
We believe that the terms and conditions of each of the foregoing
transactions were as favorable as those that could have been obtained from
unaffiliated third parties.
Protection of Business Agreement
Prior to September 9, 2000, Security Capital and we were parties to a
protection of business agreement which prohibited Security Capital and its
affiliates from providing, anywhere within the United States, directly or
indirectly, management services to any entity that owns or operates real
property that is or is planned to be used primarily for distribution and light
manufacturing properties. The protection of business agreement terminated on
September 9, 2000.
Preferred Stock Subsidiaries
On January 5, 2001, a newly formed limited liability company of which K.
Dane Brooksher, a trustee and the chief executive officer of ProLogis, is the
voting member and we are the non-voting member, acquired the ordinary shares of
Kingspark Holding S.A. (a limited liability company in which unrelated third
parties owned 100% of the voting interest and Security Capital owned 100% of
the non-voting interests) from Kingspark Holdings LLC (an entity owned by
Security Capital and third party investors) for approximately $8.1 million. The
entire purchase price of $8.1 million was funded by us either directly or
through loans to Kingspark LLC or Mr. Brooksher. Our loan to Mr. Brooksher was
in the principal amount of $7.3 million, is due January 5, 2006 and bears
interest at an annual rate of 8%. We made a direct capital contribution to
Kingspark LLC in the amount of $770,973. Mr. Brooksher's $40,557 capital
contribution to Kingspark LLC was loaned to Mr. Brooksher by us, which loan is
payable on January 5, 2006 and bears interest at an annual rate of 8%. We own
95% of the membership interests (all non-voting) and Mr. Brooksher owns 5% of
the membership interests (all non-voting) of Kingspark LLC and Mr. Brooksher is
its managing member. Mr. Brooksher will not receive any compensation in
connection with his ownership interest. We structured the transactions in the
manner described above to enable us to continue to qualify as a REIT under
applicable state income tax laws.
Also on January 5, 2001, a newly formed limited liability company of which
Mr. Brooksher is the voting member and we are the non-voting member, acquired
the common shares of Frigoscandia Holding S.A. and ProLogis Logistics Services
Incorporated (both entities in which we own all of the non-voting preferred
stock) for an aggregate of approximately $3.3 million. The common shares of
Frigoscandia Holding S.A. were owned by a limited liability company in which
unrelated third parties owned 100% of the voting interests and Security Capital
owned 100% of the non-voting interests. The common shares of ProLogis Logistics
Services Incorporated were owned by a limited liability company in which
unrelated third parties owned all of the membership interests. Mr. Brooksher
contributed $50,000 of his own funds to the capital of the newly formed limited
liability company. We loaned CSI/Frigo LLC $2.9 million, which loan is due
January 5, 2011 and bears interest at an annual rate of 8%. We also made a
capital contribution to CSI/Frigo LLC in the amount of $404,545. We own 89% of
the membership interest (all non-voting) and Mr. Brooksher owns 11% of the
membership interests (all non-voting) of CSI/Frigo LLC. Mr. Brooksher is the
managing member of CSI/Frigo LLC. Additionally, we have a note agreement with
CSI/Frigo that allows us to participate in its earnings such that we will
recognize 95% of the earnings of CSI/Frigo LLC. We structured the transactions
in the manner described above to enable us to continue to qualify as a REIT
under applicable state income tax laws.
As a result of the foregoing transactions, Mr. Brooksher has an effective
0.04% interest in the earnings of ProLogis Logistics Services Incorporated, an
effective 0.25% interest in the earnings of Frigoscandia S.A. and an effective
0.25% interest in the earnings of Kingspark Holding S.A. Mr. Brooksher receives
no compensation in connection with his interest in these companies.
96
Leasing Transactions
We lease space to Security Capital and certain of its affiliates on market
terms that management believes are no less favorable to us than those that
could be obtained with unaffiliated third parties. Our rental income related to
these leases were $534,000, $757,000 and $756,000 for the years ended December
31, 2001, 2000, and 1999 respectively. As of December 31, 2001, 60,103 square
feet were leased to related parties. The annualized rental revenue for these
leases is $472,000.
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of any common shares by
Security Capital. Security Capital may sell common shares directly or through
broker-dealers or underwriters who may act solely as agents, or who may acquire
shares as principals. Common shares may be sold from time to time by Security
Capital or by its permitted pledgees, transferees or other successors in
interest to Security Capital. The distribution of the common shares may be
effected in one or more transactions that may take place through the New York
Stock Exchange, including block trades or ordinary broker's transactions, or
through broker-dealers acting either as principal or agent, or through
privately negotiated transactions, or through an underwritten public offering,
or through a combination of any such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices for cash or other consideration. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by Security Capital in connection with such sales. Additionally, Security
Capital may transfer common shares to its shareholders as merger consideration
in connection with its acquisition by GE Capital as described below.
On December 14, 2001, Security Capital entered into an Agreement and Plan of
Merger with GE Capital and EB Acquisition Corp., an indirect wholly owned
subsidiary of GE Capital. Pursuant to the merger agreement, and subject to the
terms and conditions contained therein, EB Acquisition Corp. will merge with
and into Security Capital with Security Capital as the surviving company and an
indirect wholly owned subsidiary of GE Capital.
If the merger is completed, Security Capital will become an indirect wholly
owned subsidiary of GE Capital, and Security Capital shareholders will receive
$26.00 in cash for each of their shares of Security Capital class B stock,
subject to the substitution, at the option of GE Capital, of a combination of
cash and common shares of ProLogis owned by Security Capital with an agreed
aggregate value of $26.00 per share. The value of the ProLogis common shares
will be measured during the 10 consecutive full trading days preceding May 10,
2002.
If a sale is for cash, the aggregate proceeds to Security Capital from the
sale of common shares will be the purchase price of the common shares sold less
the aggregate agents' commissions and underwriters' discounts, if any, and
other expenses of issuance and distribution not borne by us. Security Capital
and any dealers or agents that participate in the distribution of the common
shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, and any profit on the sale of the common shares by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. If the
common shares are transferred in connection with the merger of an indirect
wholly owned subsidiary of GE Capital with and into Security Capital, no cash
proceeds will be received by Security Capital.
To the extent required, the specific number of common shares to be sold or
transferred, the names of the selling shareholders, if other than Security
Capital, purchase price, public offering price, the terms upon which such
certificates may be issued, the names of any agent, dealer or underwriter, and
any applicable commission or discount with respect to a particular offering
will be set forth in an accompanying prospectus supplement.
97
Pursuant to the investor agreement described above, we have agreed to bear
certain expenses of registration of the common shares under federal and state
securities laws (currently estimated to be approximately $500,000) and of any
offering and sale hereunder not including certain expenses such as commissions
or discounts of underwriters, dealers or agents and fees attributable to the
sale of the common shares. We have also agreed to indemnify Security Capital
against liabilities, including certain potential liabilities arising under the
Securities Act of 1933, or to contribute to the payments Security Capital may
be required to make in respect thereof.
EXPERTS
The consolidated balance sheets as of December 31, 2001 and 2000, and the
consolidated statements of earnings and comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001 and schedule of ProLogis incorporated by reference in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their reports. In
those reports, that firm states that with respect to certain subsidiaries, its
opinion is based on the reports of other independent public accountants, namely
KPMG LLP. The financial statements and supporting schedules referred to above
have been incorporated by reference herein in reliance upon the authority of
those firms as experts in accounting and auditing.
LEGAL MATTERS
The validity of the offered securities will be passed upon for us by Mayer,
Brown, Rowe & Maw, Chicago, Illinois. Mayer, Brown, Rowe & Maw has in the past
represented and is currently representing us and some of our affiliates,
including Security Capital.
98
Appendix A
Execution Copy
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 14, 2001
BY AND AMONG
SECURITY CAPITAL GROUP INCORPORATED
GENERAL ELECTRIC CAPITAL CORPORATION
AND
EB ACQUISITION CORP.
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER........................................................ 1
SECTION 1.1 The Merger.......................................................... 1
SECTION 1.2 Effective Time...................................................... 2
SECTION 1.3 Closing of the Merger............................................... 2
SECTION 1.4 Effects of the Merger............................................... 2
SECTION 1.5 Charter and Bylaws.................................................. 2
SECTION 1.6 Directors........................................................... 2
SECTION 1.7 Officers............................................................ 2
ARTICLE II CONVERSION OF STOCK............................................... 2
SECTION 2.1 Conversion of Stock................................................. 2
SECTION 2.2 Exchange of Certificates............................................ 3
SECTION 2.3 Withholding Taxes................................................... 4
SECTION 2.4 Stock Options; Restricted Stock Units............................... 4
SECTION 2.5 Dissenting Shares................................................... 5
SECTION 2.6 Inclusion of Adjustment to Merger Consideration..................... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... 6
SECTION 3.1 Organization and Qualification; Subsidiaries........................ 6
SECTION 3.2 Capitalization of the Company and Its Subsidiaries; Certain Information
Regarding the Public Investees..................................... 7
SECTION 3.3 Authority Relative to This Agreement; Stockholder Approval.......... 8
SECTION 3.4 Reports; Financial Statements....................................... 8
SECTION 3.5 No Undisclosed Liabilities.......................................... 9
SECTION 3.6 Absence of Changes.................................................. 9
SECTION 3.7 Proxy Statement..................................................... 9
SECTION 3.8 Consents and Approvals; No Violations............................... 9
SECTION 3.9 No Default.......................................................... 10
SECTION 3.10 Litigation.......................................................... 10
SECTION 3.11 Compliance with Applicable Law....................................... 10
SECTION 3.12 Properties........................................................... 11
SECTION 3.13 Employee Plans....................................................... 11
SECTION 3.14 Labor Matters....................................................... 13
SECTION 3.15 Environmental Matters............................................... 14
SECTION 3.16 Tax Matters......................................................... 15
SECTION 3.17 Absence of Questionable Payments.................................... 16
SECTION 3.18 Material Contracts.................................................. 16
SECTION 3.19 Insurance........................................................... 17
SECTION 3.20 Intellectual Property............................................... 17
SECTION 3.21 Opinion of Financial Advisor........................................ 18
SECTION 3.22 Brokers............................................................. 18
SECTION 3.23 Takeover Statute.................................................... 18
SECTION 3.24 Ownership Limit..................................................... 18
SECTION 3.25 Amendment to Rights Agreement....................................... 18
ARTICLE IV REPRESENTATION AND WARRANTIES OF PARENT AND MERGER SUB............ 19
SECTION 4.1 Organization........................................................ 19
SECTION 4.2 Authority Relative to This Agreement................................ 19
SECTION 4.3 Proxy Statement..................................................... 19
SECTION 4.4 Consents and Approvals; No Violations............................... 19
A-i
TABLE OF CONTENTS
(CONTINUED)
Page
----
SECTION 4.5 No Prior Activities...................................... 20
SECTION 4.6 Brokers.................................................. 20
SECTION 4.7 Financial Capacity....................................... 20
ARTICLE V COVENANTS RELATED TO CONDUCT OF BUSINESS............ 20
SECTION 5.1 Conduct of Business of the Company....................... 20
SECTION 5.2 Access to Information.................................... 23
ARTICLE VI ADDITIONAL AGREEMENTS............................... 23
SECTION 6.1 Company Stockholder Meeting, Proxy Statement............. 23
SECTION 6.2 Reasonable Best Efforts.................................. 24
SECTION 6.3 Acquisition Proposals.................................... 25
SECTION 6.4 Public Announcements..................................... 26
SECTION 6.5 Indemnification; Directors' and Officers' Insurance...... 27
SECTION 6.6 Employee Matters.......................................... 27
SECTION 6.7 SEC Filings............................................... 29
SECTION 6.8 Obligations of Merger Sub................................. 29
SECTION 6.9 Takeover Statutes; Rights Plan; Ownership Limit........... 30
SECTION 6.10 Notification of Certain Matters........................... 30
SECTION 6.11 Company Funds............................................. 30
SECTION 6.12 Other Advisory Contract Consents.......................... 30
SECTION 6.13 Transfer Taxes............................................ 31
SECTION 6.14 Registration and Sale of ProLogis Common Stock............ 31
SECTION 6.15 Storage USA Acquisition................................... 31
SECTION 6.16 Restructuring............................................. 31
SECTION 6.17 Security Capital Warehouse Distribution Business Trust.... 31
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............ 32
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger 32
SECTION 7.2 Conditions to the Parent's Obligations to Effect the Merger 32
SECTION 7.3 Conditions to the Company's Obligations to Effect the Merger 33
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER...................... 33
SECTION 8.1 Termination.............................................. 33
SECTION 8.2 Effect of the Termination................................ 34
SECTION 8.3 Fees and Expenses........................................ 34
SECTION 8.4 Amendment................................................ 35
SECTION 8.5 Extension; Waiver........................................ 35
ARTICLE IX MISCELLANEOUS....................................... 35
SECTION 9.1 Nonsurvival of Representations and Warranties............ 35
SECTION 9.2 Entire Agreement; Assignment............................. 35
SECTION 9.3 Notices.................................................. 35
SECTION 9.4 Governing Law............................................ 36
SECTION 9.5 Descriptive Headings..................................... 36
SECTION 9.6 Parties in Interest...................................... 36
A-ii
TABLE OF CONTENTS
(CONTINUED)
Page
----
SECTION 9.7 Severability......... 36
SECTION 9.8 Specific Performance. 37
SECTION 9.9 Counterparts......... 37
SECTION 9.10 Interpretation........ 37
SECTION 9.11 Definitions........... 37
A-iii
Defined Terms Page
------------- ----
2001 BONUS AWARD..................................................... 29
ACQUIRING PERSON..................................................... 18
ACQUISITION PROPOSAL................................................. 37
ADVISERS ACT......................................................... 30
AGREEMENT............................................................ 1
ANNOUNCEMENT DATE.................................................... 5
ANTITRUST LAW........................................................ 10
APPLICABLE CASH CONSIDERATION........................................ 4
APPLICABLE CONSIDERATION............................................. 4
APPLICABLE MERGER CONSIDERATION...................................... 4
APPLICABLE REQUIRED BENEFITS......................................... 28
ARTICLES OF MERGER................................................... 1
AUDIT DATE........................................................... 9
BENEFICIAL OWNERSHIP................................................. 37
BENEFICIALLY OWN..................................................... 37
CASH CONSIDERATION................................................... 37
CERTIFICATES......................................................... 3
CHARTER.............................................................. 2
CLASS A CASH CONSIDERATION........................................... 37
CLASS A MERGER CONSIDERATION......................................... 38
CLASS A OPTION....................................................... 4
CLASS A PER SHARE FACTOR............................................. 38
CLASS A SHARES....................................................... 38
CLASS A STOCK CONSIDERATION.......................................... 38
CLASS B CASH CONSIDERATION........................................... 38
CLASS B MERGER CONSIDERATION......................................... 38
CLASS B OPTION....................................................... 4
CLASS B PER SHARE FACTOR............................................. 38
CLASS B SHARES....................................................... 38
CLASS B STOCK CONSIDERATION.......................................... 38
CLOSING.............................................................. 2
CLOSING DATE......................................................... 2
CODE................................................................. 4
COMPANY.............................................................. 1
COMPANY 401(K) PLAN.................................................. 29
COMPANY DISCLOSURE SCHEDULE.......................................... 6
COMPANY EMPLOYEES.................................................... 28
COMPANY FUND......................................................... 38
COMPANY OPTION PLANS................................................. 5
COMPANY PERMITS...................................................... 10
COMPANY PROPERTIES................................................... 11
COMPANY REQUISITE VOTE............................................... 8
COMPANY SEC REPORTS.................................................. 8
COMPANY SECURITIES................................................... 7
COMPANY STOCK OPTION................................................. 4
COMPANY STOCKHOLDER MEETING.......................................... 23
CONFIDENTIALITY AGREEMENT............................................ 23
CONTINUATION PERIOD.................................................. 28
CONVERTIBLE NOTES.................................................... 7
DEEMED ASSIGNMENT.................................................... 30
DFP.................................................................. 28
DISSENTING SHARES.................................................... 5
A-iv
Defined Terms Page
------------- ----
DISSENTING STOCKHOLDERS.............................................. 5
DOJ.................................................................. 24
DROP-DEAD DATE....................................................... 33
ECMR................................................................. 9
EFFECTIVE TIME....................................................... 1
EMPLOYEE BENEFIT PLAN................................................ 12
EMPLOYEE BENEFIT PLANS............................................... 12
ENVIRONMENTAL CLAIMS................................................. 14
ENVIRONMENTAL COSTS AND LIABILITIES.................................. 14
ENVIRONMENTAL LAWS................................................... 14
ENVIRONMENTAL PERMITS................................................ 14
ERISA................................................................ 11
ERISA AFFILIATE...................................................... 12
EXCHANGE ACT......................................................... 38
FINAL EXPIRATION DATE................................................ 18
FOREIGN PLANS........................................................ 13
FTC.................................................................. 24
FUND................................................................. 38
GAAP................................................................. 8
GOVERNMENTAL ENTITY.................................................. 10
HAZARDOUS MATERIAL................................................... 15
HEREIN............................................................... 37
HEREOF............................................................... 37
HEREWITH............................................................. 37
HSR ACT.............................................................. 9
INDEMNIFIED PARTIES.................................................. 27
INDEMNIFIED PARTY.................................................... 27
INTELLECTUAL PROPERTY................................................ 18
INVESTMENT COMPANY ADVISORY AGREEMENT................................ 38
IRS.................................................................. 12
KNOW................................................................. 38
KNOWLEDGE............................................................ 38
LAW.................................................................. 10
LIEN................................................................. 8
MATERIAL ADVERSE EFFECT.............................................. 38
MATERIAL CONTRACTS................................................... 17
MERGER............................................................... 1
MERGER CONSIDERATION................................................. 2
MERGER SUB........................................................... 1
MGCL................................................................. 1
MULTIEMPLOYER PLAN................................................... 12
NEW PLANS............................................................ 28
NICAAS............................................................... 30
NON-INVESTMENT COMPANY ADVISORY AGREEMENT............................ 39
NOTICE OF SUPERIOR PROPOSAL.......................................... 26
NSP.................................................................. 28
OLD PLANS............................................................ 28
OWNERSHIP LIMIT...................................................... 39
PARENT............................................................... 1
PARENT BENEFITS...................................................... 28
PARENT BOARD......................................................... 19
PARENT DISCLOSURE SCHEDULE........................................... 19
A-v
Defined Terms Page
------------- ----
PAYING AGENT......................................................... 3
PERMITTED LIENS...................................................... 11
PERSON............................................................... 39
PREFERRED STOCK...................................................... 3
PROLOGIS............................................................. 39
PROLOGIS COMMON STOCK................................................ 39
PROLOGIS REGISTRATION STATEMENT...................................... 32
PROLOGIS SALE........................................................ 31
PROLOGIS STOCK VALUE................................................. 39
PROPERTY RESTRICTIONS................................................ 11
PROXY STATEMENT...................................................... 9
PUBLIC INVESTEE...................................................... 39
PUBLIC INVESTEES..................................................... 39
REGENCY.............................................................. 39
REGULATORY AGENCY.................................................... 9
RELEASE.............................................................. 15
REMEDIAL ACTION...................................................... 15
REQUIRED APPROVALS................................................... 24
RESTRICTED STOCK UNIT................................................ 4
RIGHTS............................................................... 18
RIGHTS AGREEMENT..................................................... 18
SEC.................................................................. 39
SECURITIES ACT....................................................... 8
SHARES............................................................... 39
SHARES ACQUISITION DATE.............................................. 18
STOCK CONSIDERATION.................................................. 39
STOCK ELECTION....................................................... 5
STOCKHOLDERS MEETING DATE............................................ 39
STORAGE USA.......................................................... 39
STORAGE USA ACQUISITION.............................................. 40
STORAGE USA TRANSACTION AGREEMENTS................................... 40
SUBSIDIARY........................................................... 40
SUPERIOR PROPOSAL.................................................... 26
SUPPORT AGREEMENTS................................................... 1
SURVIVING CORPORATION................................................ 1
TAKEOVER STATUTES.................................................... 18
TAX OR TAXES......................................................... 16
TAX RETURNS.......................................................... 16
TERMINATION FEE...................................................... 34
TITLE IV PLANS....................................................... 12
WARN................................................................. 14
A-vi
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December
14, 2001, is by and among Security Capital Group Incorporated, a Maryland
corporation (the "Company"), General Electric Capital Corporation, a Delaware
corporation ("Parent"), and EB Acquisition Corp., a Maryland corporation and an
indirect wholly owned subsidiary of Parent ("Merger Sub").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
approved the merger of Merger Sub with and into the Company, upon the terms and
subject to the conditions set forth herein, and have deemed and declared that
such merger is fair to, advisable and in the best interests of their respective
companies and stockholders;
WHEREAS, Parent has required, as a condition to its willingness to enter
into this Agreement, that each of the persons listed on Exhibit A hereto enter
into a Support Agreement, dated as of the date hereof (collectively, the
"Support Agreements"), simultaneously herewith, pursuant to which, among other
things, such persons have agreed to vote all of their Shares in favor of the
Merger (as hereinafter defined), on the terms and subject to the conditions
contained in the Support Agreements, and in order to induce Parent and Merger
Sub to enter into this Agreement, the Company Board (as hereinafter defined)
has approved the execution and delivery of the Support Agreements by such
persons;
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger provided for herein and also to prescribe various conditions to the
consummation thereof.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the Company, Parent and
Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and in accordance with the Maryland
General Corporation Law (the "MGCL"), Merger Sub shall be merged with and into
the Company (the "Merger"). Following the Merger, the Company shall continue as
the surviving corporation (the "Surviving Corporation") and as an indirect
wholly owned subsidiary of Parent, and the separate corporate existence of
Merger Sub shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of this Agreement,
Parent, Merger Sub and the Company shall cause the Merger to be consummated by
filing such articles of merger or other appropriate documents (in any such
case, the "Article of Merger") with the State Department of Assessments and
Taxation of Maryland, as applicable, in such form as required by, and executed
in accordance with, the relevant provisions of the MGCL and shall make all
other filings, recordings or publications required by the MGCL in connection
with the Merger. The Merger shall become effective at the time specified in the
Articles of Merger (the time the Merger becomes effective being the "Effective
Time").
SECTION 1.3 Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York
10153, or at such other time, date or place as agreed to in writing by the
parties hereto.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the MGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5 Charter and Bylaws. The Charter of the Company in effect at
the Effective Time (the "Charter") shall be the charter of the Surviving
Corporation until amended in accordance with applicable Law. The Amended and
Restated Bylaws of the Company in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
Law.
SECTION 1.6 Directors. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, to hold office in
accordance with the charter and bylaws of the Surviving Corporation until their
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal.
SECTION 1.7 Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, to hold office in
accordance with the charter and bylaws of the Surviving Corporation until their
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal.
ARTICLE II
CONVERSION OF STOCK
SECTION 2.1 Conversion of Stock. (a) As of the Effective Time, by virtue
of the Merger and without any action on the part of the holders of any Shares
or any shares of capital stock of Merger Sub:
(b) Merger Sub Stock. Each issued and outstanding share of common stock,
par value $.01 per share, of Merger Sub shall be converted into and become one
fully paid and nonassessable share of Class A Common Stock, of the Surviving
Corporation.
(c) Cancellation of Merger Sub-Owned Stock. All Shares that are owned by
any subsidiary of the Company and any Shares owned by Parent, Merger Sub or any
subsidiary of Parent or Merger Sub shall be cancelled and retired and shall
cease to exist and no consideration shall be delivered in exchange therefor.
(d) Exchange of Shares. Each issued and outstanding Class A Share and Class
B Share (other than Shares to be cancelled in accordance with Section 2.1(b)
and, to the extent applicable, Dissenting Shares (as hereinafter defined))
shall be converted into the right to receive, respectively, the Class A Merger
Consideration and the Class B Merger Consideration (the Class A Merger
Consideration together with the Class B Merger Consideration, the "Merger
Consideration"). All such Shares, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration therefor upon the surrender of such certificate in
accordance with Section 2.2, without interest.
A-2
(e) Preferred Stock. To the extent not converted into Class B Shares prior
to the Effective Time, each issued and outstanding share of Series B Cumulative
Convertible Redeemable Voting Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), of the Company shall remain issued and outstanding and
Parent shall cause the Company to perform all of the obligations of the Company
with respect to the Preferred Stock, including the obligation to pay, upon
conversion by the holder of such Preferred Stock, in respect of each share of
Preferred Stock, the Class B Merger Consideration multiplied by that number of
Class B Shares into which each share of Preferred Stock was convertible as of
the Closing Date.
SECTION 2.2 Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall designate a bank, trust company or other person,
reasonably acceptable to the Company, to act as agent for the holders of the
Shares in connection with the Merger (the "Paying Agent") to receive the funds
and securities if applicable to which holders of the Shares shall become
entitled pursuant to Section 2.1(d). Parent shall, from time to time, make
available to the Paying Agent funds in amounts and at times necessary for the
payment of the Cash Consideration as provided herein and the Company shall,
from time to time, make available to the Paying Agent shares of ProLogis Common
Stock in amounts and at times necessary for the payment of the Stock
Consideration, if any. All interest earned on such funds shall be paid to
Parent.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding Shares (the "Certificates") whose Shares
were converted into the right to receive the Merger Consideration pursuant to
Section 2.1 (i) a letter of transmittal (which shall specify that delivery
shall be effective, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form not inconsistent with this Agreement as Parent may specify, with the
consent of the Company, which consent shall not be unreasonably withheld) and
(ii) instructions for use in surrendering the Certificates in exchange for
payment of the Cash Consideration and issuance of the Stock Consideration, if
any. Upon surrender of a Certificate for cancellation to the Paying Agent,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, Parent shall cause
the Paying Agent to promptly pay to the holder of such Certificate the Cash
Consideration and issue the Stock Consideration, if any, and the Certificate so
surrendered shall thereupon be cancelled. In the event of a surrender of a
Certificate representing Shares which are not registered in the transfer
records of the Company under the name of the person surrendering such
Certificate, payment may be made to a person other than the person in whose
name the Certificate so surrendered is registered if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other Taxes (as hereinafter
defined) required by reason of payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Paying Agent
that such Taxes have been paid or are not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration, which the holder thereof has the right to
receive in respect of such Certificate pursuant to the provisions of this
Article II. No interest shall be paid or will accrue on the Merger
Consideration payable to holders of Certificates pursuant to the provisions of
this Article II.
(c) Transfer Books; No Further Ownership Rights in Stock. At the Effective
Time, the stock transfer books of the Company shall be closed and thereafter
there shall be no further registration of transfers of the Shares on the
records of the Company. From and after the Effective Time, the holders of
Certificates representing ownership of the Shares outstanding immediately prior
to the Effective Time shall cease to have rights with respect to such Shares,
except as otherwise provided for herein or by applicable Law. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following twelve months
after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds and securities (including
any interest or dividends received with respect thereto) which had been made
available to the Paying Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled
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to look to the Surviving Corporation (subject to abandoned property, escheat or
other similar Laws) only as general creditors thereof with respect to the
Merger Consideration payable upon due surrender of their Certificates, without
any interest thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Corporation or the Paying Agent shall be liable to any holder of a
Certificate for the Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
(e) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying Agent
shall pay in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration pursuant to this Agreement.
SECTION 2.3 Withholding Taxes. Parent and the Surviving Corporation shall
be entitled to deduct and withhold, or cause the Paying Agent to deduct and
withhold, from the Cash Consideration payable to a holder of Shares, pursuant
to the Merger any withholding or other Taxes (as hereinafter defined) as are
required to be deducted or withheld under the Internal Revenue Code of 1986, as
amended (the "Code"), or any applicable provision of state, local or foreign
Tax law. To the extent that amounts are so withheld by Parent or the Surviving
Corporation, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by Parent or the Surviving Corporation.
SECTION 2.4 Stock Options; Restricted Stock Units. (a) Upon the Closing
Date, each then outstanding option or warrant to purchase Class A Shares (a
"Class A Option") and each then outstanding option or warrant to purchase Class
B Shares (a "Class B Option" which together with a Class A Option, a "Company
Stock Option"), whether or not then exercisable, shall be cancelled by the
Company and in consideration of such cancellation and except to the extent that
Parent or Merger Sub and the holder of any such Company Stock Option otherwise
agree, the Company (or, at Parent's option, Merger Sub) shall pay to each
holder of a Company Stock Option, on the Closing Date, the excess of (i) the
Applicable Consideration (as defined below) over (ii) the product of (A) the
per-share exercise price of such Company Stock Option and (B) the number of
shares subject to such Company Stock Option, less (C) all required tax
withholdings; provided, that if the amount described in clause (ii) exceeds the
cash portion of the Applicable Consideration, the holder shall be obligated to
pay the amount of such excess to the Company or Merger Sub, as applicable, in
cash and the Company or Merger Sub, as applicable, shall deliver only the
non-cash portion of the Applicable Consideration to the holder.
(b) Upon the Closing Date, each then outstanding restricted stock unit (each
a "Restricted Stock Unit") whether or not then vested, shall be cancelled by
the Company and the Company shall pay to the holder thereof the Applicable RSU
Consideration (as defined below), less all required tax withholdings. "The
Applicable Consideration" means either the Applicable RSU Cash Consideration or
the Applicable RSU Merger Consideration, as elected by the holder before the
Closing.
(c) The "Applicable Consideration" means either the Applicable Cash
Consideration or the Applicable Merger Consideration, as elected by the holder
of any Company Stock Option or Restricted Stock Unit before the Closing,
provided, however, if the holder of a Company Stock Option or Restricted Stock
Unit does not make such an election, he or she shall be deemed to have elected
to receive the Applicable Cash Consideration. The "Applicable Cash
Consideration" means (w) in the case of a Class A Option or Restricted Stock
Unit with respect to Class A Stock, $1,300, and in the case of a Class B Option
or Restricted Stock Unit with respect to Class B Stock, $26, in either case
times (x) the number of shares subject to such Company Stock Option or
Restricted Stock Unit. The "Applicable Merger Consideration" means (y) in the
case of a Class A Option or
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Restricted Stock Unit with respect to Class A Stock, the Class A Merger
Consideration, and in the case of a Class B Option or Restricted Stock Unit
with respect to Class B Stock, the Class B Merger Consideration, in either case
times (z) the number of shares subject to such Company Stock Option or
Restricted Stock Unit.
(d) Except as otherwise required by Section 6.6, the Company shall take all
actions necessary and appropriate so that all stock option or other equity
based plans maintained with respect to the Shares, including the plans listed
in Section 3.2 of the Company Disclosure Schedule (as hereinafter defined)
("Company Option Plans"), shall, terminate as of the Effective Time and the
provisions in any other benefit plan providing for the issuance, transfer or
grant of any stock of the Company or any interest in respect of any stock of
the Company shall be deleted as of the Effective Time, and the Company shall
take all reasonable actions to ensure that following the Effective Time no
holder of a Company Stock Option or any participant in any Company Option Plan
shall have any right thereunder to acquire any stock of the Company, Parent,
Merger Sub or the Surviving Corporation.
SECTION 2.5 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, to the extent that Section 3-202 of the MGCL applies to the
Merger, Shares (the "Dissenting Shares") that are outstanding immediately prior
to the Effective Time and which are held by stockholders who shall have
properly objected to the Merger, who shall have not voted in favor of the
Merger and who shall have demanded properly in writing appraisal for such
shares in accordance with Section 3-203 of the MGCL (the "Dissenting
Stockholders") shall not be converted into or represent the right to receive
the Merger Consideration, as applicable. Such stockholders instead shall be
entitled to receive payment of the appraised value of such Shares held by them
in accordance with the provisions of such Section 3-203, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under the MGCL shall thereupon be deemed to have been converted into and
to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration, upon surrender
in the manner provided in Section 2.2 of the Certificate or Certificates that,
immediately prior to the Effective Time, represented such Shares.
SECTION 2.6 Inclusion of Adjustment to Merger Consideration. (a) Parent
shall be entitled, by delivery to the Company of written notice at any time
prior to the date which is 15 days prior to Stockholders Meeting Date (as
hereinafter defined) (the date such notice is delivered, "Announcement Date"),
to elect (the "Stock Election") to make the ProLogis Common Stock owned by the
Company a part of the Merger Consideration and to reduce the amount of cash to
be included in the Merger Consideration, all in accordance with and as set
forth in the following and the definitions of the various terms set forth
below. In the event the Stock Election is made, and not revoked in accordance
with paragraph (c) below, the following adjustments shall be made:
(i) the Class A Cash Consideration shall be decreased by an amount equal
to the ProLogis Stock Value multiplied by the Class A Per Share
Factor, so that the amount of cash to be received by each holder of a
share of Class A Common Stock in the Merger, together with the Class A
Stock Consideration valued using the methodology set forth in clause
(i) of the definition of ProLogis Stock Value, shall be $1300;
(ii)the Class A Stock Consideration shall be a number of shares of
ProLogis Common Stock equal to the total number of shares of ProLogis
Common Stock to be a part of the Merger Consideration pursuant to the
Stock Election multiplied by the Class A Per Share Factor;
(iii)the Class B Cash Consideration shall be decreased by an amount equal
to the ProLogis Stock Value multiplied by the Class B Per Share
Factor, so that the amount of cash to be received by each holder of a
share of Class B Common Stock in the Merger, together with the Class B
Stock Consideration valued using the methodology set forth in clause
(i) of the definition of ProLogis Stock Value, shall be $26;
(iv)the Class B Stock Consideration shall be a number of shares of
ProLogis Common Stock equal to the total number of shares of ProLogis
Common Stock to be a part of the Merger Consideration pursuant to the
Stock Election multiplied by the Class B Per Share Factor;
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provided, however, that the Company shall be under no obligation to cause the
issuance of fractional shares of ProLogis Common Stock, and may substitute cash
in lieu of such fractional shares. In that connection, as soon as practicable
after the Closing Date, the Company shall, itself or through an agent,
determine the number of whole shares and fractional shares of the ProLogis
Common Stock to be delivered to each holder of Shares, aggregate all such
fractional shares and sell the whole shares obtained thereby, in the open
market or otherwise, in each case at then prevailing trading prices, and to
cause to be distributed to each such holder or for the benefit of each
beneficial owner, in lieu of any fractional share, such holder's or owner's
ratable share of the proceeds of such sale, after making appropriate deductions
of the amount required to be withheld for federal income tax purposes and after
deducting an amount equal to all brokerage charges, commissions and transfer
taxes attributed to such sale.
(b) As soon as practicable after the Announcement Date, Parent and the
Company shall issue a joint press release announcing Parent's election, subject
to its right of revocation, to include Stock Consideration in the Merger
Consideration, and as soon as the ProLogis Stock Value is determinable, Parent
and the Company shall issue a joint press release announcing the amounts of the
Class A Cash Consideration, the Class A Stock Consideration, the Class B Cash
Consideration and the Class B Stock Consideration.
(c) Parent may revoke the Stock Election at any time, provided that no such
revocation may be made if such revocation would make it reasonably necessary,
based upon the advice of the Company's independent counsel, to delay the
Company Stockholder Meeting. Following any such revocation, the Class A Merger
Consideration shall again be $1,300 and the Class B Merger Consideration shall
again be $26. As soon as practicable after any such revocation, Parent and the
Company shall issue a joint press release announcing such revocation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein;
provided, however, that an item included on a Company Disclosure Schedule with
respect to any section or subsection of this Agreement shall be deemed to
relate to each other section or subsection of this Agreement but only to the
extent that such relationship is reasonably inferable), the Company hereby
represents and warrants to each of Parent and Merger Sub as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) The Company
and each of its subsidiaries is a corporation or legal entity duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate, partnership or similar power and
authority to own, lease and operate its properties and to carry on its
businesses as now conducted and proposed by the Company to be conducted, except
where the failure to be duly organized, existing and in good standing or to
have such power and authority would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the ability of
the Company to consummate the Merger or perform its obligations hereunder.
(b) Section 3.1 of the Company Disclosure Schedule sets forth a list of all
subsidiaries of the Company. Except as listed in Section 3.1 of the Company
Disclosure Schedule, the Company does not own, directly or indirectly,
beneficially or of record, any shares of stock or other security of any other
entity or any other investment in any other entity, that would be a subsidiary
of the Company.
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(c) The Company and each of its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
duly organized, existing and in good standing or to have such power and
authority would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the ability of the Company to
consummate the Merger or perform its obligations hereunder.
(d) The Company has heretofore delivered to Parent accurate and complete
copies of the Charter and bylaws, as currently in effect, of the Company.
SECTION 3.2 Capitalization of the Company and Its Subsidiaries; Certain
Information Regarding the Public Investees. (a) The authorized stock of the
Company consists of: (i) 15,543,012 Class A Shares, of which 882,171.302 Class
A Shares were issued and outstanding as of the close of business on November
30, 2001, (ii) 234,199,346 Class B Shares, of which 93,827,130 Class B Shares
were issued and outstanding as of the close of business on November 30, 2001,
and (iii) 257,642 shares of Preferred Stock, of which 257,642 shares were
issued and outstanding as of the close of business on November 30, 2001. All of
the issued and outstanding Shares and shares of Preferred Stock have been
validly issued, and are duly authorized, fully paid, non-assessable and free of
preemptive rights. As of November 30, 2001, 8,769,035 Class B Shares and
133,105 Class A Shares were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding Company
Stock Options and 1,305,350 shares were reserved for issuance under Restricted
Stock Units issued pursuant to the Company Option Plans. Except as set forth in
Section 3.2(a) of the Company Disclosure Schedule, since November 30, 2001, no
shares of the Company's stock have been issued other than pursuant to Company
Stock Options already in existence on such date or upon conversion of
Convertible Notes or vesting of Restricted Stock Units, and, since November 30,
2001, no Company Stock Options or Restricted Stock Units have been granted.
Except as set forth above, and except for the conversion of outstanding shares
of Preferred Stock into a maximum of 6,606,205 Class B Shares, the conversion
of the Company's 6.5% Convertible Subordinated Debentures due 2016 (the
"Convertible Notes") into a maximum of 195,982 Class A Shares and the issuance
of securities upon the exercise, exchange or redemption of the Rights, as of
the date hereof, there are outstanding (i) no shares of stock or other voting
securities of the Company; (ii) no securities of the Company or any of its
subsidiaries convertible into or exchangeable for shares of stock or voting
securities of the Company; (iii) no options or other rights to acquire from the
Company or any of its subsidiaries, and no obligations of the Company or any of
its subsidiaries to issue, any stock, voting securities or securities
convertible into or exchangeable for stock or voting securities of the Company;
and (iv) no equity equivalents, interests in the ownership or earnings of the
Company or any of its subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "Company Securities"). There are no
outstanding obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities. Section 3.2(a)
of the Company Disclosure Schedule sets forth information regarding the current
exercise price, date of grant and number granted of Company Stock Options for
each holder thereof. Following the Effective Time, no holder of Company Stock
Options will have any right to receive shares of stock of the Surviving
Corporation upon exercise of the Company Stock Options.
(b) Except as set forth in Section 3.2(b) of the Company Disclosure
Schedule, all of the outstanding stock of the Company's subsidiaries is owned
by the Company, directly or indirectly, free and clear of any Lien (as
hereinafter defined) or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of Law). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire
from the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the
issuance or sale, directly or indirectly of, any stock or other ownership
interests in, or any other securities of, any subsidiary of the Company. There
are no outstanding obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of stock or
other ownership interests in any subsidiary of the Company. Except as set forth
in Section 3.2(b) of the Company Disclosure Schedule, there are no stockholder
agreements, voting trusts or other agreements or understandings to which the
Company or any of
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its subsidiaries is bound relating to the voting of any shares of stock of the
Company or any subsidiary of the Company. For purposes of this Agreement,
"Lien" means, with respect to any asset (including any security) any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such asset.
(c) Section 3.2(c) of the Company Disclosure Schedule sets forth, for each
Public Investee, the amount and nature of all securities of such Public
Investee owned by the Company and its subsidiaries. To the knowledge of the
Company, each of the outstanding shares of stock of each Public Investee is
duly authorized, validly issued, fully paid and nonassessable (to the extent
such concepts are recognized in the applicable jurisdiction), and is owned by
the Company and its subsidiaries free and clear of all Liens (other than as set
forth in Section 3.2(c) of the Company Disclosure Schedule) and has not been
issued in violation of any preemptive or similar rights. Other than as set
forth in Section 3.2(c) of the Company Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale, transfer or voting of any securities of any Public Investee
to which the Company or any of its subsidiaries is a party or otherwise bound.
SECTION 3.3 Authority Relative to This Agreement; Stockholder Approval.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the Merger. No other corporate
proceedings on the part of the Company or any of its subsidiaries are necessary
to authorize this Agreement or to consummate the Merger (other than, with
respect to the Merger and this Agreement, to the extent required by Law, the
Company Requisite Vote (as hereinafter defined)). This Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid,
legal and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
(b) The Company Board has, by unanimous vote of those present, duly and
validly authorized the execution and delivery of this Agreement and approved
the consummation of the Merger, and taken all corporate actions required to be
taken by the Company Board for the consummation of the Merger. The Company
Board has directed that this Agreement be submitted to the stockholders of the
Company for their approval to the extent required by Law. The affirmative
approval of the holders of Shares representing a majority of the votes that may
be cast by the holders of all outstanding Shares and shares of Preferred Stock
(voting together as a single class) as of the record date for the Company
Stockholder Meeting (the "Company Requisite Vote") is the only vote of the
holders of any class or series of stock of the Company necessary to adopt this
Agreement and approve the Merger.
SECTION 3.4 Reports; Financial Statements. (a) The Company has filed all
required forms, reports and documents with the SEC since January 1, 1998, each
of which has complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act, each as in effect on the dates such forms, reports and documents
were filed. The Company has heretofore delivered to Parent, in the form filed
with the SEC (including any amendments thereto), (i) its Annual Reports on Form
10-K for each of the fiscal years ended December 31, 1998, 1999 and 2000,
respectively, (ii) all definitive proxy statements relating to the Company's
meetings of stockholders (whether annual or special) held since January 1,
1998, and (iii) all other reports or registration statements filed by the
Company with the SEC since January 1, 1998 (the "Company SEC Reports"). None of
such forms, reports or documents, including any financial statements or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of the
Company included in the Company SEC Reports complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto and fairly present, in conformity
with generally accepted accounting principles applied on a consistent basis
("GAAP") (except as may be indicated in the notes thereto), the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments). Since
January 1, 1998,
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there has not been any change, or any application or request for any change, by
the Company or any of its subsidiaries in accounting principles, methods or
policies for financial accounting or Tax purposes (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments).
(b) The Company and each of its subsidiaries have timely filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since December
31, 1998 with any U.S., state or foreign regulatory authorities or
self-regulatory organization (each, a "Regulatory Agency"), and have paid all
material fees and assessments due and payable in connection therewith. Except
for normal examinations conducted by a Regulatory Agency in the regular course
of the business of the Company and its subsidiaries, no Regulatory Agency has
initiated any proceeding or investigation or, to the knowledge of the Company,
threatened any investigation into the business or operations of the Company or
any of its subsidiaries since December 31, 1998, except for such proceedings or
investigations which would not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the Company and its
subsidiaries taken as a whole.
SECTION 3.5 No Undisclosed Liabilities. Except as and to the extent
publicly disclosed by the Company in the Company SEC Reports, as of December
31, 2000 (the "Audit Date"), none of the Company or its subsidiaries had any
liabilities or material obligations of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, except for any such liabilities or obligations which do not or
which would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the Company and its subsidiaries taken
as a whole.
SECTION 3.6 Absence of Changes. Except as and to the extent publicly
disclosed by the Company in the Company SEC Reports filed prior to the date of
this Agreement, since the Audit Date the business of the Company and its
subsidiaries has been carried on only in the ordinary and usual course
consistent with past practice, none of the Company or its subsidiaries has
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which do or which would reasonably be expected to have, and there
have been no events, changes or effects with respect to the Company or its
subsidiaries, which do or which would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole.
SECTION 3.7 Proxy Statement. The proxy statement relating to the Merger
(the "Proxy Statement") will not, on the date the Proxy Statement (including
any amendment or supplement thereto) is first mailed to stockholders of the
Company, contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading or shall, at the time of the Company Stockholder Meeting
or at the Effective Time, omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies which shall have become false or misleading in any material respect.
The Proxy Statement will, when filed by the Company with the SEC, comply as to
form in all material respects with the applicable provisions of the Exchange
Act and the rules and regulations thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to the statements
made in any of the foregoing documents based on and in conformity with
information supplied in writing by or on behalf of Parent or Merger Sub
specifically for inclusion therein.
SECTION 3.8 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the European Community's Council
Regulation (EC) 4064/89 of 21 December 1989 on the control of concentrations
between undertakings, as amended (the "ECMR"), or any other Antitrust Law (as
hereinafter defined), the filing and recordation of the Articles of Merger as
required by the MGCL and as otherwise set forth in Section 3.8 to the Company
Disclosure Schedule, no filing with or notice to, and no material permit,
authorization, consent or approval of, (i) any court or tribunal or
administrative, governmental or
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regulatory body, agency or authority (a "Governmental Entity") or (ii) any
other third party, is necessary for the execution and delivery by the Company
of this Agreement or the consummation by the Company of the Merger, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice does not, as of the date hereof,
question the validity of this Agreement or any action to be taken by the
Company in connection with the consummation of the Merger and would not
otherwise prevent or delay the consummation of the Merger, reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the Company and its subsidiaries taken as a whole. Except as set forth on
Schedule 3.8 of the Company Disclosure Schedule, neither the execution,
delivery and performance of this Agreement by the Company nor the consummation
by the Company of the Merger will (i) conflict with or result in any breach of
any provision of the respective charters or bylaws (or similar governing
documents) of the Company or any of its subsidiaries, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien or result in the reduction or loss of any
benefit) under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound or any Company Permit (as hereinafter defined), (iii) violate any
Law applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, or (iv) to the knowledge of the Company,
result in the loss by any Public Investee of its status as a REIT (as
hereinafter defined), in each case with respect to (i), (ii) and (iii) above,
except as does not or which would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole. For purposes of this Agreement, "Antitrust
Law" means the Sherman Act, as amended, the Clayton Act, as amended, the HSR
Act, the Federal Trade Commission Act, as amended, the ECMR, and all other Laws
that are designed or intended to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade or creation or
strengthening of a dominant position or lessening of competition through merger
or acquisition.
SECTION 3.9 No Default. Neither the Company nor any of its subsidiaries is
in violation of any term of (i) its charter, bylaws or other organizational
documents, (ii) any agreement or instrument related to indebtedness for
borrowed money or any other agreement to which it is a party or by which it is
bound, or (iii) any foreign or domestic law, order, writ, injunction, decree,
ordinance, award, stipulation, statute, judicial or administrative doctrine,
rule or regulation entered by a Governmental Entity ("Law") applicable to the
Company, its subsidiaries or any of their respective properties or assets,
except for violations which do not or which would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
Company and its subsidiaries taken as a whole.
SECTION 3.10 Litigation. Except as and to the extent publicly disclosed by
the Company in the Company SEC Reports filed prior to the date of this
Agreement or as listed on Section 3.10 of the Company Disclosure Schedule,
there is no material suit, claim, action, proceeding or investigation pending
or, to the Company's knowledge, threatened against the Company or any of its
Subsidiaries or any of their respective properties or assets which (a) involves
amounts in excess of $1,000,000 or (b) questions the validity of this Agreement
or any action to be taken by the Company in connection with the consummation of
the Merger. Except as and to the extent publicly disclosed by the Company in
the Company SEC Reports filed prior to the date of this Agreement, none of the
Company or its Subsidiaries is subject to any outstanding order, writ,
injunction or decree, which has or which would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole.
SECTION 3.11 Compliance with Applicable Law. The Company and each of its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for Company Permits
the absence of which does not or which would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole. The Company and each of its subsidiaries are
in compliance with the terms of the Company Permits, except as does not or
which would
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reasonably be expected not to have, individually or in the aggregate, a
material adverse effect on the Company and its subsidiaries taken as a whole.
The businesses of the Company and each of its subsidiaries are not being
conducted in violation of any Law applicable to the Company or its
subsidiaries, except as does not or which would reasonably be expected not to
have, individually or in the aggregate, a material adverse effect on the
Company and its subsidiaries taken as a whole. To the Company's knowledge, no
investigation or review by any Governmental Entity with respect to the Company
or its subsidiaries is pending or threatened, nor, to the Company's knowledge,
has any Governmental Entity indicated an intention to conduct the same, except
for such investigations or reviews as do not or which would reasonably be
expected not to have, individually or in the aggregate, a material adverse
effect on the Company and its subsidiaries taken as a whole.
SECTION 3.12 Properties. (a) Section 3.12(a) of the Company Disclosure
Schedule sets forth a complete and accurate list and the address of all real
property owned or leased by the Company or otherwise used by the Company in the
conduct of its businesses or operations (collectively, and together with the
land at each address referenced in Section 3.12(a) of the Company Disclosure
Schedule and all buildings, structures and other improvements and fixtures
located on or under such land and all easements, rights and other appurtenances
to such land, the "Company Properties"). Each of the Company Properties is
owned or leased by the Company, as indicated in Section 3.12(a) of the Company
Disclosure Schedule. To the Company's knowledge, the Company owns or, if so
indicated in Section 3.12(a) of the Company Disclosure Schedule, leases each of
the Company Properties, in each case free and clear of any Liens, title
defects, contractual restrictions or covenants, laws, ordinances or regulations
affecting use or occupancy (including zoning regulations and building codes) or
reservations of interests in title (collectively, "Property Restrictions"),
except for (i) Permitted Liens and (ii) Property Restrictions imposed or
promulgated by law or by any Government Authority which are customary and
typical for similar properties or (iii) Property Restrictions which do not or
which would reasonably be expected not to have, individually or in the
aggregate, a material adverse effect on the Company and its subsidiaries taken
as a whole. To the Company's knowledge, none of the matters described in
clauses (i) and (ii) above does or would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole. For purposes of this Agreement, "Permitted
Liens" means (i) Liens for Taxes not yet due or delinquent or as to which there
is a good faith dispute and for which there are adequate reserves on the
financial statements of the Company, (ii) with respect to real property, any
Lien, encumbrance or other title defect which is not in a liquidated amount
(whether material or immaterial) and which does not, individually or in the
aggregate, interfere materially with the current use or materially detract from
the value or marketability of such property (assuming its continued use in the
manner in which it is currently used) and (iii) inchoate materialmen's,
mechanics', carriers', workmen's and repairmen's liens arising in the ordinary
course and not past due and payable or the payment of which is being contested
in good faith by appropriate proceedings. To the Company's knowledge, the
Company Properties are adequate to permit the use thereof in the manner they
are currently utilized by the Company, except as does not or would reasonably
be expected not to have, individually or in the aggregate, a material adverse
effect on the Company and its subsidiaries taken as a whole.
(b) The Company and each of its subsidiaries have good and sufficient title
to all the personal and non-real properties and assets reflected in their books
and records as being owned by them (including those reflected in the balance
sheets of the Company and its subsidiaries as of September 30, 2001, except as
since sold or otherwise disposed of in the ordinary course of business), free
and clear of all Liens, except for Permitted Liens, except as does not or which
would reasonably be expected not to have, individually or in the aggregate, a
material adverse effect on the Company and its subsidiaries taken as a whole.
SECTION 3.13 Employee Plans. (a) Section 3.13(a) of the Company Disclosure
Schedule sets forth a list of all material "employee benefit plans," as defined
in Section 3(3) of the Employment Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other employee benefit plans or other benefit
arrangements or payroll practices including bonus plans, executive
compensation, consulting or other compensation agreements, change in control
agreements, incentive, equity or equity-based compensation, or deferred
compensation arrangements, stock purchase, severance pay, sick leave, vacation
pay, salary continuation for
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disability, hospitalization, medical insurance, life insurance, scholarship
programs, directors' benefit, bonus or other incentive compensation and any
Foreign Plan (as defined in Section 3.13(i)), which the Company or any of its
majority owned subsidiaries sponsors, maintains, contributes to or has any
obligation to contribute to (each an "Employee Benefit Plan" and collectively,
the "Employee Benefit Plans"). Except as separately set forth on Section
3.13(a) of the Company Disclosure Schedule, none of the Employee Benefit Plans
is subject to Title IV of ERISA ("Title IV Plans"), or is or has been subject
to Sections 4063 or 4064 of ERISA, nor has the Company, its subsidiaries or any
trade or business (whether or not incorporated) which is or has ever been under
common control, or which is or has ever been treated as a single employer, with
the Company or any subsidiary under Section 414(b), (c), (m) or (o) of the Code
("ERISA Affiliate") ever been obligated to contribute to a multiemployer plan,
as defined in Section 3(37) of ERISA (a "Multiemployer Plan").
(b) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Title IV Plans (other than a
Multiemployer Plan) have been made available or delivered to Parent by the
Company: (i) any plans and related trust documents, and amendments thereto;
(ii) the three most recent Forms 5500 and schedules thereto, if applicable;
(iii) the most recent Internal Revenue Service ("IRS") determination letter, if
applicable; (iv) the three most recent financial statements and actuarial
valuations, if applicable; and (v) summary plan descriptions, if applicable.
(c) As of the date hereof, except as would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
Company and its subsidiaries taken as a whole, (i) the Company and its
subsidiaries have performed all material obligations required to be performed
by them under any Employee Benefit Plan; (ii) the Employee Benefit Plans, have
been administered in material compliance with their terms and the requirements
of ERISA, the Code and other applicable Laws; (iii) there are no material
actions, suits, arbitrations or claims (other than routine claims for benefit)
pending or threatened with respect to any Employee Benefit Plan; and (iv) the
Company and its subsidiaries have no material liability as a result of any
"prohibited transaction" (as defined in Section 406 of ERISA and Section 4975
of the Code) for any excise Tax or civil penalty.
(d) Neither the Company nor any of its ERISA Affiliates are subject to any
unsatisfied withdrawal liability with respect to any Multiemployer Plan.
(e) Each of the Employee Benefit Plans which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a determination
letter from the IRS to the effect that such plan is "qualified" and that the
trusts maintained pursuant thereto are exempt from federal income taxation
under Section 501 of the Code. The Company knows of no fact which would
adversely affect the qualified status of any such Pension Plan or the exemption
of such trust, in either case, that cannot be corrected without a material
adverse effect on the Company and its subsidiaries taken as a whole.
(f) None of the Employee Benefit Plans provide for continuing
post-employment health or life insurance coverage for any participant or any
beneficiary of a participant except as may be required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended.
(g) Except as set forth in Section 3.13(g) of the Company Disclosure
Schedule, no stock or other security issued by the Company forms or has formed
material part of the assets of any Employee Benefit Plan.
(h) Neither the execution and delivery of this Agreement nor the
consummation of the Merger will by itself or in combination with any other
event (i) result in any material payment becoming due, or materially increase
the amount of compensation due, to any current or former employee of the
Company or any of its subsidiaries; (ii) materially increase any benefits
otherwise payable under any Employee Benefit Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such material benefits.
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(i) With respect to each Employee Benefit Plan that is maintained primarily
for employees in a jurisdiction outside the United States (the "Foreign Plans")
except as does not or which would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole:
(i) all employer and employee contributions to each Foreign Plan required
by law or by the terms of such Foreign Plan have been made, or, if
applicable, accrued in accordance with normal accounting practices;
(ii) the fair market value of the assets of each funded Foreign Plan, the
liability of each insurer for any Foreign Plan funded through insurance or
the book reserve established for any Foreign Plan, together with any accrued
contributions, is sufficient to procure or provide for the accrued benefit
obligations, as of the Closing Date, with respect to all current or former
participants in such plan according to the actuarial assumptions and
valuations most recently used to determine employer contributions to such
Foreign Plan and no transaction contemplated by this Agreement shall cause
such assets or insurance obligations to be less than such benefit
obligations; and
(iii) each Foreign Plan required to be registered has been registered and
has been maintained in good standing with applicable regulatory authorities.
(j) Except as does not or which would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Company and
its subsidiaries taken as a whole, any individual who performs services for the
Company or any of is subsidiaries (other than through a contract with an
organization other than such individual) and who is not treated as an employee
of the Company or any of its subsidiaries for federal income tax purposes by
the Company or one of its subsidiaries is not an employee for such purposes.
SECTION 3.14 Labor Matters. (a) Section 3.14(a) of the Company Disclosure
Schedule sets forth a list of all employment, labor or collective bargaining
agreements to which the Company or any subsidiary is party and, except as set
forth therein, there are no employment, labor or collective bargaining
agreements which pertain to employees of the Company or any of its
subsidiaries. The Company has heretofore made available to Parent true and
complete copies of (i) the employment agreements listed on Section 3.14(a) of
the Company Disclosure Schedule or a form thereof and (ii) the labor or
collective bargaining agreements listed on Section 3.14(a) of the Company
Disclosure Schedule, together with all material amendments, modifications,
supplements and side letters affecting the duties, rights and obligations of
any party thereunder.
(b) Except as set forth on Section 3.14(b) of the Company Disclosure
Schedule or as would not reasonably be expected to have, individually or in the
aggregate a material adverse effect on the Company and its subsidiaries taken a
whole, (i) no employees of the Company or any of its subsidiaries are
represented by any labor organization; (ii) no labor organization or group of
employees of the Company or any of its subsidiaries has made a pending demand
for recognition or certification; (iii) to the Company's knowledge, there are
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority, and (iv) to the Company's knowledge, there are
no organizing activities involving the Company or any of its subsidiaries
pending with any labor organization or group of employees of the Company or any
of its subsidiaries.
(c) Except as would not reasonably be expected to have, individually or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries taken as a whole there are no unfair labor practice charges,
grievances or complaints pending or threatened in writing by or on behalf of
any employee or group of employees of the Company or any of its subsidiaries.
(d) Except as would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the Company and its subsidiaries
taken as a whole there are no complaints, charges or claims against
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the Company or any of its subsidiaries pending, or threatened in writing to be
brought or filed, with any Governmental Entity or arbitrator based on, arising
out of, in connection with, or otherwise relating to the employment or
termination of employment of any individual by the Company or any of its
subsidiaries.
(e) Except as would not reasonably be expected to have, individually or in
the aggregate, (i) a material adverse effect on the Company and its
subsidiaries taken as a whole, the Company and each of its subsidiaries is in
compliance with all Laws relating to the employment of labor, including all
such Laws relating to wages, hours, the Worker Adjustment and Retraining
Notification Act and any similar state or local "mass layoff" or "plant
closing" Law ("WARN"), collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or social security Taxes and any similar Tax, except for
immaterial non-compliance; and (ii) there has been no "mass layoff" or "plant
closing" as defined by WARN with respect to the Company or any of its
subsidiaries within the last six (6) months.
SECTION 3.15 Environmental Matters. (a) Except as disclosed on Section
3.15 of the Company Disclosure Schedule and except for conditions that would
not reasonably be expected to result in a material adverse effect on the
Company and its subsidiaries taken as a whole, to the knowledge of the Company,
(i) the Company and its majority owned subsidiaries and all real property owned
by the Company and its majority owned subsidiaries are in compliance with
Environmental Laws; (ii) the Company and its majority owned subsidiaries have
obtained and currently possess and maintain all Permits required by
Environmental Laws (collectively, "Environmental Permits") for each of their
respective operations, all such Environmental Permits are in good standing, and
the Company and its majority owned subsidiaries are in compliance with the
terms and conditions of such Environmental Permits; (iii) neither the Company
and its majority owned subsidiaries nor any real property currently owned by
the Company or its majority owned subsidiaries is subject to any pending
Environmental Claim as to which the Company has been provided written notice.
(b) To the Company's knowledge, the Company has made available to Parent
copies of all environmental reports which are in the possession of the Company
and were conducted within 24 months prior to the date hereof by private parties
or regulators relating to the operations of the Company and its subsidiaries or
any real property owned by the Company or its subsidiaries.
As used in this Agreement:
"Environmental Claims" means any and all written administrative, regulatory,
judicial or third-party claims, demands, notices of violation or
non-compliance, directives, proceedings, investigations, orders, decrees,
judgments or other allegations of noncompliance with or liability or potential
liability relating in any way to any Environmental Law or any Environmental
Permit.
"Environmental Costs And Liabilities" means, with respect to any person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand
by any other person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any thereof
arising under any Environmental Law, Permit, order or agreement with any
Governmental Entity or other person, which relate to any environmental, health
or safety condition or a Release or threatened Release, and result from the
past, present or future operations of, or ownership of property by, such person
or any of its subsidiaries.
"Environmental Laws" means all applicable federal, state, local and foreign
laws, rules and regulations, orders, judgments, decrees and other legal
requirements relating to pollution or the regulation and protection of human
health, safety, the environment or natural resources, including, but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C.(S) 9601 et seq.); the
A-14
Hazardous Material Transportation Act, as amended (49 U.S.C(S) 180 et seq.);
the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7
U.S.C.(S) 136 et seq.); the Resource Conservation and Recovery Act, as amended
(42 U.S.C.(S) 6901 et seq.); the Toxic Substance Control Act, as amended (42
U.S.C.(S) 7401 et seq.); the Clean Air Act, as amended (42 U.S.C.(S) 740 et
seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C.(S) 1251
et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C.(S) 651
et seq.); the Safe Drinking Water Act, as amended (42 U.S.C.(S) 300f et seq.);
and their state and local counterparts or equivalents and any transfer of
ownership notification or approval statute.
"Hazardous Material" means any material, substance or waste that is
classified, regulated or otherwise characterized under any Environmental Law as
hazardous, toxic, a contaminant or a pollutant or by other words of similar
meaning or regulatory effect, including any petroleum or petroleum-derived
substance or waste, friable asbestos, indoor mold, urea formaldehyde
insulation, and polychlorinated biphenyls.
"Release" means, with respect to any person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration, in each case, of any Hazardous Material into the environment or
into or out of any property owned by such person, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.
"Remedial Action" means all actions required to (a) clean up, remove, treat
or in any other way address any Hazardous Material in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release so that a Hazardous Material does not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
SECTION 3.16 Tax Matters. (a) All federal and all other material Tax
Returns (as hereinafter defined) required to be filed by or on behalf of the
Company or any of its subsidiaries have been filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make
such filings), and all such Tax Returns were true, complete and correct in all
material respects. Except as and to the extent publicly disclosed by the
Company in the Company SEC Reports, (i) as of the Audit Date, all Taxes payable
by or on behalf of the Company or any of its subsidiaries have been fully and
timely paid or adequately provided for in accordance with GAAP, and (ii)
adequate reserves or accruals for Taxes have been provided in accordance with
GAAP with respect to any period for which Tax Returns have not yet been filed
or for which Taxes are not yet due and owing. Except as set forth on Section
3.16(a) of the Company Disclosure Schedule, as of the date hereof neither the
Company nor any of its subsidiaries has executed or filed with the IRS or any
other taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of material Taxes (including, but not limited to, any applicable
statute of limitation), and no power of attorney with respect to any Tax matter
is currently in force.
(b) Except as set forth on Section 3.16(b) of the Company Disclosure
Schedule, as of the date hereof all material deficiencies asserted or
assessments made as a result of any examinations by the IRS or any other taxing
authority of the Tax Returns of or covering or including the Company or any of
its subsidiaries have been fully paid, and there are no other audits relating
to any material taxes by any taxing authority in progress, nor have the Company
or any of its subsidiaries received any notice from any taxing authority that
it intends to conduct such an audit.
(c) The Company and its subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have duly and timely withheld from employee salaries,
wages and other compensation and has paid over to the appropriate taxing
authorities all material amounts required to be so withheld and paid over for
all periods under all applicable Laws.
(d) Parent has had access to complete copies of (A) all federal and other
material Tax Returns of the Company and its subsidiaries relating to the
taxable periods ending since December 31, 1998 which have been filed and (B)
any audit report issued within the last five years relating to any material
Taxes due from or with respect to the Company or any of its subsidiaries.
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(e) Except as set forth on Section 3.16(e) of the Company Disclosure
Schedule, no claim has been made in writing by a taxing authority in a
jurisdiction where the Company or any of its subsidiaries does not file Tax
Returns such that the Company or any such subsidiary is or may be subject to
taxation by that jurisdiction.
(f) Except as set forth on Section 3.16(f) of the Company Disclosure
Schedule, neither the Company nor any other person on behalf of the Company or
any of its subsidiaries has requested any extension of time within which to
file any material income Tax Return, which material income Tax Return has since
not been filed.
(g) Except as set forth on Section 3.16(g) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any tax
sharing or similar agreement or arrangement (with any person other than the
Company and/or any of its subsidiaries) pursuant to which it will have any
obligation to make any payments after the Closing.
(h) Neither the Company nor any of its subsidiaries is subject to any
private letter ruling of the IRS or comparable rulings of other taxing
authorities.
(i) For purposes of this Agreement, "Tax" or "Taxes" shall mean all taxes,
charges, fees, imposts, levies, gaming or other assessments, including all net
income, gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp,
occupation, property and estimated Taxes, customs duties, fees, assessments and
charges of any kind whatsoever, together with any interest and any penalties,
fines, additions to Tax or additional amounts imposed by any taxing authority
(domestic or foreign) and shall include any transferee or successor liability
in respect of Taxes, any liability in respect of Taxes under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
Law, or imposed by contract, Tax sharing agreement, Tax indemnity agreement or
any similar agreement. "Tax Returns" shall mean any report, return, document,
declaration or any other information or filing required to be supplied to any
taxing authority or jurisdiction (foreign or domestic) with respect to Taxes,
including information returns, any document with respect to or accompanying
payments or estimated Taxes, or with respect to or accompanying requests for
the extension of time in which to file any such report, return document,
declaration or other information. For purposes of this Section 3.16, the
definition of "subsidiary" contained in Section 9.11(x) shall be applied by
substituting "50%" for "10%" in clause (iii) of such definition.
SECTION 3.17 Absence of Questionable Payments. To the Company's knowledge,
neither the Company nor any of its subsidiaries nor, any director, officer,
agent, employee or other person acting on behalf of the Company or any of its
subsidiaries, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating
to political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Exchange Act. To the knowledge of the Company, neither the Company nor any of
its subsidiaries nor, any director, officer, agent, employee or other person
acting on behalf of the Company or any of its subsidiaries, has accepted or
received any unlawful contributions, payments, gifts, or expenditures. To the
Company's knowledge, the Company and each of its subsidiaries which is required
to file reports pursuant to Section 12 or 15(d) of the Exchange Act is in
compliance with the provisions of Section 13(b) of the Exchange Act.
SECTION 3.18 Material Contracts. (a) Section 3.18 of the Company
Disclosure Schedule sets forth a list of all Material Contracts (as hereinafter
defined). The Company has heretofore made available to Parent true, correct and
complete copies of all written contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which the Company
or any of its subsidiaries is a party affecting the obligations of any party
thereunder) with any of the Public Investees relating to the Company's
investments in the Public Investees, and all material written contracts and
agreements (and all amendments, modifications and supplements thereto and all
side letters to which the Company or any of its subsidiaries is a party
affecting the obligations of any party thereunder) to which the Company or any
of its subsidiaries is a party or by which any of its properties or assets are
bound that are material to the business, properties or assets of the Company
and its subsidiaries taken as a whole (taking into account only the Company's
ownership interest in each of its subsidiaries), including to the extent any of
the following are, individually or in the aggregate, material to the
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business, properties or assets of the Company and its subsidiaries taken as a
whole (taking into account only the Company's ownership interest in each of its
subsidiaries), all material: (i) employment, severance, change in control,
termination, personal services, consulting, non-competition or indemnification
contracts (including any contract to which the Company or any of its
subsidiaries is a party involving employees of the Company); (ii) contracts
granting a right of first refusal or first negotiation; (iii) partnership or
joint venture agreements; (iv) agreements for the acquisition, sale or lease of
material properties or assets of the Company (by merger, purchase or sale of
assets or stock or otherwise) entered into since January 1, 1998; (v) contracts
or agreements with any Governmental Entity; (vi) loan or credit agreements,
mortgages, indentures or other agreements or instruments evidencing
indebtedness for borrowed money by the Company or any of its subsidiaries or
any such agreement pursuant to which indebtedness for borrowed money may be
incurred; (vii) agreements that purport to limit, curtail or restrict the
ability of the Company or any of its subsidiaries to compete in any geographic
area or line of business, or to hire or solicit the hire for employment of any
individual or group; (viii) contracts or agreements that would be required to
be filed as an exhibit to a Form 10-K filed by the Company with the SEC on the
date hereof; and (ix) commitments and agreements to enter into any of the
foregoing (such contracts and agreements, the "Material Contracts").
(b) Each of the Material Contracts constitutes the valid and legally binding
obligation of the Company or its subsidiaries, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar Laws of
general applicability relating to or affecting creditors' rights or by general
equity principles), and is in full force and effect, except as would not
reasonably be expected to result in a material adverse effect on the Company
and its subsidiaries taken as a whole. To the Company's knowledge, there is no
default under any Material Contract so listed by the Company as would
reasonably be expected to result in a material adverse effect on the Company
and its subsidiaries taken as a whole. The Company has provided to Parent a
complete and correct copy of each of the Storage USA Transaction Agreements.
SECTION 3.19 Insurance. The Company and its subsidiaries maintain
insurance policies and performance bonds on their respective properties and
assets, and with respect to their employees and operations, with reputable
insurance carriers, and such insurance policies provide full and adequate
coverage for all normal risks incident to the business of the Company and its
subsidiaries and their respective properties and assets and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards. The Company
and its subsidiaries are not in default under any of their insurance policies
and have paid all premiums owed thereunder, and no claims for coverage
thereunder have been denied.
SECTION 3.20 Intellectual Property. (a) Section 3.20 of the Company
Disclosure Schedule sets forth a list of all material Intellectual Property (as
hereinafter defined) of the Company and its subsidiaries.
(b) The Company and its subsidiaries own or possess adequate licenses or
other valid rights to use (in each case, free and clear of any Liens), all
material Intellectual Property used or held for use in connection with the
business of the Company and its subsidiaries as currently conducted or as
contemplated to be conducted.
(c) To the knowledge of the Company, the use of any material Intellectual
Property by the Company and its subsidiaries does not infringe on or otherwise
violate the rights of any person and is in accordance with any applicable
license pursuant to which the Company or any of its subsidiaries acquired the
right to use any Intellectual Property.
(d) No person is challenging, infringing on or otherwise violating any right
of the Company or any of its subsidiaries with respect to any material
Intellectual Property owned by and/or licensed to the Company or its
subsidiaries.
(e) Neither the Company nor any of its subsidiaries has received any notice
written or otherwise of any assertion or claim, pending or not, with respect to
any material Intellectual Property used by the Company or its subsidiaries.
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(f) No Intellectual Property owned/or licensed by the Company or its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade dress and
other indications of origin, corporate names, brand names, logos, certification
rights, service marks, applications for trademarks and for service marks,
know-how and other proprietary rights and information, the goodwill associated
with the foregoing and registration in any jurisdiction of, and applications in
any jurisdictions to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (ii) all
inventions, discoveries and ideas (whether patentable or unpatentable and
whether or not reduced to practice), in any jurisdiction, all improvements
thereto, and all patents, patent rights, applications for patents (including
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; (iii)
nonpublic information, trade secrets and confidential information and rights in
any jurisdiction to limit the use or disclosure thereof by any person; (iv)
writings and other works, whether copyrightable or not, in any jurisdiction,
and all registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; (v) all mask works and
all applications, registrations and renewals in connection therewith, in any
jurisdiction; (vi) all computer software (including data and related
documentation); (vii) any similar intellectual property or proprietary rights;
and (viii) all copies and tangible documentation thereof and any claims or
causes of action arising out of or relating to any infringement or
misappropriation of any of the foregoing.
SECTION 3.21 Opinion of Financial Advisor. The Financial Advisor has
delivered to the Company Board its opinion, dated the date of this Agreement,
to the effect that, as of such date, the consideration to be received in the
Merger by the Company's stockholders is fair to the Company's stockholders from
a financial point of view, and such opinion has not been withdrawn or modified.
The Company has been authorized by the Financial Advisor to permit the
inclusion of such opinion in its entirety in the Proxy Statement, so long as
such inclusion is in form and substance reasonably satisfactory to the
Financial Advisor and its counsel.
SECTION 3.22 Brokers. No broker, finder or investment banker (other than
the Financial Advisor, a true and correct copy of whose engagement agreement
has been provided to Parent) is entitled to any brokerage, finder's or other
fee or commission or expense reimbursement in connection with the Merger based
upon arrangements made by and on behalf of the Company or any of its affiliates.
SECTION 3.23 Takeover Statute. The Company has taken all action required
to be taken by it in order to exempt this Agreement and the Merger from, and
this Agreement and the Merger are exempt from, the requirements of any
"moratorium", "control share", "fair price", "affiliate transaction", "business
combination" or other takeover Laws and regulations of any state (collectively,
"Takeover Statutes"), including the Maryland Business Combination Act and the
Maryland Control Share Acquisition Act, or any takeover provision in the
Charter and the Company's Amended and Restated Bylaws. The provisions of the
Maryland Business Combination Act and the Maryland Control Share Acquisition
Act do not apply to the Merger.
SECTION 3.24 Ownership Limit. The Company Board has taken all action
required to be taken by it in order to exempt Parent, Merger Sub and each of
their respective affiliates from the Ownership Limit provisions set forth in
Article FIFTH of the Charter.
SECTION 3.25 Amendment to Rights Agreement. The Company Board has taken
all necessary action (including any amendment thereof) under the Rights
Agreement, dated as of April 21, 1997, between the Company and The First
National Bank of Boston, as Rights Agent (as amended, the "Rights Agreement"),
so that (x) none of the execution or delivery of this Agreement or the
consummation of the Merger will cause (i) the rights (the "Rights") issued
pursuant to the Rights Agreement to become exercisable under the Rights
Agreement, (ii) Parent or Merger Sub to be deemed an "Acquiring Person" (as
defined in the Rights Agreement), or (iii) the "Shares Acquisition Date" (as
defined in the Rights Agreement) to occur upon any such event and (y) the
"Final Expiration Date" (as defined in the Rights Agreement) of the Rights
shall occur immediately prior to the Effective Time.
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ARTICLE IV
REPRESENTATION AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by Parent to the
Company prior to the execution of this Agreement (the "Parent Disclosure
Schedule") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein),
Parent and Merger Sub hereby jointly and severally represent and warrant to the
Company as follows:
SECTION 4.1 Organization. (a) Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its incorporation and has all requisite corporate,
partnership or similar power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted or proposed by
Parent to be conducted, except where the failure to be duly organized, existing
and in good standing or to have such power would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
ability of Parent to consummate the Merger or perform its obligations hereunder.
(b) Each of Parent and Merger Sub is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing does not and would not
reasonably be expected to have, individually or in the aggregate, a material
adverse affect on the ability of Parent to consummate the Merger or perform its
obligations hereunder.
(c) Parent has heretofore delivered to the Company accurate and complete
copies of the certificate of incorporation and bylaws of Parent and the charter
and bylaws of Merger Sub as currently in effect.
SECTION 4.2 Authority Relative to this Agreement. (a) Each of Parent and
Merger Sub has all necessary corporate power to execute and deliver this
Agreement and to consummate the Merger contemplated hereby. No other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or to consummate the Merger. This Agreement has been duly and validly
executed and delivered by each of Parent and Merger Sub and constitutes a
valid, legal and binding agreement of each of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub in accordance with its terms.
(b) The Boards of Directors of Parent (the "Parent Board") and Merger Sub
and Parent as the sole stockholder of Merger Sub have duly and validly
authorized the execution and delivery of this Agreement and the consummation of
the Merger, and taken all corporate actions required to be taken by such Boards
of Directors and Parent as the sole stockholder of Merger Sub for the
consummation of the Merger.
SECTION 4.3 Proxy Statement. The information to be provided in writing by
Parent to the Company specifically for use in the Proxy Statement will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, neither Parent nor Merger Sub makes
any representation or warranty with respect to the statements made in any of
the foregoing documents based on and in conformity with information supplied by
or on behalf of the Company specifically for inclusion therein.
SECTION 4.4 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the HSR Act, the ECMR, or any other Antitrust Law,
the filing and recordation of the Articles of Merger as required by the MGCL
and as otherwise set forth in Section 4.4 to the Parent Disclosure Schedule, no
filing with or notice to, and no permit, authorization, consent or approval of,
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any Governmental Entity is necessary for the execution and delivery by Parent
or Merger Sub of this Agreement or the consummation by Parent or Merger Sub of
the Merger, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the ability of Parent to consummate the Merger or
perform its obligations hereunder. Neither the execution, delivery and
performance of this Agreement by Parent or Merger Sub nor the consummation by
Parent or Merger Sub of the Merger will (i) conflict with or result in any
breach of any provision of the certificate of incorporation or bylaws (or
similar governing documents) of Parent or the charter or bylaws (or similar
governing documents) of Merger Sub, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or Merger Sub is a party or by which any of them or
any of their respective properties or assets may be bound or (iii) violate any
Law applicable to Parent or Merger Sub or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or
defaults which do not or would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on the ability of Parent to
consummate the Merger or perform its obligations hereunder.
SECTION 4.5 No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the Merger, Merger Sub has neither incurred
any obligation or liability nor engaged in any business or activity of any type
or kind whatsoever or entered into any agreement or arrangement with any person.
SECTION 4.6 Brokers. No broker, finder or investment banker (other than
Merrill Lynch & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by and on
behalf of Parent or Merger Sub or any of their affiliates.
SECTION 4.7 Financial Capacity. Parent has sufficient financial capacity,
and will cause Merger Sub to have sufficient financial capacity, to consummate
the Merger and the other transactions contemplated hereby.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company. Except (i) as otherwise
expressly provided in this Agreement, (ii) as consented to in writing by
Parent, or (iii) with respect to or in connection with the consummation of the
Storage USA Acquisition, or as contemplated by the Storage USA Transaction
Agreements and the merger contemplated thereby (it being understood and agreed
that the Company shall not increase the price to be paid in connection with the
Storage USA Acquisition or make any material change to the Storage USA
Transaction Agreements or grant any material waiver, consent or election
thereunder, except with Parent's consent, provided further that Parent shall be
deemed to have consented to any such proposed price increase or material
change, waiver, consent or election, as the case may be, if Parent has not
responded to the Company's request for consent pursuant to this Section
5.1(iii) within 24 hours of the delivery of such request), during the period
from the date hereof to the Effective Time, the Company will, and will cause
each of its subsidiaries to, and will use commercially reasonable efforts to
cause the Public Investees to, conduct their respective operations in the
ordinary and usual course of business consistent with past practice and, to the
extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact their
respective current business organizations, seek to keep available the services
of their respective current officers and employees and seek to preserve their
respective relationships with customers, suppliers and others having business
dealings with it to the end that goodwill and ongoing businesses shall be
unimpaired. Without limiting the generality of the foregoing, but subject to
clauses (i) through (iii) above, prior to the Effective Time, except as set
forth on the Company Disclosure Schedule, the Company will not, and will use
commercially reasonable efforts to cause the Public Investees not to, nor
permit any of its subsidiaries to:
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(a) amend their respective charters or bylaws (or other similar governing
instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
stock of any class or any other securities convertible into or exchangeable for
any stock or any equity equivalents (including any stock options or stock
appreciation rights), except for (i) the issuance or sale of Shares pursuant to
the exercise of Company Stock Options and conversion of Preferred Stock and the
Company's 6.5% Convertible Subordinated Debentures due 2016 in accordance with
the terms thereof (for a number of Shares not to exceed the maximum number of
Shares set forth in Section 2.2), or (ii) (A) automatic grants of Company Stock
Options to directors of the Company in accordance with plan terms in effect on
the date hereof, (B) the grant of new Company Stock Options upon the exercise
of outstanding Company Stock Options containing a reload feature requiring a
new option grant upon such exercise, (C) the grant of options, in the ordinary
course consistent with past practice by subsidiaries of the Company or (D) the
grant of Restricted Stock Units pursuant to the Company's matching share
program;
(c) (i) split, combine or reclassify any shares of their respective stock;
(ii) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of their
respective stock, except the declaration and payment of regular quarterly cash
dividends not in excess of the dividend amounts provided for in the instrument
defining the rights of the Preferred Stock, with usual record and payments
dates in accordance with past dividend practice; (iii) make any other actual,
constructive or deemed distribution in respect of any shares of their
respective stock or otherwise make any payments to stockholders in their
capacity as such; or (iv) redeem, repurchase or otherwise acquire any of their
respective securities or any securities of any of their respective subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
(e) alter, through merger, liquidation, dissolution, reorganization,
restructuring or in any other fashion, their respective corporate structures or
ownership of any subsidiary or joint venture;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under existing lines of credit in the
ordinary and usual course of business consistent with past practice in
aggregate amounts not to exceed $50 million other than in connection with the
Storage USA Acquisition and in connection with the other transactions listed in
Section 5.1(f) of the Company Disclosure Schedule (which, notwithstanding
anything to the contrary herein, shall be expressly permitted hereby); (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except in the ordinary and usual course of business consistent with past
practice and in aggregate amounts not to exceed $50 million; (iii) make any
capital contributions to, or investments in, any other person, other than to
the wholly owned subsidiaries; (iv) pledge or otherwise encumber shares of
stock of the Company or its subsidiaries; or (v) mortgage or pledge any of
their respective material assets, tangible or intangible, or create or suffer
to exist any material Lien thereupon;
(g) except as may be required by Law, an existing agreement or as
contemplated by this Agreement, (i) enter into, adopt or amend or terminate any
bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund,
award or other arrangement for the benefit or welfare of any director, officer
or employee in any manner except for any such actions taken in the ordinary and
usual course business consistent with past practice and that, in the aggregate,
do not result in a material increase in the Company's aggregate benefits and
compensation expense, and (ii) increase in any manner the compensation or
fringe benefits of any director or officer of the Company or pay any benefit
not required by any plan and arrangement as in effect as of the date hereof or
as modified in accordance with this subsection (g) (including the granting of
stock appreciation rights or performance units);
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(h) acquire, sell, lease or dispose of any assets outside the ordinary and
usual course of business consistent with past practice or any assets which
individually or in the aggregate have a book or fair market value in excess of
$3,000,000, enter into any commitment or transaction outside the ordinary and
usual course of business consistent with past practice or grant any exclusive
distribution rights other than with respect to the disposition of the Company's
right, title and interest in and to 19,403,417 shares of CarrAmerica Realty
Corporation, a Maryland real estate investment trust, which shall be
specifically permitted hereunder regardless of any other provision hereof;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by them (whether for
financial accounting or Tax purposes);
(j) revalue in any material respect any of their respective assets,
including writing-off notes or accounts receivable or modify in any material
respect any reserve, in each case, other than in the ordinary and usual course
of business consistent with past practice or as required by GAAP;
(k) (a) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (b) enter into any contract or
agreement, other than in the ordinary and usual course of business consistent
with past practice or amend in any material respect any of the Material
Contracts or the policies referred to in Section 3.18; (c) authorize any new
capital expenditure or expenditures which are in excess of those contemplated
the budgets previously provided by the Company to Parent; or (iv) enter into or
amend any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited hereunder;
(l) make or revoke any Tax election (except as required by law), or settle
or compromise any Tax liability, material to the Company and its subsidiaries
taken as a whole (taking into account only the Company's actual ownership
interest in each of its subsidiaries), or change (or make a request to any
taxing authority to change) any material aspect of their respective method of
accounting for Tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice of liabilities
reflected or reserved against in the consolidated financial statements of such
person and its subsidiaries or incurred in the ordinary and usual course of
business consistent with past practice or waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or similar agreement to
which such person or any of its subsidiaries is a party;
(n) settle or compromise any pending or threatened suit, action or claim
relating to the Merger;
(o) enter into any agreement or arrangement that limits or otherwise
restricts such person or any of its subsidiaries or any successor thereto or
that would, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto,
from engaging or competing in any line of business or in any geographic area;
(p) in any case where the Company, as such, has a contractual right to
consent to any matter requested or proposed by Storage USA or Regency, the
company shall not so consent without Parent's consent, which shall not be
unreasonably withheld or delayed;
(q) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(n) or any action which
would make any of the representations or warranties of the Company contained in
this Agreement (i) which are qualified as to materiality untrue or incorrect or
(ii) which are not so qualified untrue or incorrect in any material respect.
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For purposes of this Agreement, the Company shall be deemed to have used its
commercially reasonable efforts to cause the Public Investees to take or not
take any actions contemplated herein if the Company (i) exercises all voting
rights, to the extent that the taking or not taking of any action requires a
vote of the stockholders of such Public Investee, (ii) exercises all rights
under any contract or agreement to which the Company or any of its subsidiaries
is a party, and (iii) causes its representatives acting as members of the board
of directors or trustees of such Public Investees subject to their fiduciary
duties to such Public Investees or trustees and their shareholders under
applicable Law, to exercise all rights as directors of such Public Investee, as
applicable.
SECTION 5.2 Access to Information. (a) Between the date hereof and the
Effective Time, the Company will give Parent and Merger Sub and their
authorized representatives (including counsel, financial advisors and auditors)
reasonable access during normal business hours to all employees and other
facilities and to all books and records of the Company and its subsidiaries,
will permit Parent and Merger Sub to make such inspections as Parent and Merger
Sub may reasonably require and will cause the Company's officers and those of
its subsidiaries to furnish Parent and Merger Sub with such financial and
operating data and other information with respect to the business, properties
and personnel of the Company and its subsidiaries as Parent or Merger Sub may
from time to time reasonably request, provided that no investigation pursuant
to this Section 5.2(a) shall affect or be deemed to modify any of the
representations or warranties made by the Company and all such access shall be
coordinated through the Company or its designated representatives, in
accordance with such reasonable procedures as they may establish.
(b) Each of Parent and Merger Sub will hold and will cause its authorized
representatives to hold in confidence all documents and information concerning
the Company and its subsidiaries furnished to Parent or Merger Sub in
connection with the Merger pursuant to the terms of that certain
Confidentiality Agreement entered into between the Company and Parent dated
November 7, 2001 (the "Confidentiality Agreement").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Company Stockholder Meeting, Proxy Statement. (a) The Company,
acting through the Company Board, shall, in accordance with applicable Law, and
the Charter and its Amended and Restated Bylaws:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Company Stockholder Meeting") for the purposes of
considering and taking action upon the approval and adoption of this Agreement.
(ii) prepare and file with the SEC (in consultation with Parent, and
affording Parent an opportunity to review and comment thereon) a preliminary
proxy relating to the Merger and this Agreement and (x) obtain and furnish the
information required to be included by the SEC in the Proxy Statement and,
after consultation with Parent, respond promptly to any comments made by the
SEC with respect to the preliminary proxy and cause a definitive proxy,
including any amendment or supplement thereto to be mailed to its stockholders
at the earliest practicable date, but in no event prior to the time that the
ProLogis Registration Statement (as hereinafter defined) shall have been
declared effective by the SEC; provided, however, that no amendment or
supplement to the Proxy Statement will be made by the Company without
consultation with Parent and its counsel and (y) use its reasonable best
efforts to obtain the necessary approvals of the Merger and this Agreement by
its stockholders; and
(iii) unless this Agreement has been terminated in accordance with
Article VIII, subject to its rights pursuant to Section 6.3(b), include in the
Proxy Statement the recommendation of the Company Board that stockholders of
the Company vote in favor of the approval and adoption of the Merger and this
Agreement.
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(a) Parent shall vote, or cause to be voted, all of the Shares then owned by
it, Merger Sub or any of its other subsidiaries in favor of the approval and
adoption of the Merger and this Agreement.
SECTION 6.2 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party hereto will use its reasonable best
efforts to take, or cause to be taken, in good faith, all actions, and do, or
cause to be done, all things necessary, proper or advisable under this
Agreement and applicable laws and regulations to consummate the Merger and to
cause to be satisfied all conditions precedent to its obligations under this
Agreement, in each case as soon as practicable after the date hereof,
including, consistent with the foregoing, (i) preparing and filing as promptly
as practicable with the objective of being in a position to consummate the
Merger as promptly as practicable following the date of this Agreement all
documentation to effect all necessary applications, notices, petitions,
filings, and other documents and to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits,
rulings, authorizations and clearances necessary or advisable to be obtained
from any third party and/or any Governmental Entity in order to consummate the
Merger or any of the other transactions contemplated by this Agreement
(collectively, the "Required Approvals"), and (ii) using its reasonable best
efforts to obtain the Required Approvals.
(b) (i) Each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the Merger
as promptly as practicable and in any event within 10 business days of the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act, and (ii)
Parent agrees to make any other requisite antitrust filings as soon as
reasonably practicable and the Company agrees to provide Parent with such
assistance as Parent requests for the purposes of filing such requisite
antitrust filings and, if such filings are made, each party agrees to supply as
promptly as practical any additional information and documentary material that
may be required or requested by the relevant governmental authority.
(c) Each of Parent and the Company shall use its reasonable best efforts to
cooperate in all respects with each other in connection with any filing or
submission to or any investigation or proceeding by a private party, the
Federal Trade Commission (the "FTC"), the Antitrust Division of the Department
of Justice (the "DOJ") or any other Governmental Entity.
(d) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.2 (a) to obtain all Required Approvals, use its
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) subject to applicable law, permit the other party to review and
discuss in advance, and consider in good faith the views of the other in
connection with, any proposed written or material oral communication (or other
correspondence or memoranda) between it and any Governmental Entity, (iii)
promptly inform each other of and supply to such other party any communication
(or other correspondence or memoranda) received by such party from, or given by
such party to, the DOJ, the FTC or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding the Merger contemplated hereby, and (iv)
consult with each other in advance of any meeting or conference with the DOJ,
the FTC or any other Governmental Entity or, in connection with any proceeding
by a private party, with any other person, and to the extent permitted by the
DOJ, the FTC or such other applicable Governmental Entity or other person, give
the other party the opportunity to attend and participate in such meetings and
conferences.
(e) In furtherance and not in limitation of the covenants of the parties
contained in this Section 6.2, if any objections are asserted with respect to
the Merger contemplated hereby under any antitrust or competition law, Parent
agrees to use its reasonable best efforts to resolve any antitrust concerns,
federal, state, foreign or private, obtain all Required Approvals and obtain
termination of the waiting period under the HSR Act or any other applicable law
and the termination of any outstanding judicial or administrative orders
prohibiting the Closing so as to permit consummation of the Merger as soon as
practicable. In furtherance and not in limitation thereof, if
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any administrative or judicial action or proceeding, including any proceeding
by a private party, is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any law or
regulation, or if any statute, rule, regulation, executive order, decree,
injunction or administrative order is enacted, entered, promulgated or enforced
by a Governmental Entity that would make the Merger illegal or would otherwise
prohibit or materially impair or delay the consummation the Merger, the Company
shall cooperate with Parent in all respects in responding thereto, and each
shall use its respective reasonable best efforts to contest, resist and/or
attempt to resolve any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the Merger contemplated by this
Agreement, and to have such statute, rule, regulation, executive order, decree,
injunction or administrative order repealed, rescinded or made inapplicable so
as to permit consummation of the Merger.
(f) The parties acknowledge and agree that Parent's "reasonable best
efforts" as it is referenced in this Section 6.2 shall not require Parent to
agree to or effect any divestiture, or to agree to or to hold separate or hold
in trust (or similar action involving) any part of Parent's or the Company's
business or operations, other than any of the Company's business or operations
with a net asset value in the aggregate of no greater than $50 million.
(g) The Company shall cooperate with Parent and use its reasonable best
efforts to obtain an opinion of counsel on or prior to the Effective Time
satisfying the requirements of Article 9 of the Articles of Incorporation of
Security Capital European Realty to allow Parent to be treated as an "Excluded
Holder" thereunder.
SECTION 6.3 Acquisition Proposals. (a) From the date hereof until the
termination hereof and except as expressly permitted by the following
provisions of this Section 6.3, the Company will not, nor will it permit any of
its subsidiaries to, nor will it authorize or permit any officer, director or
employee of, or any investment banker, attorney, accountant or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage the submission of any
Acquisition Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate, any Acquisition
Proposal or any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that the Company Board may furnish information to, or enter into
discussions or negotiations with, any person that previously has made an
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that, (A) the Company Board, after consultation with and having considered the
advice of independent legal counsel, determines in good faith that (x) such
Acquisition Proposal would, if consummated, constitute a Superior Proposal (as
hereinafter defined), and (y) such action is necessary for the Company Board to
comply with its duties to the Company's stockholders under applicable Law and
(B) prior to taking such action, the Company (x) provides reasonable notice to
Parent (but in any event no later than 24 hours prior to taking such action) to
the effect that it is taking such action and (y) receives from such person an
executed confidentiality/standstill agreement in reasonably customary form, the
terms of which, as applicable to such person, in any event are at least as
stringent as those applicable to Parent in the Confidentiality Agreement
between Parent and the Company. Prior to providing any information to or
entering into discussions or negotiations with any person in connection with an
Acquisition Proposal by such person, the Company shall notify Parent of any
Acquisition Proposal (including the material terms and conditions thereof and
the identity of the person making it) as promptly as practicable after its
receipt thereof (and in any event, no later than twenty-hours from receipt),
and shall provide Parent with a copy of any written Acquisition Proposal or
amendments or supplements thereto, and shall thereafter promptly inform Parent
of the status of any discussions or negotiations with such a third party, and
any material changes to the terms and conditions of such Acquisition Proposal,
and shall promptly give Parent a copy of any information delivered to such
person that has not previously been reviewed by Parent. Immediately after the
execution and delivery of this Agreement, the Company will, and will cause its
subsidiaries and affiliates, and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents to,
cease and terminate any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any possible Acquisition
Proposal. The Company agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 6.3(a).
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(b) The Company Board will not withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, its approval or recommendation of this
Agreement or the Merger unless the Company Board, after consultation with and
having considered the advice of independent legal counsel, determines in good
faith that such action is necessary for the Company Board to comply with its
duties to the Company's stockholders under applicable Law. Except as set forth
in this Section 7.3(b), the Company Board will not approve or recommend or
permit the Company to enter into any agreement with respect to any Acquisition
Proposal (other than a confidentiality agreement as described in Section
6.3(a)) made by any person other than Parent or Merger Sub. Notwithstanding the
foregoing, if the Company Board, after having considered the advice of
independent legal counsel, determines in good faith that failing to take such
action would constitute a breach of the obligations of the Company Board under
applicable law, the Company Board may approve or recommend an Acquisition
Proposal (or amendment or supplement thereto) or cause the Company to enter
into an agreement with respect thereto, but in each case only if (i) the
Company provides written notice to Parent (a "Notice of Superior Proposal"),
which notice must be received by Parent at least three business days (exclusive
of the day of receipt by Parent of the Notice of Superior Proposal) prior to
the time it intends to cause the Company to enter into such an agreement,
advising Parent in writing that the Company Board has received an Acquisition
Proposal (or amendment or supplement thereto) which it believes constitutes a
Superior Proposal and which it intends to accept and, with respect to which,
enter into a definitive agreement, subject to the provisions of this Section
6.3(b), providing a copy of any written offer or proposal describing the
Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal,
(ii) as of the end of such three business day period referenced above, Parent
shall have failed to notify the Company in writing that it has determined to
revise the terms of the Merger to provide that the Merger Consideration will be
equal to or greater than the consideration to be paid to the Company
stockholders pursuant to the Superior Proposal, and (iii) the Company
terminates this Agreement in accordance with the requirements of Section 8.1(f)
within 48 hours after the lapse of the three-day period referenced above and
immediately thereafter enters into an agreement with respect to such Superior
Proposal. For purposes of this Agreement, a "Superior Proposal" means any bona
fide Acquisition Proposal not directly or indirectly initiated, solicited,
encouraged or knowingly facilitated by the Company after the date of this
Agreement in contravention of the provisions hereof which the Company Board
determines in good faith judgment (based on the advice of an investment banker
of nationally recognized reputation), taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the
proposal, (i) would, if consummated, result in a transaction that is more
favorable to the Company's stockholders (in their capacity as stockholders),
from a financial point of view, than the Merger and (ii) is reasonably capable
of being completed; provided, however, that for purposes of this definition,
the term Acquisition Proposal shall have the meaning assigned to such term in
Section 9.11 except that the reference to 20 percent in the definition of
"Acquisition Proposal" shall be deemed to be a reference to 100 percent.
(c) Nothing contained in this Section 6.3 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
the Company's stockholders which, in the good faith reasonable judgment of the
Company Board, based on the advice of independent legal counsel, is required
under applicable Law; provided, however, that except as otherwise permitted in
Section 6.3(b), the Company does not withdraw or modify, or propose to withdraw
or modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal.
SECTION 6.4 Public Announcements. Each of Parent, Merger Sub and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated hereby, including the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable Law or by obligations pursuant to any listing
agreement with the New York Stock Exchange, Inc., as determined by Parent,
Merger Sub or the Company, as the case may be, and except by the Company with
respect to any Acquisition Proposal or similar matter or related matter as
contemplated by Section 6.3.
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SECTION 6.5 Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Parent shall, to the fullest extent permitted by
applicable Law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective Time
and whether asserted or claimed prior to, at or after the Effective Time that
are in whole or in part (i) based on, or arising out of the fact that such
person is or was a director, officer or employee of such party or a subsidiary
of such party or (ii) based on, arising out of or pertaining to the Merger. In
the event of any such loss, expense, claim, damage or liability (whether or not
arising before the Effective Time), (i) Parent shall pay the reasonable fees
and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to Parent, promptly after statements therefor
are received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, in either case to the
fullest extent not prohibited by the MGCL and upon receipt of any affirmation
and undertaking required by the MGCL, (ii) Parent will cooperate in the defense
of any such matter and (iii) any determination required to be made with respect
to whether an Indemnified Party's conduct complies with the standards set forth
under the MGCL and Parent's certificate of incorporation or bylaws shall be
made by independent counsel mutually acceptable to Parent and the Indemnified
Party; provided, however, that Parent shall not be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law firm with
respect to each related matter except to the extent there is, in the opinion of
counsel to an Indemnified Party, under applicable standards of professional
conduct, a conflict on any significant issue between positions of any two or
more Indemnified Parties.
(b) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect the policies of directors' and officers' liability
insurance maintained by the Company for the benefit of those persons who are
covered by such policies at the Effective Time (or Parent may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time), to the extent that such liability
insurance can be maintained annually at a cost to Parent not greater than two
hundred percent of the premium for the current Company directors' and officers'
liability insurance; provided, however, that if such insurance cannot be so
maintained or obtained at such costs, Parent shall maintain or obtain as much
of such insurance as can be so maintained or obtained at a cost equal to two
hundred percent of the current annual premiums of the Company for such
insurance.
(c) In the event Parent or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set for in this
Section 6.5.
(d) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of the Company and its subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in the
Company's charter or bylaws, in effect on the date thereof or otherwise in
effect on the date hereof, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time.
(e) The provisions of this Section 6.5 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
SECTION 6.6 Employee Matters. (a) Parent will cause the Surviving
Corporation to honor the obligations of the Company or any of its subsidiaries
under the provisions of all employment, consulting, termination, severance,
change in control and indemnification agreements between and among the Company
or
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any of its subsidiaries and any current or former officer, director, consultant
or employee of the Company or any such subsidiaries. During the period
commencing on the Closing Date and ending on the close of the next fiscal year
ending at least two years from the Closing Date (the "Continuation Period"),
Parent shall provide, or shall cause to be provided, to the current or former
employees of the Company and any of its subsidiaries (other than employees
covered by any collective bargaining agreement) ("Company Employees")
compensation and employee benefits that are no less favorable in the aggregate
than the Applicable Required Benefits, as defined below. "Applicable Required
Benefits" shall mean: (i) for Company Employees who are employed by the
Company, the compensation and benefits that are provided to such Company
Employees immediately prior to the Closing Date; provided, that beginning on
such date, not later than January 1, 2003, as Parent shall determine, the
"Applicable Required Benefits" shall mean the compensation and benefits
provided to similarly situated employees of Parent (determined based on
position, compensation level and location) from time to time, if greater (such
compensation and benefits in the aggregate, the "Parent Benefits"); (ii) for
all other Company Employees who participate in the employee benefit plans of
the Company immediately prior to the Closing Date, either the compensation and
benefits provided to such Company Employees immediately prior to the Closing
Date or, at Parent's option, the Parent Benefits provided to similarly situated
employees of Parent; (iii) in the case of those Company Employees who do not
participate in the employee benefit plans of the Company as of the Closing Date
but who are scheduled to begin so participating as of April 2002, (A) until
April 2002, the compensation and benefits they are being provided immediately
prior to the Effective Time, and from and after April 2002, the compensation
and benefits they are scheduled to be provided from and after April 2002, or
(B) at Parent's option, the Parent Benefits provided to similarly situated
employees of Parent; and (iv) for all other Company Employees, compensation and
benefits that are no less favorable in the aggregate than those provided to
such Company Employees immediately prior to the Closing Date.
(b) For all purposes under the employee benefit plans of Parent and its
affiliates providing benefits to any Company Employee after the Closing Date
(the "New Plans"), and subject to applicable law and obligations under
applicable collective bargaining agreements, each Company Employee shall be
credited with his or her years of service with the Company or any of its
subsidiaries, as the case may be, before the Closing Date, to the same extent
as such Company Employee was entitled, before the Closing Date, to credit for
such service under any similar Employee Benefit Plans, as applicable, except to
the extent such credit would result in a duplication of benefits and except for
purposes of benefit accrual under defined benefit pension plans. In addition,
and without limiting the generality of the foregoing, and subject to applicable
law and obligations under applicable collective bargaining agreements: (i) each
Company Employee shall be immediately eligible to participate, without any
waiting time, in any and all New Plans which are welfare benefit plans to the
extent coverage under such New Plan replaces coverage under a comparable
Employee Benefit Plan, as applicable, in which such Company Employee
participated immediately before the Closing Date (such plans, collectively, the
"Old Plans"); and (ii) for purposes of each New Plan providing medical, dental,
pharmaceutical and/or vision benefits to any Company Employee, Parent shall
cause all pre-existing condition exclusions and actively-at-work requirements
of such New Plan to be waived for such Company Employee and his or her covered
dependents, and Parent shall cause any eligible expenses incurred by such
Company Employee and his or her covered dependents during the portion of the
plan year of the Old Plan ending on the date such Company Employee's
participation in the corresponding New Plan begins to be taken into account
under such New Plan for purposes of satisfying all deductible, coinsurance and
maximum out-of-pocket requirements applicable to such Company Employee and his
or her covered dependents for the applicable plan year as if such amounts had
been paid in accordance with such New Plan.
(c) Parent shall ensure that the account balance of each participant in the
SCGroup Incorporated Nonqualified Savings Plan (the "NSP") or the SCGroup
Deferred Fee Plan for Directors (the "DFP") fully vests as of the Closing Date,
and that the portion of such account valued with respect to Class A Shares or
Class B Shares shall, at the election of the participant, be converted into
either (i) a cash balance in the amount of $1300 per Class A Share or $26 per
Class B Share, as applicable, or (ii) a cash balance equal to the Class A Cash
Consideration or the Class B Cash Consideration, as applicable, times the
number of shares credited to such
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account, plus a hypothetical number of shares of ProLogis Common Stock equal to
the Class A Stock Consideration or the Class B Stock Consideration, as
applicable, times the number of shares credited to such account. Any portion of
such account that is converted into a cash balance may be deemed invested by
the participant in any of the available investment choices under the NSP or the
DFP, as applicable, and any portion thereof that is converted into hypothetical
shares of ProLogis Common Stock shall continue to be deemed invested in such
shares until such time as the participant elects, in accordance with the NSP or
the DFP, as applicable, to invest such balance in another available investment
choice; provided, that after such conversions, the NSP or the DFP, as
applicable, need not permit participants to elect to invest any addition
balances in such shares. Until at least December 31, 2002, Parent shall (i)
maintain or cause the Company to maintain the NSP in accordance with its terms,
except as provided above in this Section 6.6(c), (ii) allow Company Employees
to participate in the NSP and to defer compensation into the NSP, (iii) make
matching contributions with respect to employee deferrals (including deferrals
with respect to the awards described in Section 6.6(e)), in each case,
consistent with the Company's past practice and on terms no less favorable than
those in effect immediately prior to the date hereof, and (iv) ensure that each
Participant's account under the NSP (including any stock balance converted to a
cash balance pursuant to this Section) and any increase thereto is maintained
in accordance with the terms of the NSP and with the Company's ordinary past
practice. Parent may amend or terminate, or cause the Company to amend or
terminate, the NSP effective on or after January 1, 2003, but in no event shall
any such amendment or termination, whenever occurring, result in a change in
the timing, method or amounts of the distributions made to any Company Employee
who is a participant in the NSP immediately before the Effective Time.
(d) For so long after the Closing Date as the Company or any of its
subsidiaries maintains a 401(k) plan (all such plans, the "Company 401(k)
Plan"), and Parent maintains a 401(k) plan with a loan feature for similarly
situated employees, Parent shall cause the Company 401(k) Plan to retain the
loan feature of such plan. Effective as of the Closing, the Company will fully
vest the account balances of each participant in the Company 401(k) Plan who is
a Company Employee.
(e) To the extent not paid prior to the Closing Date, Parent shall pay a
cash bonus award with respect to the 2001 calendar year to each Company
Employee listed on Section 6.6(f) of the Company Disclosure Schedule equal to
the amount listed on such schedule (each such award, a "2001 Bonus Award").
Parent shall pay the 2001 Bonus Awards no later than January 31, 2002 and shall
allow each Company Employee participating in the NSP upon the Closing Date to
defer a portion of his or her 2001 Bonus Award under the NSP in accordance with
deferral elections in place prior to the Closing Date.
SECTION 6.7 SEC Filings. The Company and Parent shall notify the other
promptly upon the receipt of any comments from the SEC or its staff or any
other government officials in connection with any filing made pursuant hereto
and of any request by the SEC or its staff or any other government officials
for amendments or supplements to the Proxy Statement or any other filings or
for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Proxy Statement, the Merger or any other filing. The
Company shall, and Parent shall and shall cause Purchaser to, cause all
documents that it is responsible for filing with the SEC or other regulatory
authorities under Section 6.1 and Section 6.2 to comply in all material
respects with all applicable requirements of law and the rules and regulations
promulgated thereunder. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement or any other filing,
the Company will, or Parent will cause Parent to, as the case may be, promptly
inform the other of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials and/or mailing to stockholders of the
Company, such amendment or supplement.
SECTION 6.8 Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
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SECTION 6.9 Takeover Statutes; Rights Plan; Ownership Limit. (a) If any
Takeover Statute is or may become applicable to the Merger, each of Parent and
the Company shall take such actions as are necessary so that the Merger may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger.
(b) The Company Board shall not, without the prior written consent of
Parent, (i) amend the Rights Agreement or (ii) take any action with respect to,
or make any determination under, the Rights Agreement, including a redemption
of the Rights.
(c) The Company Board shall not take any action to exempt any person (other
than Parent, Merger Sub and each of their respective affiliates) from the
Ownership Limit provisions set forth in Article FIFTH of the Charter.
SECTION 6.10 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would reasonably be expected to cause any representation
or warranty contained in this Agreement to be materially untrue or inaccurate,
or (ii) any failure of the Company or Parent, as the case may be, materially to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice; and provided
further that failure to give such notice shall not be treated as a breach of
covenant for the purposes of Section 7.2(b) unless and except to the extent
that the failure to give such notice results in material prejudice to the other
party.
SECTION 6.11 Company Funds. As soon as reasonably practicable after the
date hereof, the Company shall inform the Company Funds of the Merger. If and
to the extent necessary, the Company shall assist each of the Company Funds to
prepare and file with the SEC, or other applicable Governmental Entity, as soon
as is reasonably practicable a preliminary proxy statement, together with a
form of proxy, to be used in connection with the meeting of the stockholders of
each such Company Fund for the purpose of approving new Investment Company
Advisory Agreements, or other applicable agreements, with the current advisor
of each such Fund, substantially on the terms of the current Investment Company
Advisory Agreements, to take effect at the Effective Time, and, as promptly as
practicable thereafter, subject to compliance with the rules and regulations of
the SEC to the extent applicable, a definitive proxy statement with respect to
such meeting shall be mailed to the stockholders of such Company Fund. Each
such proxy statement shall comply as to form in all material respects with all
applicable Law.
SECTION 6.12 Other Advisory Contract Consents. (a) As soon as reasonably
practicable after the date hereof, the Company shall inform the Funds that are
not Company Funds of the Merger contemplated by this Agreement and request that
such Funds take such actions as may be necessary in connection with the deemed
assignment, as defined in Section 202(a) of the Investment Advisers Act of
1940, as amended (the "Advisers Act") (the "deemed assignment") of the advisory
agreements to which the Company or any of its subsidiaries is a party relating
to such Fund.
(b) As soon as reasonably practicable after the date hereof, the Company
shall inform its investment advisory clients that are parties to Non-Investment
Company Advisory Agreements ("NICAAS") of the Merger contemplated by this
Agreement. The Company shall request written consent of each such client to the
deemed assignment of its NICAA and use reasonable commercial efforts to obtain
such consent; or in the case of NICAAs which prohibit assignment or state by
their terms that they terminate upon assignment, the Company will use its
reasonable commercial efforts to enter into new agreements in substantially
identical terms to be effective upon Closing and the deemed assignment. Parent
agrees that, except in the case of NICAAs that prohibit assignment or state by
their terms that they terminate upon assignment or do not, by their terms,
require written consent of the client, the Company may obtain consent by
requesting written consent as aforesaid and informing such client: (x) of the
Company's intention to effect a deemed assignment of such NICAAs; (y) of the
Company's intention to continue the advisory services, pursuant to the NICAAs
with such client after the Closing
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if such client does not terminate such NICAAs prior to the Closing; and (z)
that the consent of such client will be implied such client continues to accept
such advisory services for at least 30 days after the Closing without
termination (to the extent permitted by the Advisers Act, and any rules,
regulations or interpretations of the SEC thereunder).
SECTION 6.13 Transfer Taxes. Subject to Section 2.2(b), Parent shall pay
or cause to be paid any transfer, sales, use, excise and similar Taxes and fees
for which the Company Stockholders may be liable (but not any Taxes measured by
or based on gross or net income of any Company stockholders) arising from or
payable by reason of the Merger.
SECTION 6.14 Registration and Sale of ProLogis Common Stock. With the
prior written consent of both the Company and the Parent, the Company may at
any time sell any or all of the shares of the ProLogis Common Stock, including
to ProLogis, pursuant to a public offering or private placement, negotiated
third-party purchase or otherwise (a "ProLogis Sale"). In addition, the Company
will, at the written request of Parent, use its reasonable best efforts to
effect a ProLogis Sale in the manner requested by Parent, and subject to
approval by Parent of any final pricing terms, provided that the Company shall
not be required to effect a ProLogis Sale, or enter into any binding agreement
to effect a ProLogis Sale, prior to the date which is 18 days prior to the
then-applicable Stockholders Meeting Date (provided that if a "road show" with
respect to a ProLogis sale to be effected by a public offering shall have been
commenced on or after the date which is 22 days prior to the then-applicable
Stockholders Meeting Date, and there shall thereafter be a delay or
postponement of the Stockholders Meeting Date, the relevant date which is 18
days prior to the previously-applicable Stockholders Meeting Date shall not be
changed for purposes of this sentence). The Company will, after consultation
with Parent, determine the manager(s) and book runner(s) in the event of any
ProLogis Sale that is an underwritten offering. In order to facilitate a
possible ProLogis Sale and/or a distribution of ProLogis Common Stock pursuant
to the Stock Election, the Company will, on or before December 17, 2001,
exercise its rights under Section 6 of the Third Amended and Restated Investors
Agreement between ProLogis and the Company, dated as of September 9, 1997, as
amended, and shall use its reasonable best efforts to assist ProLogis in filing
and having declared effective one or more registration statements, and any
necessary supplements or amendments, with respect to the shares of ProLogis
Common Stock, suitable for use in connection with the Stock Election and/or the
ProLogis Sale, and shall allow Parent to participate in the process of so
registering the ProLogis Common Stock.
SECTION 6.15 Storage USA Acquisition. In the event any third party shall
seek to acquire Storage USA for consideration in excess of that agreed to be
paid pursuant to the Storage USA Transaction Agreements, the Company shall
determine to either (x) seek Parent's consent to offer to increase the price to
be paid by the Company in connection with the Storage USA Acquisition or (y)
not to do so. If the Company determines not to so increase the price to be paid
by the Company in connection with the Storage USA Acquisition, then, at the
written request of Parent, the Company will nevertheless offer to increase the
price to be paid in connection with the Storage USA Acquisition on such terms
as Parent may designate. Immediately upon any subsequently termination of this
Agreement whether pursuant to Article VIII or otherwise (or, if the Storage USA
Acquisition shall not then have been consummated, upon the consummation of the
Storage USA Acquisition), Parent shall pay to the Company by wire transfer of
immediately available funds, an amount equal to the aggregate amount of any
such increased price designated by Parent that may have been agreed with or
accepted by Storage USA
SECTION 6.16 Restructuring. Immediately prior to the consummation of the
Merger, and provided all conditions to Closing have been satisfied or waived,
Company will assign the stock interests in subsidiaries, or otherwise
restructure or transfer assets as directed by Parent.
SECTION 6.17 Security Capital Warehouse Distribution Business Trust. At
Parent's written request made within the first 75 days of calendar year 2002,
the Company shall, if permitted to do so by the applicable federal income tax
laws, elect to revoke the status of Security Capital Warehouse Distribution
Business Trust as a real estate investment trust for federal income tax
purposes and shall take such other steps as the parties reasonably agree are
necessary terminate the real estate investment trust status of Security Capital
Warehouse Distribution Business Trust for federal income tax purposes.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions
to Each Party's Obligations to Effect the Merger. The respective obligations
of each party to consummate the Merger are subject to the fulfillment at or
prior to the Effective Time of each of the following conditions, any or all of
which may be waived in whole or in part by the party being benefited thereby,
to the extent permitted by applicable Law:
(a) the Company shall have obtained the Company Requisite Vote;
(b) there shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the Merger;
(c) (i) any applicable waiting period under the HSR Act shall have expired
or been terminated, (ii) any relevant statutory, regulatory or other
governmental waiting periods or approvals, whether domestic, foreign or
supranational, the failure of which to have expired or been terminated or to be
obtained or to be in full force and effect, would, either (A) individually or
in the aggregate, have a Material Adverse Effect on the Company or the
Surviving Corporation or (B) result in any violation of Law, shall have expired
or been terminated or been obtained and be in full force and effect, as the
case may be, or (iii) in the event that the Merger constitutes a concentration
with a Community dimension within the scope of the ECMR, the European
Commission shall not have indicated prior to Closing Date that it intends to
initiate proceedings under the ECMR in respect of the Merger nor refer the
transactions or any matters arising therefrom to the competent authority of a
Member State under Article 9(1) of the ECMR;
(d) any registration statement (including any necessary supplement or
amendment) with respect to the ProLogis Common Stock owned by the Company and
filed pursuant to this agreement (a "ProLogis Registration Statement") shall
have been declared effective by the SEC, no stop order shall have been issued
with respect to such ProLogis Registration Statement and such ProLogis
Registration Statement shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
SECTION 7.2 Conditions to the Parent's Obligations to Effect the Merger. The
obligations of the Parent to consummate the Merger are subject to the
fulfillment at or prior to the Effective Time of each of the following
conditions, any or all of which may be waived in whole or in part by the
Parent, to the extent permitted by applicable Law:
(a) No Material Adverse Effect on the Company shall have occurred;
(b) the representations and warranties of the Company set forth in this
Agreement shall be true and accurate as of the Closing Date as though made on
or as of such date (except for those representations and warranties that
address matters only as of a particular date or only with respect to a specific
period of time which need only be true and accurate as of such date or with
respect to such period) and the Company shall not have breached or failed to
perform or comply with any obligation, agreement or covenant required by this
Agreement to be performed or complied with by it except, in each case where the
failure of such representations and warranties to be true and accurate (without
giving effect to any limitation as to "materiality" or "material adverse
effect" set forth therein), or the failure to perform or comply with such
obligations, agreements or covenants, do not or would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect
on the Company;
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SECTION 7.3 Conditions to the Company's Obligations to Effect the
Merger. The obligations of the Company to consummate the Merger are subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions, any or all of which may be waived in whole or in part by the
Company, to the extent permitted by applicable Law:
(a) the representations and warranties of the Parent or Merger Sub set forth
in this Agreement, shall be true and accurate as of the Closing Date as though
made on or as of such date (except for those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time which need only be true and accurate as of such date or
with respect to such period) and the Parent or Merger Sub shall not have
breached or failed to perform or comply with any obligation, agreement or
covenant required by this Agreement to be performed or complied with by it
except, in each case where the failure of such representations and warranties
to be true and accurate (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein), or the failure
to perform or comply with such obligations, agreements or covenants, do not or
would not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect on Parent.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after approval of the Merger by the stockholders of the
Company:
(a) by the mutual written consent of Parent and the Company;
(b) by either of Parent or the Company if (i) a statute, rule or executive
order shall have been enacted, entered or promulgated prohibiting the Merger
substantially on the terms contemplated by this Agreement or (ii) any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action in each case permanently restraining, enjoining or otherwise
prohibiting the Merger on the terms contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
(c) by either of Parent or the Company if the Merger has not been
consummated by August 14, 2002 (the "Drop-Dead Date"); provided, however, that
the party seeking to terminate this Agreement pursuant to this Section 8.1(c)
shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger on or before such date.
(d) by Parent if the Company Board shall have (A) publicly withdrawn or
modified in a manner materially adverse to Parent the recommendation of the
Company Board of this Agreement or the Merger, (B) failed to confirm its
recommendation to the Company's stockholders that they approve and adopt the
Merger and this Agreement within five business days after a written request by
Parent that it do so if such request is made following the making of an
Acquisition Proposal, or (C) approved or recommended an Acquisition Proposal
made by any person other than Parent or Merger Sub;
(e) by the Company, if (i) the Company Board shall have determined that an
Acquisition Proposal constitutes a Superior Proposal in accordance with the
requirements of Section 6.3(b), (ii) the Company shall have delivered to Parent
a written notice of the determination by the Company Board to terminate this
Agreement pursuant to this Section 8.1(e) and followed the procedures required
by Section 6.3(b), and (iii) immediately prior to such termination the Company
shall have made payment of the full amounts required by Sections 8.3(b) and
8.3(c) and immediately after such termination the Company shall have entered
into a definitive acquisition, merger or similar agreement to effect such
Acquisition Proposal;
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(f) by Parent if the Company shall have breached any of its representations,
warranties or covenants contained in this Agreement, which breach would give
rise to the failure of a condition set forth in paragraph (b) of Section 7.2
and which breach is either (i) reasonably capable of being cured within 30
business days after its receipt of written notice thereof from the Parent but
has not been cured within such time or (ii) incapable of being cured by the
Company prior to the Drop-Dead Date;
(g) by the Company if any of Parent's representations and warranties
contained in this Agreement shall not be true and correct, except for such
failures to be true and correct that (without giving effect to any limitation
as to "materiality" set forth therein), individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the ability of
Parent to consummate the Merger or perform its obligations hereunder, and which
failure is either (i) reasonably capable of being cured within 30 business days
after its receipt of written notice thereof from the Company but has not been
cured within such time or (ii) incapable of being cured by the Parent prior to
the Drop-Dead Date; or
(h) by the Company or Parent if the Company Requisite Vote shall not have
been obtained at the Company Stockholder Meeting.
SECTION 8.2 Effect of the Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company, other than the
provisions of Section 5.2(b), this Section 8.2, Section 8.3 and Article IX and
except to the extent that such termination results from the willful and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
SECTION 8.3 Fees and Expenses. (a) Except as provided below or in Section
6.15, all fees and expenses incurred in connection with the Merger, this
Agreement and the other transactions contemplated hereby shall be paid by the
party incurring such fees or expenses, whether or not the Merger is consummated.
(b) In the event that (i) this Agreement is (A) terminated by Parent
pursuant to Section 8.1(d) or (B) by the Company or Parent pursuant to Section
8.1(h) following any event described in Section 8.1(d), and either (C) an
Acquisition Proposal shall have been previously publicly proposed or publicly
announced or any person has previously publicly announced an intention (whether
or not conditional and whether or not withdrawn) to make an Acquisition
Proposal, or (D) within twelve months after such termination, the Company or
any of its subsidiaries enters into any definitive agreement with respect to,
or consummates, any Acquisition Proposal, or (ii) this Agreement is terminated
by the Company pursuant to Section 8.1(e), then the Company shall pay Parent a
fee equal to $120,000,000 (One Hundred Twenty Million Dollars) (the
"Termination Fee") by wire transfer of same day funds to an account designated
by Parent, in the case of a payment as a result of any event referred to in
Section 8.3(b)(i)(A) or (B) and (D), upon the first to occur of the entering
into any definitive agreement or the consummation of any Acquisition Proposal
and in the case of a payment as a result of any event referred to in Section
8.3(b)(ii) or Section 8.3(b)(i)(A) or (B) and (C), promptly, but in no event
later than the date of such termination. For purposes of Sections 8.3(b)(i)(C)
and (D) an "Acquisition Proposal" shall have the meaning assigned to such term
in Section 10.11, except that the reference to "20 percent" in such definition
shall be deemed to be a reference to "50 percent".
(c) The Company shall reimburse Parent and Merger Sub for all their expenses
incurred in connection with this Agreement and the Merger (i) in the event this
Agreement is terminated in the circumstances described in Section 8.3(b)(i)(A)
or (B) and (D), upon the occurrence of the events referred in Section
8.3(b)(i)(D), or (ii) in the event this Agreement is terminated in the
circumstances described in Section 8.3(b)(i)(A) or (B) and (C) or in Section
8.3(b)(ii), promptly, but in no event later than the date of such termination;
provided, however, that the aggregate amount of such reimbursement together
with the Termination Fee shall not exceed $160,000,000 (One Hundred and Sixty
Million Dollars) in the aggregate. All payments made pursuant to this Section
8.3(c) shall be made by wire transfer of the same day funds to an account
designated by Parent.
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SECTION 8.4 Amendment. This Agreement may be amended by action taken by
the Company, Parent and Merger Sub at any time before or after approval of the
Merger by the Company Requisite Vote but, after any such approval, no amendment
shall be made which requires the approval of such stockholders under applicable
Law without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Merger Sub shall together be
deemed one party and the Company shall be deemed the other party) may (i)
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of either party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of either party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for those covenants and agreements
contained herein and therein that by their terms apply or are to be performed
in whole or in part after the Effective Time and this Article IX.
SECTION 9.2 Entire Agreement; Assignment. (a) This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof, other than the Confidentiality Agreement.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including by merger or
consolidation) or otherwise; provided, however, that Merger Sub may assign, in
its sole discretion, any or all of its rights, interests and obligations under
this Agreement to Parent, Parent's ultimate parent company or any direct or
indirect wholly owned subsidiary of Parent or Parent's ultimate parent company,
but no such assignment shall relieve Parent or Merger Sub of its obligations
hereunder if such assignee does not perform such obligations. Any assignment in
violation of the preceding sentence shall be void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.3 Notices. All notices, requests, instructions or other documents
to be given under this Agreement shall be in writing and shall be deemed given,
(i) five business days following sending by registered or certified mail,
postage prepaid, (ii) when sent if sent by facsimile; provided, however, that
the fax is promptly confirmed by telephone confirmation thereof, (iii) when
delivered, if delivered personally to the intended recipient, and (iv) one
business day following sending by overnight delivery via a national courier
service, and in each case, addressed to a party at the following address for
such party:
if to Parent or to Merger Sub, to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: General Counsel
Facsimile: (203) 961-5523
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with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Raymond O. Gietz, Esq.
Ellen J. Odoner, Esq.
Facsimile: (212) 310-8007
if to the Company, to:
Security Capital Group Incorporated
125 Lincoln Ave.
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf, Esq.
Facsimile: 505-988-8920
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Facsimile: (212) 403-2000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without giving
effect to the choice of Law principles thereof.
SECTION 9.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Section 6.5, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) if necessary, a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
SECTION 9.8 Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any
A-36
court of the United States located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which they are
entitled at Law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or the Merger, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or the Merger in any court other than a federal or
state court sitting in the State of Delaware.
SECTION 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 9.10 Interpretation. (a) The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." All terms defined in
this Agreement shall have the defined meanings contained herein when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time, amended, qualified or supplemented,
including (in the case of agreements and instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
all attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
(b) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.11 Definitions. (a) "Acquisition Proposal" means an inquiry,
offer or proposal regarding any of the following (other than the Merger)
involving the Company: (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of all
or substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20 percent (20%) or more of the outstanding
Shares or the filing of a registration statement under the Securities Act in
connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(b) "beneficial ownership" or "beneficially own" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "Cash Consideration" shall mean the Class A Cash Consideration together
with the Class B Cash Consideration.
(d) "Class A Cash Consideration" shall mean $1,300 in cash without interest,
subject to adjustment as set forth in Section 2.6.
A-37
(e) "Class A Merger Consideration" shall mean the Class A Cash
Consideration, together with, if applicable, the Class A Stock Consideration.
(f) The "Class A Per Share Factor" shall be equal to fifty times the Class B
Per Share Factor.
(g) "Class A Shares" shall mean shares of Class A Common Stock, par value
$0.01 per share of the Company, together with the associated rights.
(h) "Class A Stock Consideration" shall mean number of shares ProLogis
Common Stock, if any, to which a holder of Class A Shares is entitled as
determined pursuant to Section 2.6.
(i) "Class B Cash Consideration" shall mean $26 in cash without interest,
subject to adjustment as set forth in Section 2.6.
(j) "Class B Merger Consideration" shall mean the Class B Cash
Consideration, together with, if applicable, the Class B Stock Consideration.
(k) "Class B Per Share Factor" shall be 0.0000000058830 which number is a
fraction, expressed as a number, the numerator of which is one and the
denominator of which shall be the fully diluted number of Shares outstanding as
of the date hereof.
(l) "Class B Shares" shall mean shares of Class B Common Stock, par value
$0.01 per share of the Company, together with the associated rights.
(m) "Class B Stock Consideration" shall mean the number of shares ProLogis
Common Stock, if any, to which a holder of Class B Shares is entitled as
determined pursuant to Section 2.6.
(n) "Company Fund" means the Funds listed on schedule 6.11.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(p) "Fund" means any U.S. or non-U.S. registered or unregistered investment
company or series thereof for which the Company or any of its subsidiaries
provides advisory or subadvisory services pursuant to an Investment Company Act
Advisory Agreement or otherwise.
(q) "Investment Company Advisory Agreement" means an investment advisory
agreement entered into by the Company or any of its subsidiaries for the
purpose of providing investment advisory or subadvisory services to a
registered investment company or series thereof.
(r) "know" or "knowledge" means, with respect to any party, the actual
knowledge of such persons listed on Section 1.11(j) of the Company Disclosure
Schedule.
(s) "Material Adverse Effect" means when used in connection with the Company
or any of its subsidiaries or Parent or any of its subsidiaries, as the case
may be, means any change, effect or circumstance that (i) is materially adverse
to the business, assets, financial condition or results of operations of the
Company and its subsidiaries or Parent and its subsidiaries, as the case may
be, in each case taken as a whole, excluding the effects of changes to the
extent related to (A) conditions in the United States, European or global
economy or capital or financial markets generally, including changes in
interest or exchange rates, (B) general changes in conditions (including
changes in legal, regulatory or business conditions or changes in GAAP) in or
otherwise affecting the industries in which the Company or Parent, as the case
may be, conducts business (C) this Agreement, the announcement or performance
hereof and the Merger, including the impact thereof on relationships with
customers, suppliers or employees, or (D) anything provided for or contemplated
by the budget previously provided by the Company to Parent or (ii) materially
adversely affects the ability of the Company or Parent and Purchaser, as the
case may be, to perform its obligations hereunder or consummate the Merger.
A-38
(t) "Non-Investment Company Advisory Agreement" means any investment
advisory agreement entered into by Company or any of its subsidiaries for the
purpose of providing investment advisory services to a client other than a
registered investment company or series thereof.
(u) "Ownership Limit" shall have the meaning assigned to such term in
Article FIFTH of the Articles.
(v) "ProLogis" shall mean ProLogis Trust, a Maryland real estate investment
trust.
(w) "ProLogis Common Stock" shall mean common shares of beneficial interest
of ProLogis, $0.01 par value per share. All references to ProLogis Common Stock
shall be deemed to be references to ProLogis Common Stock as the same may be
adjusted for stock splits, dividends, recapitalizations, reorganizations, and
the like, and in the case of any such event such references shall be
automatically deemed to be references to the ProLogis Common Stock as adjusted,
with appropriate adjustments, as necessary, to the provisions hereof.
(x) The "ProLogis Stock Value" shall be equal to the product of (i) average
of the daily closing prices (as of 4:00 p.m. eastern time) per share of
ProLogis Common Stock, as reported on the NYSE (as published in The Wall Street
Journal or, if not published therein or incorrectly published therein, in
another authoritative source mutually selected by Parent and the Company) for
the ten (10) consecutive full trading days immediately preceding the two (2)
consecutive full trading days immediately preceding the Stockholders Meeting
Date (as hereinafter defined) (provided that if the ProLogis Common Stock shall
go "ex-dividend" during such measurement period, an appropriate adjustment will
be made to the ProLogis Stock Value to take account of such dividend payment)
and (ii) the number of shares of ProLogis Common Stock owned by the Company and
to be a part of the Merger Consideration pursuant to the Stock Election.
(y) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(z) "Public Investees" collectively means Storage USA, CarrAmerica Realty
Corporation, ProLogis and Regency and "Public Investee" means each and any one
of such companies.
(aa) "Regency" shall mean Regency Realty Corporation, a Florida corporation.
(bb) "Storage USA" shall mean Storage USA, Inc., a Tennessee corporation.
(cc) "SEC" shall mean the United States Securities and Exchange Commission.
(dd) "Shares" shall mean the Class A Shares and the Class B Shares.
(ee) "Stock Consideration" shall mean the Class A Stock Consideration
together with the Class B Stock Consideration.
(ff) "Stockholders Meeting Date" shall mean the date for the Company
Stockholder Meeting as set forth in the Proxy Statement as first mailed by the
Company to holders of Shares, provided, however, that the Company may delay or
postpone (but not change to an earlier date) the date of the Company
Stockholder Meeting, or adjourn the Company Stockholder Meeting, to the extent
it determines doing so is reasonably necessary to comply with any applicable
legal or disclosure obligation, or in the event doing so is reasonably
necessary to obtain the Company Requisite Vote, and any such date to which the
Company Stockholder Meeting is so delayed, postponed or adjourned shall
thereafter be the "Stockholders Meeting Date", provided that the Company shall
promptly notify Parent of the date to which the Company Stockholder Meeting has
been so delayed, postponed or adjourned, and shall not thereafter hold the
Company Stockholder Meeting at a date prior to such date.
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(gg) "Storage USA Acquisition" means the consummation of the Merger
contemplated by the Storage USA Transaction Agreements.
(hh) "Storage USA Transaction Agreements" means that certain Agreement of
Purchase and Sale, dated as of December 3, 2001, by and among Storage USA,
Inc., Storage USA Trust, SUSA Partnership, L.P. and the Company, as the same
may be amended from time to time in accordance with the terms of this Agreement.
(ii) "subsidiary" means, when used with reference to any party, any
corporation, limited liability company, partnership, joint venture or other
organization, whether incorporated or unincorporated, of which: (i) such party
or any other subsidiary of such party is a general partner; (ii) voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation, partnership, joint venture or other
organization is held by such party or by any one or more of its subsidiaries,
or by such party and any one or more of its subsidiaries; or (iii) at least 10%
of the equity, other securities or other interests is, directly or indirectly,
owned or controlled by such party or by any one or more of its subsidiaries, or
by such party and any one or more of its subsidiaries. Notwithstanding the
foregoing, no Public Investee, other than Storage USA, Inc. following
consummation of the Merger contemplated by the Storage USA Transaction
Agreements, will be deemed to be a subsidiary of the Company. References herein
to "the Company and its subsidiaries taken as a whole" or other words of
similar import shall be understood to refer to the Company and its subsidiaries
on an aggregate basis, but in the case of subsidiaries that are not wholly
owned, only to the extent of the Company's interest therein.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ C. Ronald Blankenship
-----------------------------------
Name: C. Ronald Blankenship
Title: Vice Chairman, Chief
Operating Officer
EB ACQUISITION CORP.
By: /s/ Alec Burger
-----------------------------------
Name: Alec Burger
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Michael E. Pralle
-----------------------------------
Name: Michael E. Pralle
Title: Vice President
A-41
Appendix B
================================================================================
SUPPORT AGREEMENT
by and among
GENERAL ELECTRIC CAPITAL CORPORATION,
EB ACQUISITION CORP.
and
-----------------
Dated as of December 14, 2001
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I VOTING OF SHARES........................................... 1
Section 1.01. Agreement to Vote.................................. 1
Section 1.02. Grant of Irrevocable Proxy; Appointment of Proxy... 1
Section 1.03. No Solicitation of Transactions.................... 2
Section 1.04. Action in Stockholder Capacity Only................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.......... 2
Section 2.01. Power; Binding Agreement........................... 2
Section 2.02. Title to Shares.................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.... 3
Section 3.01. Due Organization; Authority Relative to this Agreement 3
Section 3.02. No Conflict; Required Filings and Consents......... 3
ARTICLE IV ADDITIONAL AGREEMENTS...................................... 4
Section 4.01. No Disposition or Encumbrance of Shares............ 4
Section 4.02. Disclosure......................................... 4
ARTICLE V TERMINATION................................................ 4
Section 5.01. Termination........................................ 4
ARTICLE VI MISCELLANEOUS.............................................. 4
Section 6.01. Additional Shares.................................. 4
Section 6.02. Expenses........................................... 5
Section 6.03. Notices............................................ 5
Section 6.04. Severability....................................... 5
Section 6.05. Assignment......................................... 5
Section 6.06. Amendment; Waiver.................................. 6
Section 6.07. Parties in Interest................................ 6
Section 6.08. Specific Performance............................... 6
Section 6.09. Governing Law...................................... 6
Section 6.10. Headings........................................... 6
Section 6.11. Counterparts....................................... 6
Section 6.12. Entire Agreement................................... 6
Section 6.13. Further Assurances................................. 6
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SUPPORT AGREEMENT, dated as of December 14, 2001 (this "Agreement"), among
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("Parent"),
BLANKET ACQUISITION CORP., a Maryland corporation and an indirect wholly owned
subsidiary of Parent ("Merger Sub"), and ____________________ (the
"Stockholder").
WHEREAS, concurrently with the execution of this Agreement, Parent, Merger
Sub and Security Capital Group Incorporated, a Maryland corporation (the
"Company"), are entering into an Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"; capitalized terms used and not otherwise
defined herein shall have the respective meanings assigned to them in the
Merger Agreement), pursuant to which, upon the terms and subject to the
conditions thereof, Merger Sub will be merged with and into the Company (the
"Merger");
WHEREAS, as of the date hereof, the Stockholder is the record and beneficial
owner of and has the power to vote or to direct the vote of ______ shares of
Class A common stock, par value $0.01 per share (the "Class A Common Stock"),
and ______ shares of Class B common stock, par value $0.01 per share (the
"Class B Common Stock" and, together with the Class A Common Stock and the
associated Rights, the "Company Common Stock"), of the Company (such shares of
Company Common Stock and any securities into which such shares may be converted
or exchanged and any securities issued in replacement of, or as a dividend or
distribution on or otherwise in respect of, such shares, being referred to
herein as the "Shares");
WHEREAS, as a condition to entering into the Merger Agreement and incurring
the obligations set forth therein, Parent and Merger Sub have required that the
Stockholder enter into this Agreement; and
WHEREAS, in order to induce Parent and Merger Sub to enter into the Merger
Agreement the Stockholder is willing to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree, severally and not jointly, as follows:
ARTICLE I
VOTING OF SHARES
Section 1.01. Agreement to Vote. From the date hereof until the
termination of this Agreement in accordance with the terms hereof, the
Stockholder hereby agrees to vote the Shares at every annual, special or
adjourned meeting of the stockholders of the Company (or pursuant to any
consent, certificate or other document relating to the Company that the law of
the State of Maryland may permit or require): (a) in favor of the approval and
adoption of the Merger Agreement and approval of the Merger and all other
transactions contemplated by the Merger Agreement and this Agreement; (b)
against any action, agreement, transaction (other than the Merger Agreement or
the transactions contemplated thereby) or proposal (including, without
limitation, any Acquisition Proposal) that would result in either Parent's or
the Company's unilateral right to terminate the Merger Agreement; and (c) in
favor of any other matter necessary to the consummation of the transactions
contemplated by the Merger Agreement and considered and voted upon by the
stockholders of the Company. The Stockholder acknowledges receipt of a copy of
the Merger Agreement and the review thereof.
Section 1.02. Grant of Irrevocable Proxy; Appointment of Proxy. (a)
Subject to Section 5.01, the Stockholder hereby irrevocably grants to, and
appoints, Mark Kaplow and Kevin Korsh, or any one of them, in their respective
capacities as employees of Parent, and any individual who shall hereafter
succeed to any such office of Parent, and each of them individually, as such
Stockholder's proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of the Stockholder, to vote the Shares held at
the time of the relevant stockholder vote in the manner set forth in Section
1.01 hereof. The Stockholder will use his reasonable
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efforts to cause any record holder of Shares beneficially owned by the
Stockholder to grant substantially similar proxies as Parent may reasonably
request in connection with the Stockholder's obligations under this Agreement.
(b) The Stockholder represents that any proxies heretofore given with
respect to matters contained herein in respect of the Stockholder's Shares are
not irrevocable, and that any such proxies are hereby revoked.
(c) The Stockholder understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder hereby affirms that the irrevocable
proxy set forth in this Section 1.02 is given in connection with the execution
of the Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of the Stockholder under this Agreement. The
Stockholder hereby further affirms that the irrevocable proxy is coupled with
an interest and, subject to Section 5.01 and the following sentence, may under
no circumstances be revoked. Notwithstanding the foregoing, the proxy granted
hereunder shall automatically terminate, and the interest with which it is
coupled shall for all purposes be deemed to be immediately and forever
extinguished, upon the termination of this Agreement, or upon any sale,
assignment, transfer, pledge, encumberance or disposition permitted hereunder,
as to any Shares so sold, assigned, transferred, pledged, encumbered or
disposed of.
Section 1.03. No Solicitation of Transactions. Neither the Stockholder nor
any of its affiliates shall, directly or indirectly, (a) solicit or encourage
the initiation of (including by way of furnishing information) any inquiries or
proposals regarding any Acquisition Proposal or (b) have any discussions with
or provide any confidential information or data to any third party that would
encourage, facilitate or further an Acquisition Proposal, or engage in any
negotiations concerning an Acquisition Proposal, or knowingly facilitate any
effort or attempt to make or implement an Acquisition Proposal. The Stockholder
and each of its affiliates shall immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than Parent)
conducted heretofore with respect to any of the foregoing. The Stockholder
shall promptly advise Parent orally and in writing of (a) any Acquisition
Proposal or any request for information with respect to any Acquisition
Proposal received by the Stockholder or any of its affiliates, the material
terms and conditions of such Acquisition Proposal or request and the identity
of the person making such Acquisition Proposal or request (and provide Parent
with copies of any written Acquisition Proposals or amendments or supplements
thereto) and (b) any changes in any such Acquisition Proposal or request.
Section 1.04. Action in Stockholder Capacity Only. The Stockholder
acknowledges that this Agreement is entered into by it in its capacity as a
stockholder of the Company and that nothing in this Agreement shall in any way
restrict or limit any director, officer or employee of the Stockholder or its
affiliates from taking any action in his capacity as such in order to comply
with his or her fiduciary obligations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Parent and Merger Sub as
follows:
Section 2.01. Power; Binding Agreement. The Stockholder if a natural
person and has full legal right, power and authority to enter into and perform
all of his or her obligations under this Agreement and if a corporation,
partnership, trust, limited liability company or other legal entity is duly
organized, validly existing and is in good standing under the applicable laws
of its jurisdiction of formation and has all requisite corporate, partnership
or similar power and authority to perform its obligations under this agreement.
The execution and delivery of this Agreement by the Stockholder will not
violate any other agreement to which he is a party including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly and validly executed and delivered by the Stockholder
and, assuming its due authorization, execution and delivery by Parent and
Merger Sub, constitutes a legal, valid and binding obligation of the
Stockholder,
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enforceable against the Stockholder in accordance with its terms, subject to
the effect of any applicable bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws, now or hereafter in effect, affecting creditors'
rights generally and subject to the effect of general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
Section 2.02. Title to Shares. The Stockholder is the record and
beneficial owner of, and has good and marketable title to, the Shares free and
clear of any lien, pledge, security interest, encumbrance, charge or other
claim of third parties of any kind or nature, proxy, voting restriction,
limitation on disposition, adverse claim of ownership or use or encumbrance of
any kind, other than pursuant to this Agreement and the Merger Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub each represents and warrants to the Stockholder as
follows:
Section 3.01. Due Organization; Authority Relative to this
Agreement. Parent and Merger Sub are corporations duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation. Parent and Merger Sub have all necessary power and authority
to execute and deliver this Agreement, to perform their obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Parent or Merger Sub or any affiliate thereof are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and, assuming its due
authorization, execution and delivery by the Stockholder, constitutes a legal,
valid and binding obligation of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms, subject to the effect of
any applicable bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar laws,
now or hereafter in effect, affecting creditors' rights generally and subject
to the effect of general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
Section 3.02. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Merger Sub do not, and
the performance of this Agreement by Parent and Merger Sub will not, (i)
conflict with or violate the Certificate of Incorporation or By-laws of Parent
or Merger Sub, (ii) assuming that all consents, approvals, authorizations and
permits described in subsection (b) have been obtained and all filings and
obligations described in subsection (b) have been made, conflict with or
violate any law applicable to Parent or Merger Sub or by which any property or
asset of Parent or Merger Sub is bound or affected or (iii) result in any
breach of 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 right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
Merger Sub pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Merger Sub is a party or by which Parent or Merger Sub or
any property or asset of either of them is bound or affected, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would neither, individually or in
the aggregate, prevent or materially delay the performance by Parent and Merger
Sub of any of their obligations pursuant to this Agreement.
(b) The execution and delivery of this Agreement by Parent and Merger Sub do
not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Authority, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws, the HSR Act, any Antitrust Law and the Environmental
B-3
Laws, (ii) for the Regulatory Approvals, and (iii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, prevent or
materially delay the performance by Parent and Merger Sub of any of their
obligations pursuant to this Agreement.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.01. No Disposition or Encumbrance of Shares. The Stockholder
agrees that, prior to the termination of this Agreement in accordance with the
terms hereof, he shall not, directly or indirectly, (a) sell, assign, transfer
(including by operation of law), pledge, encumber or otherwise dispose of any
of the Shares (but excluding any such to or for the benefit of a charitable,
philanthropic, eleemosynary, educational, religious or other similar entity,
organization, trust, association or similar body; it being specifically
understood and agreed that in the event of any such sale, assignment, transfer,
pledge or other disposition the subject Shares shall no longer be in any way or
manner subject to this Agreement), (b) deposit any of the Shares into a voting
trust or enter into a voting agreement or arrangement or grant any proxy or
power of attorney with respect thereto which is inconsistent with this
Agreement, (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, assignment, transfer
(including by operation of law) or other disposition of any Shares, except as
would otherwise be permitted by the foregoing clause (a), or (d) take any
action that would make any representation or warranty of the Stockholder herein
untrue or incorrect in any material respect or have the effect of preventing or
disabling the Stockholder from performing its obligations hereunder.
Section 4.02. Disclosure. The Stockholder agrees to permit Parent and
Merger Sub to publish and disclose in filings under the securities laws in
connection with the Merger the Stockholder's identity and ownership of Shares
and the nature of its commitments, arrangements and understandings under this
Agreement and other information to the extent required by applicable law.
ARTICLE V
TERMINATION
Section 5.01. Termination. The covenants and agreements contained herein
shall terminate upon the earlier of (a) the date the Merger Agreement is
terminated or modified in any manner adverse to the Stockholder (it being
understood and agreed that without limitation of the generality of the
foregoing, any modification or amendment to the Merger Agreement that in any
way modifies or changes the form, amount or timing of consideration to be
received by the Stockholder pursuant to the Merger or imposes any obligation or
liability on the Stockholder, provided however that modifications to the form,
amount or timing of consideration to be received by the Stockholder
specifically contemplated by the Merger Agreement shall not be deemed to be
adverse to the Stockholder); (b) the date Parent terminates this Agreement; and
(c) the day after the Stockholders Meeting (as defined in the Merger
Agreement). Nothing in this Section 5.01 shall relieve any party of liability
for any breach of this Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Additional Shares. In the event the Stockholder becomes the
beneficial owner of any additional Shares or other securities of the Company
and any securities into which such shares or securities may be converted or
exchanged and any securities issued in replacement of, or as a dividend or
distribution on, or otherwise in respect of, such shares or securities, then
the terms of this Agreement, including the term "Shares" as defined herein,
shall apply to such additional securities.
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Section 6.02. Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such costs and expenses.
Section 6.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by an
overnight or expedited courier service, by telecopy (provided that any notice
received by telecopy at the addressee's location on any business day after 5:00
p.m. (addressee's local time) shall be deemed to have been received at 9:00
a.m. (addressee's local time) on the next business day), or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 6.03):
(a) If to Parent or Merger Sub:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Facsimile: 203-961-5523
Attention: General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile: (212) 310-8007
Attention: Raymond O. Gietz, Esq.
Ellen J. Odoner, Esq.
(b) If to the Stockholder:
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52 Street
New York, New York 10019
Facsimile: (212) 403-2000
Attention: Adam O. Emmerich, Esq.
Section 6.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, the application of such term or provision to other
persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction, and all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the terms of this Agreement remain as originally contemplated to the
fullest extent possible.
Section 6.05. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether pursuant to a merger, by operation of law or otherwise),
without the prior written consent of the other parties except that Parent and
Merger Sub may assign all or any of their rights and obligations hereunder to
Parent's ultimate parent company or any direct or indirect subsidiary of Parent
or Parent's ultimate parent company, provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
B-5
Section 6.06. Amendment; Waiver. This Agreement may not be amended except
by an instrument in writing signed by all the parties hereto. Any party to this
Agreement may (a) extend the time for the performance of any of the obligations
or other acts of any other party, (b) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
document delivered by any other party pursuant hereto or (c) waive compliance
with any of the agreements or conditions of any other party contained herein.
Any such extension or waiver shall be valid only if set forth in an instrument
in writing signed by the party to be bound thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition, of this Agreement. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of any of such rights.
Section 6.07. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
Section 6.08. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
were not performed in accordance with the terms hereof for which money damages
would not be an adequate remedy and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at
law or in equity. Each of the parties further agrees that in any proceeding
seeking specific performance such party will waive (a) the defense of adequacy
of a remedy at law and (b) any requirement for the securing or posting of any
bond.
Section 6.09. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State.
Section 6.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 6.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
Section 6.12. Entire Agreement. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 6.13. Further Assurances. From time to time, at the request of
Parent, in the case of the Stockholder, or at the request of the Stockholder,
in the case of Parent and Merger Sub, and without further consideration, each
party shall execute and deliver or cause to be executed and delivered such
additional documents and instruments and take all such further action as may be
reasonably necessary or desirable to effect the matters contemplated by this
Agreement.
[Signatures on following page.]
B-6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned as of the date first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
-----------------------------------
Name:
Title:
EB ACQUISITION CORP.
By:
-----------------------------------
Name:
Title:
STOCKHOLDER:
By:
-----------------------------------
Name:
Title:
B-7
APPENDIX C
[GRAPHIC]
Letterhead of Goldman Sachs
December 14, 2001
Board of Directors
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Class A Common Stock, par
value $0.01 per share (the "A Shares"), and the outstanding shares of Class B
Common Stock, par value $0.01 per share (the "B Shares"), of Security Capital
Group Incorporated (the "Company") of the Class A Merger Consideration and the
Class B Merger Consideration (each as defined below), respectively, to be
received by such holders pursuant to the Agreement and Plan of Merger, dated as
of December 14, 2001 (the "Agreement"), among General Electric Capital
Corporation ("GECC"), EB Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of GECC, and the Company.
The Agreement provides for the merger (the "Merger") of Merger Sub with and
into the Company. Under the terms of the Agreement, at the effective time of
the Merger (x) each A Share will be converted into the right to receive the
Class A Merger Consideration, and (y) each B Share will be converted into the
right to receive the Class B Merger Consideration. The "Class A Merger
Consideration" means either (1) $1,300.00 in cash, or (2) in the event that
GECC elects in accordance with the Agreement to make the shares of common
stock, par value $0.01 per share, of ProLogis Trust (the "ProLogis Shares")
owned by the Company a part of the consideration to be received in the Merger
by the holders of the A Shares and the B Shares (a "Stock Election"), (a) a
number of ProLogis Shares (or fraction thereof) (the "Class A Stock
Consideration") equal to the total number of ProLogis Shares to be made a part
of the merger consideration pursuant to the Stock Election (the "ProLogis
Election Shares Number") multiplied by the "Class A Per Share Factor" (as
defined in the Agreement), provided that the Company may substitute cash in
lieu of delivering fractional ProLogis Shares, in accordance with the terms of
the Agreement, plus (b) an amount of cash equal to $1,300.00 less an amount
equal to the dollar value of the Class A Stock Consideration based on the
average of the closing prices per share of the ProLogis Shares on the New York
Stock Exchange for the ten consecutive full trading days immediately preceding
the two consecutive full trading days immediately preceding the meeting of the
Company's stockholders to be held in connection with the Merger (the "ProLogis
Average Closing Price"). The "Class B Merger Consideration" means either (1)
$26.00 in cash, or (2) in the event of a Stock Election, (a) a number of
ProLogis Shares (or fraction thereof) (the "Class B Stock Consideration") equal
to the ProLogis Election Shares Number multiplied by the "Class B Per Share
Factor" (as defined in the Agreement), provided that the Company may substitute
cash in lieu of delivering fractional ProLogis Shares, in accordance with the
terms of the Agreement, plus (b) an amount of cash equal to $26.00 less an
amount equal to the dollar value of the Class B Stock Consideration based on
the ProLogis Average Closing Price.
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Board of Directors
Security Capital Group Incorporated
December 14, 2001
Page 2
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in performing financial analyses with respect to businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements as well as for estate, corporate and
other purposes. We are familiar with the Company, having provided certain
investment banking services to the Company from time to time, including having
acted as an agent of the public offering of $100 million aggregate principal
amount of the 7.75% Medium Tenn Notes, Series A in 1998, having acted as the
Company's financial advisor in connection with the acquisition of Security
Capital U.S. Realty in 2001, having acted as sole book runner and co-lead
manager of the secondary public offering of the Company's 29.456 million shares
of beneficial interest in Archstone Communities Trust in 2001, having acted as
sole book runner and sole lead manager of the secondary public offering of the
Company's 16.873 million shares of CarrAmerica Realty Corporation in 2001, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided, and are currently providing, certain investment banking services
to GECC and its affiliates (including General Electric Company ("GE") the
parent company of GECC) from time to time, including, but not limited to,
having acted as financial advisor in connection with GECC's purchase of MET
Life Capital Credit Corporation in 1998, Franchise Finance Corporation of
America in 2001, and Mellon Financial Corporation in 2001, and having acted as
underwriter of a significant number of financing transactions for GECC. In
addition, we may provide investment banking services to GE and its affiliates
in the future. Goldman, Sachs & Co. provides a full range of financial advisory
and securities services, and, in the course of its normal trading activities,
may from time time effect transactions and hold positions in securities,
including derivative securities of the Company or GE for its own account and
for the accounts of its customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
Company for the four years ended December 31, 2000; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management.
also have held discussions with members of the senior management of the Company
regarding the assessment of the strategic rationale for the transaction
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of the Company. In addition, we have
reviewed the reported price and trading activity for the A Shares and B Shares
and the ProLogis Shares, compared certain financial and stock market
information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the real estate industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by the management of the Company have been reasonably
prepared on a basis reflecting the best currently available estimate and
judgments of the Company. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal. We were not requested to solicit, and did not solicit, interest from
other parties with respect to an acquisition of or other business combination
with the Company. Our advisory services and the opinion expressed herein are
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement and such opinion does not constitute a recommendation as to how
any holder of Shares should vote with respect to such transaction.
C-2
Board of Directors
Security Capital Group Incorporated
December 14, 2001
Page 3
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that as of the date hereof the Class A Merger
Consideration to be received by the holders of A Shares pursuant to the
Agreement is fair from a financial point of view to the holders of the A
Shares, and the Class B Merger Consideration to be received by the holders of B
Shares pursuant to the Agreement is fair from a financial point of view to the
holders of the B Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the registration and sale of the shares registered hereby, all of which have
been or will be paid by the registrant, except as noted in the prospectus:
Borne by
Borne by Selling
Registrant Shareholder
SEC registration fee............................ $251,421 $0
Accounting fees and expenses.................... 25,000 0
Legal fees and expenses......................... 50,000 0
Printing fees................................... 75,000 0
Miscellaneous fees and expenses................. 98,579 250,000
-------- --------
Total........................................... $500,000 $250,000
Item 15. Indemnification of Trustees and Officers.
Article 4, Section 10 of the Declaration of Trust provides as follows with
respect to the limitation of liability of Trustees:
"To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of trustees of a real estate investment
trust, no Trustee of the Trust shall be liable to the Trust or to any
Shareholder for money damages. Neither the amendment nor repeal of this Section
10, nor the adoption or amendment of any other provision of this Declaration of
Trust inconsistent with this Section 10, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption. In the
absence of any Maryland statute limiting the liability of trustees of a Maryland
real estate investment trust for money damages in a suit by or on behalf of the
Trust or by any Shareholder, no Trustee of the Trust shall be liable to the
Trust or to any Shareholder for money damages except to the extent that (i) the
Trustee actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or services
actually received; or (ii) a judgment or other final adjudication adverse to the
Trustee is entered in a proceeding based on a finding in the proceeding that the
Trustee's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding".
Article 4, Section 11 of the Declaration of Trust provides as follows with
respect to the indemnification of Trustees:
"The Trust shall indemnify each Trustee, to the fullest extent permitted by
Maryland law, as amended from time to time, in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
Trustee of the Trust or is or was serving at the request of the Trust as a
director, trustee, officer, partner, manager, member, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
limited liability company, other enterprise or employee benefit plan, from all
claims and liabilities to which such person may become subject by reason of
service in such capacity and shall pay or reimburse reasonable expenses, as such
expenses are incurred, of each Trustee in connection with any such proceedings".
Article 8, Section 1 of the Declaration of Trust provides as follows with
respect to the limitation of liability of officers and employees:
"To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of officers of a real estate investment
trust, no officer of the Trust shall be liable to the Trust or to any
Shareholder for money damages. Neither the amendment nor repeal of this Section
1, nor the adoption or amendment of any other provision of this Declaration of
Trust inconsistent with this Section 1, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such
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amendment, repeal or adoption. In the absence of any Maryland statute limiting
the liability of officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholder, no officer
of the Trust shall be liable to the Trust or to any Shareholder for money
damages except to the extent that (i) the officer actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received; or (ii) a judgment
or other final adjudication adverse to the officer is entered in a proceeding
based on a finding in the proceeding that the officer's action or failure to act
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding".
Article 8, Section 2 of the Declaration of Trust provides as follows with
respect to the indemnification of Trustees:
"The Trust shall have the power to indemnify each officer, employee and
agent, to the fullest extent permitted by Maryland law, as amended from time to
time, in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she was an officer, employee or agent of the Trust or is
or was serving at the request of the Trust as a director, trustee, officer,
partner, manager, member, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, limited liability company, other
enterprise or employee benefit plan, from all claims and liabilities to which
such person may become subject by reason of service in such capacity and shall
pay or reimburse reasonable expenses, as such expenses are incurred, of each
officer, employee or agent in connection with any such proceedings".
ProLogis has entered into indemnity agreements with each of its officers
and Trustees which provide for reimbursement of all expenses and liabilities of
such officer or Trustee, arising out of any lawsuit or claim against such
officer or Trustee due to the fact that he was or is serving as an officer or
Trustee, except for such liabilities and expenses (a) the payment of which is
judicially determined to be unlawful, (b) relating to claims under Section 16(b)
of the Securities Exchange Act of 1934 or (c) relating to judicially determined
criminal violations. In addition, ProLogis has entered into indemnity agreements
with each of its Trustees who is not also an officer of ProLogis which provide
for indemnification and advancement of expenses to the fullest lawful extent
permitted by Maryland law in connection with any pending or completed action,
suit or proceeding by reason of serving as a Trustee and ProLogis has
established a trust to fund payments under the indemnification agreements.
Item 16. Exhibits.
See the Exhibit Index which is hereby incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
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Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant undertakes that: (a) for purposes of determining
any liability under the Securities Act or 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective; (b) for
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
ProLogis has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Aurora, State of
Colorado, on April 15, 2002.
PROLOGIS TRUST
By: /s/ K. Dane Brooksher
------------------------------------
K. Dane Brooksher
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ K. Dane Brooksher Chairman, Chief Executive Officer and April 15, 2002
---------------------------------------- Trustee
K. Dane Brooksher
/s/ Irving F. Lyons, III* President, Chief Investment Officer and
---------------------------------------- Trustee
Irving F. Lyons III
/s/ Walter C. Rakowich* Chief Financial Officer and Managing
---------------------------------------- Director
Walter C. Rakowich
/s/ Luke A. Lands* Senior Vice President and Controller
----------------------------------------
Luke A. Lands
/s/ Shari J. Jones* Vice President (principal accounting
---------------------------------------- officer)
Shari J. Jones
/s/ C. Ronald Blankenship* Trustee
----------------------------------------
C. Ronald Blankenship
/s/ Stephen L. Feinberg* Trustee
----------------------------------------
Stephen L. Feinberg
/s/ George L. Fotiades* Trustee
----------------------------------------
George L. Fotiades
Trustee
----------------------------------------
Donald P. Jacobs
Trustee
----------------------------------------
Kenneth N. Stensby
/s/ J. Andre Teixeira* Trustee
----------------------------------------
J. Andre Teixeira
/s/ Thomas G. Wattles* Trustee
----------------------------------------
Thomas G. Wattles
/s/ William D. Zollars* Trustee
----------------------------------------
William D. Zollars
* By: /s/ K. Dane Brooksher April 15, 2002
----------------------------------
K. Dane Brooksher
Attorney-in-fact
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EXHIBIT INDEX
Exhibit Description
------- -----------
2.1 Agreement and Plan of Merger, dated December 14, 2001, by and among
Security Capital Group Incorporated, General Electric Capital
Corporation and EB Acquisition Corp. (attached as Appendix A to the
proxy statement/prospectus included in this registration statement)
4.1 Articles of Amendment and Restatement of ProLogis (Incorporated by
reference to Exhibit 3.1 to ProLogis' Form 10-Q for the period ending
June 30, 1999)
4.2 Amended and Restated Bylaws of ProLogis (Incorporated by reference to
Exhibit 3.2 to ProLogis' Form 10-Q for the period ending June 30,
1999)
4.3 Rights Agreement, dated as of December 31, 1993, between ProLogis and
State Street Bank and Trust Company, as Rights Agent, including form
of Rights Certificate (Incorporated by reference to exhibit 4.4 to
ProLogis' registration statement No. 33-78080)
4.4 First Amendment to Rights Amendment, dated as of February 15, 1995,
between ProLogis, State Street Bank and Trust Company and The First
National Bank of Boston, as successor Rights Agent (Incorporated by
reference to exhibit 3.1 to ProLogis' Form 10-Q for the quarter ended
September 30, 1995)
4.5 Second Amendment to Rights Agreement, dated as of June 22, 1995,
between ProLogis, State Street Bank and Trust Company and The First
National Bank of Boston (Incorporated by reference to Exhibit 3.1 to
ProLogis' Form 10-Q for the quarter ended September 30, 1995)
4.6 Third Amendment to Rights Agreement, dated as of October 11, 2001,
among ProLogis, Fleet National Bank and EquiServe Trust Company, N.A.
(Incorporated by reference to exhibit 4.1 to ProLogis' Form 10-Q for
the quarter ended September 30, 2001)
4.7 Form of share certificate for Common Shares of Beneficial Interest of
ProLogis (Incorporated by reference to exhibit 4.4 to ProLogis's
registration statement No. 33-73382)
4.8 Form of share certificate for Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest of ProLogis (incorporated by
reference to exhibit 4.8 to ProLogis's Form 10-K for the year ended
December 31, 1996)
4.9 Form of share certificate for Series D Cumulative Redeemable
Preferred Shares of Beneficial Interest of ProLogis (Incorporated by
reference to exhibit 4.21 to ProLogis's registration statement No.
69001)
4.10 Form of share certificate for Series E Cumulative Redeemable
Preferred Shares of Beneficial Interest of ProLogis (Incorporated by
reference to exhibit 4.22 to ProLogis's registration statement No.
69001)
5.1+ Opinion of Mayer, Brown & Platt as to the validity of the shares
being offered
8.1+ Opinion of Mayer, Brown & Platt as to certain tax matters
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of KPMG LLP
23.4 Consent of KPMG LLP
23.5+ Consent of Mayer, Brown & Platt (included in Exhibits 5.1 and 8.1)
23.6 Consent of Arthur Andersen LLP
23.7 Consent of KPMG LLP
23.8 Consent of KPMG LLP
23.9 Consent of KPMG LLP
23.10 Consent of PricewaterhouseCoopers S.a.r.l.
23.11 Consent of PricewaterhouseCoopers
23.12 Consent of PricewaterhouseCoopers S.a.r.l.
23.13 Consent of PricewaterhouseCoopers
23.14 Consent of PricewaterhouseCoopers S.a.r.l.
23.15 Consent of Goldman, Sachs & Co.
24.1+ Power of Attorney
99.1 ProLogis representation letter
99.2 Security Capital Group Incorporated representation letter
--------------------
+ Previously filed.
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