SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number: 1-7921
SECURITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter.)
Delaware 13-3003070
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Pickwick Plaza, Suite 310
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 625-0770
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days: Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of March 26, 2001, 6,442,309 shares of the Registrant's voting stock were
outstanding, of which 5,321,313 shares were held by affiliates of the
Registrant. The aggregate market value of the remaining 1,120,996 shares of
voting stock held by non-affiliates (based upon the closing price of the
Registrant's Class A Common Stock on March 26, 2001 of $9.05) was approximately
$10,145,000.
Portions of Security Capital Corporation's definitive proxy statement to be
filed with the Securities and Exchange Commission before April 30, 2001 are
incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PAGE
Item 1. Business ........................................................ 1
Item 2. Properties ...................................................... 16
Item 3. Legal Proceedings ............................................... 17
Item 4. Submission of Matters to a Vote of Security Holders ............. 17
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ........................................... 17
Item 6. Selected Financial Data ......................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...... 24
Item 8. Financial Statements and Supplementary Data ..................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................... 50
Item 10. Directors and Executive Officers of the Registrant .............. 51
Item 11. Executive Compensation .......................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management .. 51
Item 13. Certain Relationships and Related Transactions .................. 51
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 52
PART I
ITEM 1. BUSINESS.
GENERAL
Security Capital Corporation ("Security Capital" or "SCC" or the "Company")
operates four subsidiaries in three distinct business segments. Each subsidiary
has a high degree of operating autonomy, with its own chief executive officer
and management. Management of each company has equity interests and other
incentives based primarily on the performance of its own subsidiary. The parent
company management of Security Capital is primarily focused on strategic,
financial and senior level managerial issues, as well as potential new related
or other acquisitions.
As a result of a December 2000 acquisition through a 100%-owned subsidiary, WC
Holdings, Inc., SCC has an 80% equity interest in Health Power, Inc. ("Health
Power"). Security Capital owns, through its 98%-owned subsidiary, Primrose
Holdings, Inc., 100% of the outstanding shares of common stock of Primrose
School Franchising Company and one related service company (together referred to
as "Primrose"). Through its 80%-owned subsidiary, Pumpkin Masters Holdings,
Inc., SCC owns 100% of the outstanding shares of Pumpkin, Ltd. (together
referred to as "Pumpkin"). Security Capital owns, through its 100%-owned
subsidiary, P.D. Holdings, Inc., 100% of the outstanding shares of Possible
Dreams, Ltd. (together referred to as "Possible Dreams").
The three business segments of SCC are employer cost containment-related
services, educational services, and seasonal products. Health Power which is
included in the employer cost containment-related services segment provides
services to corporations and their employees primarily relating to industrial
health and safety, industrial medical care, workers' compensation insurance and
the direct and indirect costs associated therewith. The educational segment
consists of Primrose. The seasonal products segment consists of Pumpkin and
Possible Dreams. Primrose is engaged in the franchising of educational child
care centers, with related activities in operations advisory, real estate and
site selection services. Primrose also operates one educational child care
center. The Primrose activities are national with the exception of the
Northeast. Pumpkin is engaged primarily in the business of designing,
out-sourcing and distributing pumpkin carving kits and related Halloween
accessories. Possible Dreams operates as a designer, importer, and distributor
of collectible and fine quality figurines and, to a lesser extent, other
specialty giftware.
1
HEALTH POWER
BACKGROUND
On December 21, 2000, the Company, through its subsidiaries, WC Holdings,
Inc. acquired Health Power, Inc., a Delaware corporation. The total
consideration paid for 100% of Health Power common stock was $37,128,000.
OVERVIEW
Health Power, Inc. operates through its wholly-owned subsidiary, CompManagement,
Inc. CompManagement provides services to corporations and their employees
primarily relating to workplace health and safety, occupational medical care,
workers' compensation insurance and employee benefits costs. These services are
targeted at improving the health and safety of workplaces and employees, as well
as reducing and managing employer long-term costs of workplace health and
safety.
CompManagement provides its services to an estimated 58,000 businesses and had
611 employees as of December 31, 2000. Approximately 90% of the businesses are
located in Ohio, which makes CompManagement a leader in providing such services
in Ohio. In recent years, CompManagement has expanded its operations to Indiana,
Kentucky, Pennsylvania, West Virginia and Washington.
CompManagement provides services reducing or containing employers' lost time and
other workers' compensation costs and managing workers' compensation claims and
unemployment insurance costs. It also provides consulting, training and
education services to improve workplace health and safety. CompManagement also
provides medical and administrative services related to workers' compensation
claims.
COMPMANAGEMENT SERVICES
CompManagement offers services in two general categories: (1) non-medical
services related to workers' and unemployment compensation claims and (ii)
medical management of workers' compensation claims, or "MCO" services.
2
NON-MEDICAL SERVICES
CompManagement provides workers' compensation group rating services, risk
management, medical cost containment and claims management services to employers
with respect to workers' compensation claims and, to a lesser extent,
unemployment compensation claims. Many of these services are typically referred
to as "third party administration" or "TPA" services. CompManagement's TPA
services for workers' compensation claims include the review and processing of
an employer's workers' compensation claims, the design of individual programs to
improve an employer's experience ratings, representation of employers before the
Ohio Industrial Commission and The Ohio Bureau of Workers' Compensation (the
"OBWC"), the performance of risk analysis for an employer's experience rating,
the review of premium audits on behalf of employers and analysis of employers
for inclusion in group rating plans. CompManagement also acts as a TPA of
workers' compensation claims for self-insured employers. Each employer selects
the types of services it desires and then enters into a contract with
CompManagement to provide such services. These contracts are generally for a
one-year period.
In the area of unemployment compensation, CompManagement's TPA services are
similar to its services in the area of workers' compensation. Such services
include the review and processing of an employer's unemployment compensation
claims and representation of employers before the Ohio Bureau of Employment
Services (the "OBES"). Each employer selects the types of services it desires
and then enters into a contract with CompManagement to provide such services.
These contracts are generally for a one-year period.
CompManagement currently provides its TPA services to approximately 19,000
employers located throughout Ohio, as well as to a smaller number of employers
located in Washington and West Virginia. A substantial number of the Ohio
employers have entered into contracts with CompManagement because of their
participation in group rating plans sponsored by trade associations of which
such employers are members.
MCO SERVICES
CompManagement provides medical management services for workers' compensation
claims, primarily to Ohio employers, as well as to a smaller number of employers
located in Kentucky and Indiana. CompManagement owns and operates two state-wide
certified MCOs under Ohio's Health Partnership Program. CompManagement currently
serves approximately 47,700 employers located throughout Ohio. As a state-wide
certified MCO, CompManagement provides medical management services for workers'
compensation cases resulting from injuries suffered by employees arising out of
the course and scope of their employment, as required by law. Because all
workers' compensation claims are reimbursed the OBWC, CompManagement does not
assume any risk for the payment of medical or disability benefits to employees
with respect to their claims.
3
The services provided by CompManagement are offered pursuant to a contract with
the OBWC. Under this contract, CompManagement is responsible for providing,
among other things, a state-wide health care provider network; treatment
guidelines and utilization review procedures; peer review and quality assurance
programs; provider sanction and termination procedures; medical and vocational
case management programs; utilization management programs; medical bill
adjudication and payment procedures; dispute resolution procedures; provider,
employer and employee relations and education programs; and health care fraud
detection and reporting programs.
Under its OBWC contract, CompManagement receives an administrative fee equal to
4% of the annual workers' compensation premiums for employers assigned to its
MCO. The administrative fee is paid monthly and is subject to setoffs if
CompManagement does not meet certain criteria with respect to first report of
injuries, bill submissions, or data accuracy or if CompManagement makes a
misfiling of death claims. CompManagement is also eligible to earn an additional
quarterly incentive fee of up to 3% of the annual workers' compensation premiums
for employers assigned to its MCO based upon its attainment of certain
return-to-work measurements established in the contract.
CompManagement has a state-wide health care provider network consisting of
approximately 13,500 physicians, hospitals and ancillary providers. This network
includes certain occupational health-based physician groups which serve as its
"anchor medical groups." The provider panel is credentialed using a
multi-faceted peer review committee. CompManagement has a provider services
department which recruits new providers for its state-wide network and offers
educational materials and training seminars.
CUSTOMERS AND MARKETING
CompManagement's customers principally consist of employers required to
participate in Ohio's insurance fund for workers' compensation claims and, to
a lesser extent, self-insured employers. CompManagement markets its TPA and
MCO services jointly through both its own sales force of 15 persons who
directly contact prospective and existing employer groups and its
relationships with over 500 insurance agents and brokers. CompManagement
maintains service center in Akron, Cincinnati, Cleveland and Toledo, Ohio,
Seattle, Washington, Charleston, West Virginia, Lexington, Kentucky and
Indianapolis, Indiana in addition to its Dublin, Ohio executive offices.
COMPETITION
The workers' compensation cost containment and medical management industry is
fragmented and competitive. In Ohio, the market share in this industry is
concentrated among a few companies, including CompManagement. The primary
competitors in Ohio of CompManagement are several TPAs and/or MCOs which offer
one or more services similar to those offered by CompManagement and numerous
independent companies, typically operating on a regional basis. Some of
CompManagement's competitors are significantly larger and have greater financial
and marketing resources than CompManagement. The principal competitive factors
are the range of services offered and responsiveness to customer needs.
4
CompManagement competes principally on the basis of its specialization in the
workers' compensation area, breadth of services, attention to customer service
and independence from insurance carriers.
GOVERNMENT REGULATION
CompManagement's TPA business is generally not subject to specific government
regulation or oversight. However, its business is substantially dependent on the
operation of workers' and unemployment compensation systems in Ohio and the
other states in which it operates.
CompManagement's MCOs are certified and regulated by the OBWC under Ohio's
Health Partnership Program ("HPP"). Its MCOs are not, however, subject to
Ohio's laws governing health insuring corporations, since its MCOs are not
responsible for payment of health care claims or benefits, nor are they
otherwise responsible for risk-bearing activities commonly associated with
organizations licensed under Ohio's insurance laws.
As participants in the HPP, the company's MCOs are required to provide medical
management and cost containment services that promote the rendering of
high-quality, cost-effective medical care that focuses on minimizing the
physical, emotional and financial impact of a work-related injury or illness and
promotes a safe return to work.
In order to participate in the HPP, the MCOs must each be credentialed and
certified by OBWC every two years. The certification standards for an MCO
desiring to contract with OBWC include, among other things, disclosure of the
MCO's organizational structure, management and employees, historical operations,
provider network, payment processes, geographic coverage and provider
directories. OBWC also requires an MCO to furnish information regarding the
MCO's satisfaction of OBWC's requirements for MCO policies and procedures,
treatment guidelines, utilization review and quality assurance, provider
profiling, grievance and dispute resolution, information systems, case
management records confidentiality and retention, provider relations,
educational activities, performance data, marketing and liability insurance. All
of the preceding activities of an MCO participating in the HPP are governed or
impacted by the regulations promulgated under the HPP enabling statute, found in
Ohio's Administrative Code. Upon satisfying the preceding certification criteria
and entering into a contract with OBWC, an MCO is certified to provide medical
management and cost containment services under the HPP.
CompManagement is required to credential its HPP provider network based on its
geographic service area, using objective, non-discriminatory professional
criteria that ensure that it is able to provide medical services and supplies
for injured workers in its service area, as well as demonstrate that it provides
such persons access to specialized care. At a minimum, a network provider must
be duly licensed or qualified to render in Ohio the types of services for which
the provider is engaged by CompManagement.
5
Upon the filing of a worker injury claim, CompManagement, in conjunction with
its participating providers and the employer, is required to manage the medical
or rehabilitative care for the injured employee to ensure a safe return to work.
Additionally, CompManagement is required to review all bills submitted by its
providers to determine that the bills are consistent with CompManagement's
utilization standards and certification requirements. CompManagement also is
required to maintain a grievance hearing procedure allowing a provider, the
employer or the injured employee to dispute bill payment. It also is required to
pay its providers the amount paid by OBWC to CompManagement for provider
services submitted in connection with the injured employee's claim.
CompManagement is required to submit electronically to OBWC, on a timely basis,
all bills for payment. CompManagement is subject to OBWC's electronic billing
policies, formats and systems. Further, it must comply with OBWC requirements
for electronic data interchange ("EDI"). CompManagement also is responsible for
submitting bills of its panel providers, and of OBWC-certified providers in its
service area who are not panel members but for which it has medical management
responsibility, as well as bills for initial or emergency treatment by a
non-OBWC-certified provider of an injured employee in its service area.
OBWC is required to pay to CompManagement an administrative fee for its medical
management and administrative services, as well as an incentive payment,
provided that CompManagement meets the performance criteria required by OBWC.
These performance criteria are established in the MCO contract and primarily
relate to the attainment of certain claim management and return to work
measurements. The administrative and incentive payments to CompManagement
are based on a percentage of the total premium payments of employers managed by
the MCO.
The compensability and payment of claims submitted to OBWC in connection with
services provided by CompManagement's panel of providers is determined solely by
OBWC. OBWC claims management and dispute procedures are governed by regulations
promulgated under the HPP enabling statute. CompManagement may continue
management of a medical claim during adjudication of a disputed claim. However,
it will not receive payment from OBWC until the disputed claim is adjudicated,
and it must inform the injured employee that the claim is disputed and continued
treatment may be at the employee's expense.
CompManagement also is required to maintain records supporting claims submitted
to OBWC, its electronic billing, as well as any records necessary to perform its
medical management functions or to substantiate the delivery, value, necessity
and appropriateness of goods and services provided to injured employees.
Additionally, CompManagement is required to comply with Ohio laws governing
confidentiality of patient/employee records and information, subject to the
exceptions contained in such laws. Failure to create, maintain and retain
adequate records constitutes cause for denial of payment of administrative and
incentive fees from OBWC and/or de-certification by OBWC.
CompManagement believes that its MCOs are presently in compliance in all
material respects with all laws, regulations and certification requirements
applicable to them.
6
EMPLOYEES
As of December 31, 2000, CompManagement had approximately 611 employees, of
which 215 were employed in connection with its TPA operations and 396 were
employed in connection with its MCO operations. CompManagement's employees are
not represented by a union, and CompManagement considers its relationships
with its employees is good.
PRIMROSE
BACKGROUND
On April 6, 1999, the Company acquired all the assets and assumed certain
liabilities of Primrose School Franchising Company, Inc., a Georgia corporation
established in September 1988 and engaged in the franchising of educational
child care centers, and of two related companies engaged in real estate services
for franchisees and in operating one educational child care center. The
consideration paid in connection with the acquisition of the foregoing companies
aggregated $27,388,000.
OVERVIEW
Primrose is the exclusive franchiser of Primrose Schools, an industry leader in
educational child care services. The one company-owned Primrose school is the
original Primrose School and serves an important role in testing new curricula
and initiatives.
As of December 31, 2000, Primrose consisted of 81 franchised locations in the
southern, central and western United States and one company-owned facility.
Additionally, as of that date, Primrose had awarded 42 franchise units that were
in various stages of development and construction.
EDUCATIONAL SERVICES
Primrose Schools has established a position as a leader in educational child
care in the upscale niche of the child care industry. Primrose is a franchised
system of private, curriculum-based pre-schools which provide child care
services for children six weeks to five years old and after-school programs for
children five through twelve years old. The primary strategies of Primrose are
aimed at delivering a consistent, high quality educational product throughout
all its schools. The overall franchise system and product are tightly controlled
and uniform.
Primrose provides proven early childhood curriculum and programming to its
franchisees. These include detailed monthly educational lesson plans, management
guidelines and other collateral materials. Primrose integrates nationally
recognized packaged curriculums with its own copyrighted programs.
7
Primrose provides its franchisees with detailed manuals that cover all aspects
of operating a Primrose School. The Primrose Schools curriculum and operating
systems have been approved for national accreditation by the Commission on
International and Trans-Regional Accreditation, the Southern Associations of
Schools and Colleges and the North Central Association. Primrose maintains an
Advisory Board made up of credentialed specialists in early childhood education.
OPERATIONAL AND BUSINESS SERVICES
Primrose provides new franchisees with pre-opening training at corporate
headquarters and existing franchised schools. Ongoing operations support
infrastructure which includes comprehensive business, operational and marketing
plans for franchisees. Operations support directors provide consulting services
and visit schools on a continual basis to ensure that Primrose's quality
standards are maintained.
A complete internal and external equipment package is provided by Primrose for
franchisees' use in schools. This package includes furniture, educational
programs and materials, playground equipment, school supplies and custom child
care management software.
REAL ESTATE SERVICES
Primrose provides real estate services to Primrose franchisees, including design
based on proprietary prototype building and site plans, site selection
assistance and development consulting.
MARKETING SERVICES
Primrose believes that its marketing efforts are successful due to an effective
sales and marketing strategy. Marketing efforts are directed in two areas: (i)
creating consumer demand for Primrose educational child care services at the
end-user level; and (ii) creating demand for Primrose School franchises among
potential franchisees. Primrose markets its franchise schools to households in
which parents are working professionals and which require more than just "day
care" through targeted marketing with numerous mediums, including direct mail,
radio, newspapers, Internet and various magazines. Its franchise opportunities
are targeted towards successful individuals with management experience and
entrepreneurial desires. Primrose receives favorable publicity generated by its
quality service and advertises in newspapers, trade publications, magazines,
presentations and by word of mouth.
FINANCING SERVICES
Primrose has alliances with national lending sources to provide competitive
financing for franchisees. These strategic partnerships provide a degree of
familiarity and efficiency to the financing process for Primrose franchisees.
8
SOURCES OF REVENUE
Primrose derives revenues through the delivery of several services including
through the collection of franchise fees and royalty income and from related
areas such as real estate services and development fees. Its owned and operated
center, Primrose Country Day School, derives its revenues through the collection
of educational child care fees.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
Primrose maintains trademarks and copyrights to its programs, characters, logos
and building plans. Additionally Primrose strives to protect itself,
franchisees, parents and children through a strong, comprehensive franchise
agreement that explicitly spells out the responsibilities of both Primrose and
the franchisee. This agreement gives Primrose the ability to enforce its
standards, helping to ensure system-wide quality and consistency.
COMPETITION AND MARKETS
Primrose Schools competes in the center-based for-profit sector of the child
care industry. The industry is highly fragmented with an estimated 100,000
licensed child care centers, of which only a small percentage consists of
national for-profit child care "chains" such as Primrose. Management believes
the fragmented nature of the industry, together with an increasing demand for
educational child care, provides growth opportunities for well-managed child
centers with professional, owner-operated child care providers.
Management believes that the principal elements defining competitiveness are
curriculum, product quality and consistency, well-trained staffing, strong
customer service and good business center management. Although Primrose competes
favorably with respect to these factors, some of Primrose School's competitors
are larger and have greater financial resources, with a larger number of
facilities and a broader national presence.
GOVERNMENT REGULATION
Primrose is subject to various federal, state and local laws affecting Primrose
as well as a variety of regulatory provisions relating to zoning of school
sites, sanitation, curriculum, health and safety. As a franchisor, it is subject
to state and federal laws regulating various aspects of franchise operations and
sales. These laws impose registration and disclosure requirements on franchisors
in the offer and sale of franchises. In certain cases, they also apply
substantive standards to the relationship between franchisor and franchisee,
including primarily defaults, termination, non-renewal of franchises and the
potential impact of new Primrose schools on enrollment levels at existing
Primrose sites.
EMPLOYEES
Primrose had 52 employees at December 31, 2000, including 27 at Primrose Country
Day School. All of Primrose's employees are full-time except for 10 part-time
employees at Primrose Country Day School. None of the employees of Primrose are
represented by a labor union, and Primrose considers its relationships with
employees is good.
9
Various federal and state labor laws govern its relationships with its
employees. These include such matters as minimum wage requirements, overtime and
other working conditions. Environmental requirements have not had a material
effect on the operations of Primroses company-operated school or the schools of
our franchisees. Significant additional government-imposed increases in paid
leaves of absence or mandated health benefits could, however, be detrimental to
the economic viability of franchisee-operated and company-operated Primrose
Schools.
PUMPKIN
BACKGROUND
On June 27, 1997, the Company, acquired substantially all of the assets and
assumed certain liabilities of Pumpkin Ltd. d/b/a Pumpkin Masters, Inc., a
Colorado corporation established in 1986 and engaged in the design, manufacture
and distribution of pumpkin carving kits (comprised primarily of tools and
patterns) and related accessories. The consideration paid in connection with the
acquisition was approximately $7,700,000.
OVERVIEW
Pumpkin is a leading designer, manufacturer and distributor of specialty
products and related accessories targeted primarily at the Halloween and, to a
lesser degree, Easter seasonal markets. Pumpkin outsources all of its
manufacturing, assembling and packaging activities. Pumpkin distributes its
products primarily throughout the United States but also in Europe to over 7,000
retail locations, including mass merchandiser, craft, grocery, hardware, garden
and drug stores, and through mail order catalogues. Its business is highly
seasonal in nature.
PRODUCTS
Pumpkin designs, markets and distributes specialty products for Halloween and
other seasonal markets. Pumpkin's core product is a patented pumpkin carving
kit. The Pumpkin Masters product line includes a variety of pumpkin carving kits
containing different combinations of tools, saws and patterns for different age
and designing levels. The tools include patented saws, a patented Scraper Scoop
for cleaning out the inside of a pumpkin and a patented Candle Planter for
drilling a hole in the bottom of a pumpkin to hold a candle. In addition,
Pumpkin also currently sells and distributes other Halloween items, including a
Safe Pumpkin Light (a battery-operated light), Spooky Sidewalks (a sidewalk
chalk and stencil kit), a Pumpkin Sculpting Kit, a Pumpkin Painting Kit and a
Lighted Safety Trick-or-Treat Bucket. In 1999, Pumpkin also introduced a home
decor line of window and door decorations for Halloween. For the Easter market,
Pumpkin recently introduced its Exceptional Easter(R) decorating kits for Easter
2001.
The pumpkin carving kit consists of two slender carving saws, a poker, a drill
and eight ready-to-use patterns and instructions. Patterns are transferred onto
pumpkins by poking along the design lines with the poker. Carving is as simple
as sawing from dot-to-dot. Pumpkin has patents for the entire kit, as well as
the additional tools which are sold separately. Pumpkin also
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distributes a similar carving kit designed specifically for younger children,
for which a patent is currently pending. The patterns are protected by copyright
or are used under license.
DESIGN
Creative design and product innovation are critical to the long-term success
of Pumpkin. Pumpkin maintains a creative team of four people which is
responsible for developing new products and designing patterns for each
Halloween season.
DISTRIBUTION AND SUPPLIERS
Pumpkin has a retail customer base of over 1,500 retailers and mail order
houses. Its products are sold in the United States, Canada and Europe through
its own personnel and a network of independent manufacturers' representatives
and distributors. Retail outlets include mass market, supermarket, drug,
variety, hobby and craft, party and home improvement chain customers.
Pumpkin also sells directly to smaller accounts through direct mail catalogs.
Distributors are sold both directly and through the independent manufacturers'
representatives. Pumpkin has appointed exclusive distributor representatives in
Canada and Europe.
All of Pumpkin's manufacturing and shipping activities are conducted by third
party vendors. Since 1988, Pumpkin has used the same core of domestic vendors to
provide substantially all of its materials and to assemble, warehouse and ship
its products. Pumpkin uses vendors that are experienced in their respective
fields and that manufacture each product to Pumpkin's specifications. For
example, the vendor supplying saw blades manufactures the blades and ships them
to the plater. After plating, the plater forwards the blades to the injection
molder for handles. The finished tools (along with the printed materials) are
all shipped to the assembler, which assembles the product, warehouses it and
ships it to Pumpkin's customers.
Pumpkin owns all of its molds, tools and dies, and all other crucial pieces of
machinery that are used by its vendors. In addition, Pumpkin has identified
back-up and secondary sources for all major materials and services; however, the
sudden loss or interruption of supply or service from one of the major vendors
could have an adverse effect on Pumpkin's results of operations and financial
condition. Most of the products or services used by Pumpkin would be available
from other sources. Pumpkin currently splits some of its production between
primary and back-up vendors. In addition, Pumpkin manufactures a small amount of
its product in China. Pumpkin's import operations may be adversely affected by,
among other things, political instability resulting in the disruption of trade
from exporting countries, regulatory changes, increases in transportation costs
or delay, any significant fluctuation in the value of the United States dollar
against foreign currencies and restrictions on the transfer of funds.
Based upon specific customer forecasted demand, Pumpkin begins manufacturing
operations in January for the following Halloween season. The investment in
inventory buildup is considerable, requiring Pumpkin to forecast customer
demand accurately. To date, Pumpkin has been successful in forecasting demand
with few write-downs of excess inventory or write-offs of obsolete inventory.
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PATENTS AND OTHER PROPRIETARY RIGHTS
Pumpkin owns a number of registered U.S. patents covering the pumpkin carving
kit, the Scraper Scoop, the Candle Planter, the FlexSaw and the hand-held
cutting saw. The patents will expire at various times between 2006 and 2015. Two
foreign patents are pending. It also owns various registered trademarks,
including Pumpkin Masters, Scraper Scoop, Durasaw, Power Tools for Pumpkins and
Candle Planter.
Pumpkin believes that its proprietary products, protected by patents and other
intellectual property rights, are integral to its success, and, accordingly,
vigorously pursues intellectual property protection of its products and any
perceived infringements of its intellectual property rights. If Pumpkin were to
lose its patent protection prior to the expiration of the patents, it could have
a material adverse effect on Pumpkin's results of operations and financial
condition.
Pumpkin also holds copyrights to numerous pumpkin carving designs and uses other
patterns under license from the artist. New designs are added to the list
yearly, being developed by Pumpkin or freelance artists under contract with
Pumpkin or acquired in connection with pumpkin carving contests sponsored by
Pumpkin. In connection with the annual contest entries, Pumpkin pays prize fees
to the winners. In addition, Pumpkin pays publication fees to the entrants whose
designs are selected to be included in a retail product. The publication fees
range from $100 to $500.
COMPETITION AND MARKETS
Within the market for pumpkin carving products, Pumpkin currently enjoys a
substantial market share. Pumpkin believes that its ownership of patents on its
pumpkin carving kits is a significant barrier to entry into its market niche.
Pumpkin believes it has several competitors in the pumpkin carving product
market and that the principal elements defining competitiveness are product
design, patents, brand-identity and distribution. Although Pumpkin believes that
it competes favorably with respect to these factors, particularly with respect
to product design, some of Pumpkin's competitors are larger than Pumpkin and
have greater financial resources, with a wider range of non-Halloween products
and broader distribution channels.
EMPLOYEES
Pumpkin employed 27 people as of December 31, 2000, 20 of whom were salaried
employees and seven of whom were hourly employees. None of its employees is
represented by a labor union, and Pumpkin considers its relationship with
employees to be good.
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POSSIBLE DREAMS
BACKGROUND
On May 17, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Possible Dreams, Ltd., a Massachusetts
corporation established in 1988 and engaged primarily in the design, importation
and distribution of fine quality collectible and other specialty giftware.
OVERVIEW
Possible Dreams is a leading designer, importer and distributor of fine quality
collectibles and other specialty giftware. Possible Dreams is especially known
for its hand-crafted collectible Clothtique branded product line. Possible
Dreams' products include the Clothtique Santa Collection, Clothtique Couture,
The Clothtique Fine Arts Collection, Clothtique Champions, Clothtique Snowmen
and Clothtique Historical Figures as well as a variety of Angels and ornaments.
Other branded lines include Flights of Fancy, Spring Surprises and Cagey
Critters. Possible Dreams distributes its products throughout the United States
to approximately 15,000 independent gift retailers, as well as to department
stores, mail order houses and card and gift chains.
PRODUCTS
Possible Dreams designs, imports and distributes more than 3,000 products.
Possible Dreams' leading product line is Clothtique, a blend of stiffened cloth,
ceramic and resin. The Clothtique process was first used by Possible Dreams for
a series of angels and Santas. Clothtique is now marketed in a variety of
holiday and year-round collections. The Clothtique process has the ability to
mimic the look and feel of real wardrobes.
One of Possible Dreams' earliest Clothtique collections is the Santa Claus
Collection. This line is known for presenting a traditional Santa character yet
contemporizing its appeal through style and theme. Many are now retired and have
become more valuable as product availability decreases. Since the inception of
the program, hundreds of original figurines, including over 250 Santas, have
been created through the design talents of many artisans.
There are new introductions each year to the Clothtique and other product lines
of Possible Dreams' Flights of Fancy, an engineered line of mobiles, which was
first introduced in 1997. This collection of whimsical mobiles powered by
battery-operated motors has increased in sales and customer recognition each
year. In addition, Possible Dreams designs lines of seasonal and non-occasion
figurines, musical waterdomes, stocking holders, ornaments and decorative
accessories.
Possible Dreams takes various steps to enhance the collectibility of its
products. In particular, Possible Dreams limits the availability of certain
styles and retires other styles even though they may still be selling well.
While these actions sometimes cause it to forego sales, Possible Dreams believes
they tend to provide recurring product demand, increase access to retailer shelf
space and enhance the long-term value of Possible Dreams' products. Possible
Dreams
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also attempts to improve collectibility by the regular introductions of product
line extensions and new series additions.
Possible Dreams further enhances collectibility and improves sales through its
Collector Club. Collector clubs are used by a number of branded giftware
companies to stimulate interest in particular product lines, strengthen retail
relationships and provide helpful consumer preference data. The success of
Possible Dreams' Santa line led to the establishment in 1992 of the Santa Claus
Network, a Clothtique Santa Collectors Club. This Club has approximately 15,000
members each paying an annual membership fee and receiving quarterly
newsletters.
DESIGN AND PRODUCTION
Possible Dreams' creative team consists of an in-house group of four persons
and outside artists. The team regularly attends trade shows and seminars, and
travels extensively throughout the world for ideas. All catalog design and
preparation, excluding some photographing and printing, are done in-house. A
major theme of Possible Dreams' trade marketing features Possible Dreams as
the giftware industry's creative leader.
The design and manufacture of Possible Dreams' many product lines is a complex
process. Once a product is conceived, it can take up to a year before it is
introduced into the market. First, detailed and scaled drawings are made for
each piece. A prototype is then produced and reviewed by creative directors and
management. Samples of the various designs are then made by the manufacturer for
review by Possible Dreams and, often, prospective buyers. Typically, only about
40% of new designs created each year will be produced.
Possible Dreams endeavors to use first-rate craftsmanship at affordable prices.
This strategy limits the possible sources of manufacturers and, accordingly,
helps to achieve more controlled growth of product lines. Possible Dreams has
long-standing relationships with overseas manufacturers.
DISTRIBUTION AND SUPPLIERS
As noted above, Possible Dreams has a retail customer base of approximately
15,000 independent gift shops, department stores and mail order houses. Its
products are primarily sold by approximately 15 sales groups with over 126 sales
representatives operating out of 18 showrooms nationwide located in each of the
major giftware markets in the United States. Possible Dreams opened its own
showrooms in New York City in February 1998 and in Atlanta in January 2000.
Possible Dreams also has a preferred dealer network consisting of some of its
best retail customers. These customers agree to certain product display and
other requirements. In return, they are entitled to sell certain limited pieces
not available through non-network channels.
Products sold by Possible Dreams in the United States are generally shipped by
ocean freight from abroad and then by rail and/or common carrier to its
warehouse and distribution center in Foxboro, Massachusetts. Shipments from
Possible Dreams to its customers are handled by
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Roadway Package System, United Parcel Service or other commercial trucking
lines.
Possible Dreams utilizes computer systems and purchased and internally-developed
software to help maintain efficient order processing from the time a product
enters its system through shipping and ultimate payment collection from its
customers. Software for the processing, shipping and tracking of orders from its
warehouse plays a significant role in allowing Possible Dreams to maintain
customer satisfaction.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
Possible Dreams owns several federal trademark registrations and copyrights. In
addition, Possible Dreams from time to time registers certain of its trademarks
in foreign countries. The registrations for the trademarks are currently
scheduled to expire or be canceled at various times between 2001 and 2005, but
Possible Dreams believes that the marks can be maintained and renewed provided
that they are still in use for the goods and services covered by such
registrations.
COMPETITION AND MARKETS
Possible Dreams competes with other producers of fine quality collectibles,
specialty giftware and home decorative accessory products. The giftware industry
is highly fragmented and competitive, with a substantial number of both large
and small participants. Possible Dreams believes that the principal elements
defining competitiveness are product design and quality, product brand name
loyalty, product display, reputation in the retail trade for reliable shipment
and service and price. Although Possible Dreams believes it generally competes
favorably with respect to these factors, some of Possible Dreams' competitors
are larger than Possible Dreams and have greater financial resources and a wider
range of products.
IMPORTS; MAJOR SUPPLIERS; REGULATION
Possible Dreams does not own or operate any manufacturing facilities and, like
most of its competitors, imports most of its products as finished goods from the
Pacific Rim, primarily mainland China and, to a lesser extent, Taiwan and the
Philippines. Possible Dreams' ability to import products and thereby satisfy
customer orders is affected by the availability of, and demand for, quality
production capacity abroad. Possible Dreams competes with other importers of
specialty giftware products for a limited number of foreign manufacturing
sources that can produce detailed, high quality products at affordable prices.
The loss of any of these suppliers could have an adverse effect on Possible
Dreams' results of operations and financial condition. In addition, Possible
Dreams' import operations may be adversely affected by political instability
resulting in the disruption of trade from exporting countries, regulatory
changes, increases in transportation costs or delays, any significant
fluctuation in the value of the United States dollar against foreign currencies
and restrictions on the transfer of funds.
Substantially all of Possible Dreams' products are subject to United States
Customs Service duties and regulations pertaining to the importation of goods,
including requirements for the marking of certain information regarding the
country of origin on its products. The United States and the countries in which
Possible Dreams' products are manufactured may, from time
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to time, impose new quotas, duties, tariffs or other charges or restrictions, or
adjust presently prevailing quotas, duty, or tariff levels, any of which could
adversely affect Possible Dreams' financial condition or results of operations
or its ability to continue to import products at current or increased levels.
EMPLOYEES
Possible Dreams employed 84 people at December 31, 2000, 14 of whom were
salaried employees, with the remainder being hourly employees. None of the
employees is represented by a labor union, and Possible Dreams considers its
relationship with employees to be good.
ITEM 2. PROPERTIES.
CompManagement leases a 70,000 square foot office building in Dublin, Ohio,
which is used as its principal office facilities. The lease for the building is
for a term of 15 years which began in 1997, provides for annual rent payments,
and requires CompManagement to pay all operating expenses for the building. The
lease also provides for, among other things, three renewal options of five years
each, an option to purchase the building, and a right of first offer with
respect to the sale of such building. The lease restricts CompManagement's
ability to distribute funds and/or assets to Health Power, Inc. or another
affiliate unless CompManagement meets certain tangible net worth requirements.
CompManagement also leases office space in Akron, Cincinnati, Cleveland, and
Toledo, Ohio; Seattle, Washington; Charleston, West Virginia; Lexington,
Kentucky; and Indianapolis, Indiana. These spaces are used as regional offices
and service centers for its operations.
Primrose leases a 4,500 square foot building in Cartersville, Georgia where it
maintains all its operations, sales and administrative facilities. It also
leases 2,000 square feet in an adjacent building where it maintains its real
estate and development facilities.
Primrose Country Day School leases land and buildings containing a total of
8,000 square feet located in Georgia where it maintains its educational child
care operations.
Pumpkin leases 10,671 square feet of office space in Denver, Colorado for its
sales and administrative activities.
Possible Dreams owns land and a 55,000 square foot building in Foxboro,
Massachusetts where it maintains all its distribution, sales and administrative
facilities. Possible Dreams currently utilizes approximately 48,000 square feet
as distribution space and approximately 7,000 square feet as sales and
administrative offices. Substantially all of the properties and other assets of
Possible Dreams are pledged to Possible Dreams' principal lender as security
for a line of credit and related loans.
Possible Dreams leases 2,400 square feet in New York, New York for a showroom.
Possible Dreams leases 2,400 square feet in Atlanta, Georgia for a showroom.
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The Company believes its owned and leased properties are adequate for its
current needs.
Item 3. LEGAL PROCEEDINGS
The Company is party to several legal actions arising in the ordinary course of
its business. In management's opinion, the Company has adequate legal defenses
to these actions, such that the resolution of such matters will not have a
material effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Class A Common Stock of Security Capital is traded on the American Stock
Exchange (the "AMEX") under the symbol SCC. The following table states the high
and low sales prices for the Class A Common Stock on the AMEX and, prior to
April 1999, the Pacific Stock Exchange, for the quarterly periods indicated:
2000 PRICE RANGE 1999 PRICE RANGE
---------------- ----------------
QUARTER HIGH LOW QUARTER HIGH LOW
------- ---- --- ------- ---- ---
First -- ended March 31 $6 3/8 $5 5/8 First -- ended March 31 $4 3/8 $3 3/4
Second -- ended June 30 $6 1/4 $5 1/2 Second -- ended June 30 $9 $3 7/8
Third -- ended September 30 $6 5/8 $5 1/2 Third -- ended September 30 $8 3/4 $6 1/2
Fourth -- ended December 31 $8 $6 1/2 Fourth -- ended December 31 $6 7/8 $5 7/8
As of March 26, 2001, there were approximately 2,100 stockholders of record of
the Class A Common Stock and 6,442,309 shares outstanding, and 54 stockholders
of record of the Common Stock and 380 shares outstanding. On such date, the
closing price of the Class A Common Stock on the AMEX was $9.05.
The Company has not paid any dividends to common stockholders for several
years and does not intend to pay any dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial data for
the Company. This selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included in Item 8 of this Form 10-K and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7 of this
Form 10-K.
TWELVE TWELVE TWELVE TWELVE THREE TWELVE
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 9/30/96
-------- -------- -------- -------- -------- -------
(In thousands, except share data)
Net revenues ...................................... $ 41,904 $37,345 $30,018 $25,723 $ 5,073 $ 9,854
Income (loss) from continuing operations .......... 1,425 1,935 2,149 2,145 233 777
Income (loss) from discontinued operations ........ -- -- -- 66 (108) 236
Gain on disposal of discontinued operations ....... -- -- -- 1,149 -- --
Net income ........................................ 1,425 1,935 2,149 3,360 125 1,013
Less preferred stock accretion .................... (309) (206) -- -- -- --
Less preferred stock dividends .................... -- -- -- (450) (113) (450)
-------- ------- ------- ------- ------- -------
Net income (loss) available to common stockholders $ 1,116 $ 1,729 $ 2,149 $ 2,910 $ 12 $ 563
======== ======= ======= ======= ======= =======
Basic and diluted earnings (loss) per common share:
Income from continuing operations ................. $ 0.17 $ 0.28 $ 0.41 $ 0.39 $ 0.03 $ 0.00
Income (loss) from discontinued operations ........ -- -- -- 0.01 (0.03) 0.06
Gain on disposal of discontinued operations ....... -- -- -- 0.26 -- --
-------- ------- ------- ------- ------- -------
Basic and diluted earnings (loss) per common share $ 0.17 $ 0.28 $ 0.41 $ 0.66 $ 0.00 $ 0.14
======== ======= ======= ======= ======= =======
Dividends per share of common stock ............... -- -- -- -- -- --
-------- ------- ------- ------- ------- -------
Total assets ...................................... $100,557 $55,320 $33,638 $32,550 $25,797 $34,502
Long-term obligations ............................. 38,890 19,870 11,266 12,383 10,047 11,710
Redeemable preferred stock ........................ 2,515 2,206 -- -- -- --
Class A preferred stock (redeemable) .............. -- -- -- -- 4,537 4,425
Total stockholders' equity ........................ $ 24,789 $23,672 $16,943 $14,794 $ 6,896 $ 6,884
DISCONTINUED OPERATIONS
On July 17, 1997 the Company sold, effective June 30, 1997, its beneficial
interest in FIS, a Texas corporation, to Bowen, Miclette, Descant and Britt for
consideration of $1,526,000 and recognized a gain of approximately $1,149,000
(net of tax). In an unrelated transaction, the Company in December 1997 sold
Foster Insurance Managers Inc. ("FIM") for $265,000 in cash to Tri-Star
Insurance Services, Ltd., a Kentucky corporation. The Company recognized no
gain as part of this transaction. The Company no longer has any interest in the
insurance brokerage business as a result of these two transactions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto appearing in Item 8
"Financial Statements and Supplementary Data" in this Report on Form 10-K.
RESULTS OF OPERATIONS - 2000 COMPARED TO 1999
Security Capital reported net income of $1,425,000 for the year ended December
31, 2000. This compares to net income of $1,935,000 for the year ended December
31, 1999. The Company reported basic net income per common share of $0.17 for
the year ended December 31, 2000, as compared to basic net income per common
share of $0.28 for the year ended December 31, 1999. For 2000 the Company's
basic net income per common share was reduced by $0.18 due to a net $1,146,000
reduction in deferred tax benefit from the utilization of its net operating
loss carryforward during 1999.
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Revenues increased by $4,559,000 or 12% to $41,904,000 for the year ended
December 31, 2000. The Company's seasonal products segment revenues increased
by $642,000 or 2% to $33,759,000, due to increased demand for its products
during the third and fourth quarters of 2000, which are that segment's
traditionally strongest quarters. Educational segment revenues increased by
$2,616,000 or 62% to $6,844,000, for the year ended December 31, 2000, due to
both the demand for its services and its inclusion for the full year of 2000
compared to nine months for 1999 due to its April 1999 acquisition. As a
measure of the increasing success of the educational segment's concept, the
Company monitors the revenues generated by its franchisees. Total education
system revenue, or gross revenue of all educational-based child care center
franchises increased $13,741,000 or 23% to $72,242,000, for the year ended
December 31, 2000, as compared to the same period of the prior year. Total
royalty revenue of the educational segment earned from system revenues
increased $962,000 or 23%, for the year ended December 31, 2000, as compared
to the same period of the prior year. These increases were generated from a
12% increase in the number of educational-based childcare centers, which was
82 and 73 as of December 31, 2000 and 1999, respectively. Additionally, as of
December 31, 2000, this segment had awarded 42 franchise agreements in
various stages of development and construction with associated unearned
revenue of $2,319,000 recorded on the Company's balance sheet as of December
31, 2000. In December 2000, the Company acquired Health Power, a provider of
cost containment-related services, and now has three segments. This new
segment accounted for $1,301,000 of the increase in revenues.
Selling, general and administrative expense increased by $1,757,000 to
$15,230,000 for the year ended December 31, 2000. Without taking into
consideration the Health Power acquisition, selling, general and administrative
expense increased by $1,010,000 for the year ended December 31, 2000, as
compared to the year ended December 31, 1999. The educational segment selling,
general and administrative expense increased by $793,000, primarily attributable
to increasing its staff to accommodate growth and to a lesser extent its
inclusion for the full year of 2000 compared to nine months for 1999 due to its
April 1999 acquisition. The remainder of the increase was attributable to
holding company expense incurred.
Amortization and depreciation increased by $550,000 for the year ended December
31, 2000. Without taking into consideration the Health Power acquisition,
amortization and depreciation increased by $446,000 for the year ended December
31, 2000, as compared to the year ended December 31, 1999. The educational
segment's amortization and depreciation expense increased by $410,000 which was
primarily attributable to its inclusion for the full year of 2000 compared to
nine months for 1999 due to its April 1999 acquisition. The remainder of the
increase, $36,000, was attributable to the seasonal product segment.
Interest expense increased by $320,000 for the year ended December 31, 2000.
Without taking into consideration the Health Power acquisition, interest expense
increased by $223,000 for the year ended December 31, 2000, as compared to the
year ended December 31, 1999. The seasonal products segment's expense decreased
by $165,000 due to reduced average debt levels. The educational segment's
interest expense increased by $401,000 which was primarily attributable to its
inclusion for the full year of 2000 compared to nine months for 1999 due to its
April 1999 acquisition.
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The Company's income tax expense increased by $1,908,000 primarily as a result
of the 1999 period reflecting $1,347,000 benefit from the utilization of net
operating losses compared to $204,000 in the current period (see Note 12 to the
consolidated financial statements).
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Security Capital reported net income of $1,935,000 for the year ended December
31, 1999. This compares to a net income of $2,149,000 for the year end December
31, 1998. The Company reported basic net income per common share of $0.28 for
the year ended December 31, 1999, as compared to basic net income per common
share of $0.41 for the year ended December 31, 1998.
Revenues increased by $7,327,000 to $37,345,000 for the year ended December 31,
1999. This represents an increase of 24% for the year ended December 31, 1999.
Without taking into consideration the acquisitions of Our Kids in September
1998, and Primrose, the educational segment, in April 1999, revenues increased
by $2,828,000 for the year ended December 31, 1999, as compared to the year
ended December 31, 1998. The increase was primarily attributable to demand for
the Company's seasonal products segment during the third and fourth quarters of
1999, which are that segment's traditionally strongest quarters. Educational
segment revenues were $4,228,000 for the year ended December 31, 1999. As a
measure of the increasing success of the educational segments concept, the
Company monitors the revenues generated by its franchisees. Total education
system revenue, or gross revenue of all educational based child care center
franchises increased $14,335,000, or 32%, for the year ended December 31, 1999,
as compared to the historical pre-acquisition records of that segment. Total
royalty revenue the educational segment earned from system revenues increased
$1,016,000, or 34%, for the year ended December 31, 1999, as compared to the
historical pre-acquisition records of the educational segment. These increases
were generated from an 18% increase in the number of educational based childcare
centers, which was 73 and 62 as of December 31, 1999 and 1998, respectively.
This segment has awarded 31 franchise agreements with associated unearned
revenue of $1,631,000 recorded on the Company's balance sheet as of December 31,
1999. This segment has recently increased its support staff to a level
sufficient to accommodate growth of up to 24 educational based childcare centers
per year.
Selling, general and administrative expense increased by $2,894,000 to
$13,473,000 for the year ended December 31, 1999. Without taking into
consideration the Primrose acquisition, selling, general and administrative
expense increased by $1,515,000 for the year ended December 31, 1999, as
compared to the year ended December 31, 1998. The increase was primarily due to
the seasonal products segment increasing its staff to accommodate growth and the
development of new products.
Depreciation and amortization increased by $998,000 for the year ended December
31, 1999. Without taking into consideration the educational segment acquisition,
depreciation and amortization increased by $17,000 for the year ended December
31, 1999, as compared to the year ended December 31, 1998.
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Interest expense increased by $737,000 for the year ended December 31, 1999.
Without taking into consideration the educational segment acquisition, interest
expense decreased by $277,000 for the year ended December 31, 1999, as compared
to the year ended December 31, 1998. The decrease is primary due to reduced
average debt levels of the seasonal products segment.
The Company decreased the valuation allowance for the deferred tax asset by
$1,347,000 and $1,149,000 for the years ended December 31, 1999 and 1998,
respectively, attributable to the Company's expected utilization of its net
operating loss carry forward.
SEASONALITY
The seasonal products segment consists of Possible Dreams and Pumpkin. This
segment experiences a significant seasonal pattern in its working capital
requirements and operating results. The seasonal segment for the two previous
years received orders representing approximately 36% and 37% of its annual
bookings during the first and second quarters, respectively. It ships
products throughout the year, with approximately 56% of its shipments in the
third quarter. Temporary employees are hired to accommodate peak shipping
periods. This segment provides extended payment terms to some of its
customers for seasonal merchandise and, accordingly, collects a substantial
portion of its accounts receivable in the fourth calendar quarter. Due to the
seasonal pattern, the seasonal product segment has had greater working
capital needs in its peak season and has experienced greater cash availability
in its fourth calendar quarter. As a result of this sales pattern, a
substantial portion of its revenues is typically recorded in the third and
fourth calendar quarters. The Company expects this seasonal pattern to continue
for the foreseeable future. The seasonal products segment has historically
financed its operations through internally generated cash flow and short term
seasonal borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $3,964,000 from $1,813,000 at December 31,
1999 to $5,777,000 at December 31, 2000. Approximately $3,047,000 of the
increase in cash was the cash balance at December 31, 2000 on the Company's
employer cost containment-related services segment which was acquired in
December 2000. Additionally, the Company assumed certain liabilities of the
predecessor Company, which when paid, resulted in a net $5,700,000 outflow of
cash recorded on the Statements of Cash Flows as an operating activity. The
remaining $917,000 increase in cash was primarily attributable to the seasonal
products segment's revolving line of credit.
The Company's consolidated working capital decreased by $9,693,000, from
$3,866,000 at December 31, 1999 to a deficit of $5,827,000 at December 31, 2000.
Approximately $6,995,000 of the decrease was attributable to the Company's
employer cost containment-related services segment which was acquired in
December 2000. This segment generally has a deficit working capital due to
prepayment of fees which are recorded as unearned revenue on the balance sheet.
The unearned revenue recorded on the Company's December 31, 2000 balance sheet
attributable to this segment was $10,570,000. The seasonal products segment
working capital decreased by $1,843,000 which was primarily attributable to the
warrant reclassification of $855,000 from long-term to current liabilities. The
educational segment working capital decreased by approximately $520,000
primarily due to a $688,000 increase in its unearned revenues. The remaining
decrease of $335,000 was primarily due to the holding company's activities and
its acquisition of Health Power.
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The seasonal products segment, in aggregate, maintains two revolving lines of
credit, which had combined balances of $2,700,000 outstanding and $3,204,000
available at December 31, 2000. The low balance was due to its seasonal pattern.
The Company's education segment maintains a $2,500,000 revolving line of credit,
which had a balance of $500,000 outstanding and $141,000 available at December
31, 2000. The Company's employer cost containment-related services segment
maintains an $8,000,000 revolving line of credit, which had a balance of
$1,000,000 outstanding and $6,500,000 available at December 31, 2000. Portions
of the revolving lines of credit may be limited to a borrowing base as defined
in the notes to the audited financial statements included in this Form 10-K.
Additionally, the Company had a cash balance of $5,777,000 at December 31, 2000.
Total term debt increased by $21,260,000 from $22,074,000 at December 31, 1999
to $43,334,000 at December 31, 2000. Term debt increased by $25,121,000 due to
the Health Power acquisition and decreased by $3,861,000 due to payments on all
term debt. Term debt in aggregate has an approximate 11.53% interest rate and
current maturities of $7,840,000. Term debt also has certain covenants at the
subsidiary operating Company level, the more significant of which requires the
subsidiary operating Companies to maintain minimum earnings before interest,
taxes, depreciation and amortization ("EBITDA"), leverage ratio, interest
coverage ratio, fixed charge ratio and maximum lease expense. At December 31,
2000, Primrose was not in compliance with their respective minimum EBITDA and
leverage covenants. Primrose has received waivers and amendments to their credit
agreement. Primrose estimates full compliance with its newly-amended covenants.
The Company had no major capital expenditures during the calendar year 2000 and
expects no major capital expenditures during the calendar year 2001.
Excess of cost over the fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over 20 to 25 years. Management continues to
believe that the amortization periods utilized are appropriate (see the
consolidated financial statements and notes thereto).
The Company's quarterly and annual revenues and other operating results have
been and will continue to be affected by a wide variety of factors that could
have a material adverse effect on the Company's financial performance during
any particular quarter or year. Such factors include, but are not limited to
those listed under "Forward Looking Statements". The Company has introduced a
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number of new products in its target markets in 2000, 1999 and 1998, and
plans to introduce additional products in 2001 which are expected to enhance
future revenues and liquidity of the Company. However, there can be no
assurance that the Company will be able to implement its plans to introduce
such products in a timely fashion, or that such products will meet the
expectations of the Company for either revenues or profitability. The Company
believes that cash flows from operating activities and the successful
introduction of its new products and continued growth of its franchises, as
well as its available borrowings under the revolving credit facilities, will
be adequate to meet the Company's debt service obligations, working capital
needs and planned capital expenditures for at least the next twelve months,
although there can be no assurance in this regard.
FORWARD LOOKING STATEMENTS
This Annual Report on form 10-K contains "forward-looking" statements within the
meaning of the "safe harbor" provision of the Private Litigation Reform Act of
1995. Such statements are based on managements current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward looking
statements. Such factors and uncertainties include, but are not limited to: the
level of orders that are received and shipped by the Company in any given
quarter, the rescheduling and cancellation of orders by customers, availability
and cost of materials, the Company's ability to enhance its existing products
and to develop, manufacture, and successfully introduce and market new products,
new product developments by the Company's competitors, market acceptance of
products of both the Company and its competitors, competitive pressures on
prices, the ability to attract and maintain qualified personnel, significant
damage to or prolonged delay in operations at the Company's suppliers'
manufacturing facility, and interest rate and foreign exchange fluctuations,
political stability in the Pacific Rim, and its ability to attract qualified
franchisees.
QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of operations by quarter (dollar amounts in
thousands, except per share amounts):
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2000:
Net revenues ......................... $ 4,748 $ 8,717 $20,309 $ 8,130
Gross profit ......................... 2,768 5,033 11,930 4,685
Net (loss) income .................... (604) 141 2,987 (1,099)
Basic (loss) earnings per common share (0.11) 0.01 0.45 (0.18)
1999:
Net revenues ......................... $ 3,335 $ 6,456 $20,303 $ 7,251
Gross profit ......................... 1,585 3,405 11,574 3,593
Net (loss) income .................... (785) (994) 3,933 (219)
Basic (loss) earnings per common share (0.15) (0.18) 0.61 (0.03)
23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk associated with changes in interest rates.
The Company's notes payable and long-term debt bear interest primarily at
variable rates. The Company is subject to increases and decreases in interest
expense on its variable rate debt resulting from fluctuations in the interest
rates on such debt. The effect of a percentage point change in interest rates
would impact interest expense by approximately $475,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors 25
Consolidated Financial Statements
Consolidated Statements of Income --
For the years ended December 31, 2000, 1999 and 1998 27
Consolidated Balance Sheets -
As of December 31, 2000 and 1999 28
Consolidated Statements of Cash Flows --
For the years ended December 31, 2000, 1999 and 1998 29
Consolidated Statements of Stockholders' Equity --
For the years ended December 31, 2000, 1999 and 1998 30
Notes to Consolidated Financial Statement 31
24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Security Capital Corporation
We have audited the accompanying consolidated balance sheet of Security Capital
Corporation and subsidiaries (the "Company") as of December 31, 2000 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Capital
Corporation and subsidiaries at December 31, 2000 and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 30, 2001 except for Note 20
as to which the date is April 1, 2001
25
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Security Capital Corporation
We have audited the accompanying consolidated balance sheet of Security Capital
Corporation and subsidiaries (the "Company") as of December 31, 1999 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Security Capital Corporation and
subsidiaries at December 31, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 27, 2000
26
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31
2000 1999 1998
-------- -------- --------
Net seasonal product sales ............................ $ 33,759 $ 33,117 $ 30,018
Educational service revenues .......................... 6,844 4,228 --
Employer cost containment-related service revenue ..... 1,301 -- --
-------- -------- --------
Total revenues ........................................ 41,904 37,345 30,018
-------- -------- --------
Seasonal products cost of sales ....................... 15,807 16,110 14,486
Educational service cost of sales ..................... 1,484 1,078 --
Employer cost containment-related service cost of sales 197 -- --
-------- -------- --------
Total cost of sales ................................... 17,488 17,188 14,486
-------- -------- --------
Gross profit .......................................... 24,416 20,157 15,532
Selling, general and administrative expenses .......... 15,230 13,473 10,579
Amortization and Depreciation ......................... 2,436 1,886 888
-------- -------- --------
Operating income ...................................... 6,750 4,798 4,065
Interest expense ...................................... (3,442) (3,122) (2,385)
Other (expense) income ................................ (507) (236) 199
-------- -------- --------
Income before income taxes and minority interest ...... 2,801 1,440 1,879
Income tax (expense) benefit .......................... (1,140) 768 435
Minority interest ..................................... (236) (273) (165)
-------- -------- --------
Net income ............................................ 1,425 1,935 2,149
Less preferred stock accretion ........................ (309) (206) --
-------- -------- --------
Income available to common stockholders ............... $ 1,116 $ 1,729 $ 2,149
======== ======== ========
Basic earnings per share .............................. $ 0.17 $ 0.28 $ 0.41
======== ======== ========
Diluted earnings per share ............................ $ 0.17 $ 0.28 $ 0.41
======== ======== ========
Basic weighted average shares used in computation ..... 6,442 6,150 5,306
======== ======== ========
Diluted weighted average shares used in computation ... 6,484 6,150 5,306
======== ======== ========
The accompanying notes to are an integral part of these consolidated financial
statements.
27
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
DECEMBER 31,
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 5,777 $ 1,813
Accounts receivable (net of allowance for doubtful accounts
of $1,057 and $213) ............................................................. 9,265 4,982
Inventories ....................................................................... 5,594 4,193
Income taxes receivable, net ...................................................... 1,527 --
Deferred tax assets ............................................................... 1,943 287
Other current assets .............................................................. 1,470 946
--------- ---------
Total current assets .............................................................. 25,576 12,221
Property and equipment, net ......................................................... 5,966 1,781
Goodwill (net of accumulated amortization of $3,992 and $2,568) ..................... 57,836 28,573
Intangible assets, net .............................................................. 9,582 10,268
Deferred income tax ................................................................. 1,074 1,875
Other assets ........................................................................ 523 602
--------- ---------
Total assets ...................................................................... $ 100,557 $ 55,320
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and other obligations ........................... $ 7,840 $ 3,617
Accounts payable .................................................................. 3,371 891
Accrued expenses and other liabilities ............................................ 3,102 966
Unearned revenue .................................................................. 12,890 1,631
Notes payable ..................................................................... 4,200 1,250
--------- ---------
Total current liabilities ......................................................... 31,403 8,355
--------- ---------
Long-term debt ...................................................................... 34,560 17,304
Other long-term obligations ......................................................... 4,330 2,566
Minority interest ................................................................... 2,960 1,217
Redeemable convertible preferred stock (liquidation value - $5,000) ................. 2,515 2,206
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 7,500 shares authorized; 380 shares issued (539 in
1999) and 380 shares outstanding (380 in 1999)
Class A common stock, $.01 par value, 10,000,000 shares authorized; 6,442,309
shares issued (6,760,725 in 1999), 6,442,309 shares
outstanding (6,442,309 in 1999) ................................................... 65 68
Additional paid-in capital .......................................................... 66,782 72,302
Accumulated deficit ................................................................. (42,058) (43,483)
Less: treasury stock, at cost -0- and 318,575 shares in 2000 and 1999, respectively . -- (5,215)
--------- ---------
Total stockholders' equity ...................................................... 24,789 23,672
--------- ---------
Total liabilities and stockholders' equity ...................................... $ 100,557 $ 55,320
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
28
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net income ....................................................... $ 1,425 $ 1,935 $ 2,149
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Deferred income taxes ........................................ 755 (887) (636)
Warrant expense .............................................. 559 290 180
Amortization ................................................. 2,520 2,066 966
Depreciation ................................................. 378 255 105
Minority interest in income of consolidated subsidiaries ..... 236 273 165
Changes in operating assets and liabilities, net of effects
from acquired businesses:
Accounts receivable .......................................... (260) (856) (670)
Inventories .................................................. (1,401) 1,146 (910)
Other current assets ......................................... 306 240 (278)
Accounts payable, accrued expenses and other liabilities ..... (4,549) (1,553) 710
-------- -------- --------
Net cash (used in) provided by operating activities .............. (31) 2,909 1,781
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ......................................... (346) (324) (323)
Payments for acquired businesses
(net of acquired cash of $15,963 - 2000,
$838 - 1999, and $0 - 1998) ................................ (19,867) (25,033) (250)
-------- -------- --------
Net cash used in investing activities ............................ (20,213) (25,357) (573)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock ..................................... -- 5,000 --
Additional long-term borrowings .............................. 33,128 13,150 --
Repayment of long-term borrowings ............................ (3,870) (3,272) (2,116)
Borrowing on lines of credit ................................. 14,785 6,065 --
Repayment of lines of credit ................................. (19,835) (5,815) --
-------- -------- --------
Net cash provided by (used in) financing activities .......... 24,208 15,128 (2,116)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ................. 3,964 (7,320) (908)
Cash and cash equivalents, beginning of period ................... 1,813 9,133 10,041
-------- -------- --------
Cash and cash equivalents, end of period ......................... $ 5,777 $ 1,813 $ 9,133
======== ======== ========
Interest paid .................................................... $ 2,672 $ 2,727 $ 2,385
======== ======== ========
Income taxes paid ................................................ $ 352 $ 131 $ 55
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED TREASURY
SHARES ISSUED* STOCK* CAPITAL DEFICIT STOCK TOTAL
-------------- ------ ------- ------- ----- -----
Balance, January 1, 1998 ...................... 5,624,900 $ 56 $ 67,520 $(47,567) $ (5,215) $14,794
Net income -- -- -- 2,149 -- 2,149
--------- -------- -------- -------- -------- -------
Balance, December 31, 1998 .................... 5,624,900 56 67,520 (45,418) (5,215) 16,943
Net income .................................. 1,935 1,935
Accretion of convertible/redeemable
preferred stock ........................... (206) (206)
Sale of 1,136,364 shares of
Class A common
stock ..................................... 1,136,364 12 4,988 -- -- 5,000
--------- -------- -------- -------- -------- -------
Balance, December 31, 1999 .................... 6,761,264 68 72,302 (43,483) (5,215) 23,672
Net income .................................. 1,425 1,425
Accretion of convertible/redeemable
preferred stock ........................... (308) (308)
Retirement of 159 shares of Common stock and
318,416 shares of Class A common stock .... (318,575) (3) (5,212) -- 5,215 --
--------- -------- -------- -------- -------- -------
6,442,689 $ 65 $ 66,782 $(42,058) $ 0 $24,789
========= ======== ======== ======== ======== =======
* Includes both Common Stock and Class A Common Stock
The accompanying notes are an integral part of these consolidated financial
statements.
30
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Security Capital Corporation ("Security Capital") operates as a financial
buyer of established companies as portfolio investments. Primarily, Security
Capital participates in the management of its portfolio companies at the
board level, and encourages operating autonomy and preservation of
entrepreneurial environments. Currently, Security Capital has four portfolio
subsidiary activities (together with Security Capital, referred to as the
"Company"), known as Health Power, Primrose, Pumpkin, and Possible Dreams. WC
Holdings Inc. is a wholly-owned subsidiary with an 80% equity interest in
Health Power, Inc. Health Power - through its wholly-owned subsidiary
CompManagement, Inc. - provides services to corporations and their employees
primarily relating to workplace health and safety occupational medical care,
workers' compensation insurance and employee benefits costs. CompManagement's
activities are centered primarily in Ohio and to a lesser extent in Indiana,
Kentucky, Pennsylvania, West Virginia, and Washington. Primrose is a
98%-owned subsidiary involved in the franchising of educational child care
centers, with related activities in real estate consulting and site selection
services. Primrose also operates one child care center. The Primrose
activities are primarily based in the southern, central and western United
States. Pumpkin is an 80%-owned subsidiary in the business of manufacturing
and distributing pumpkin carving kits and related accessories. Pumpkin's
activities are centered in the United States. Possible Dreams is a
wholly-owned subsidiary that operates as an importer, designer, and
distributor of collectible Christmas, everyday and other figurines and
ornaments primarily in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Security Capital and its subsidiaries. All significant intercompany balances
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year presentation.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Significant estimates included within the financial statements include sales
return and discount reserves, allowance for doubtful accounts, inventory
obsolescence reserves, the fair value of carryforward tax benefits, and the fair
value and economic lives of intangible assets.
31
REVENUE RECOGNITION
Revenues from product sales are recognized in the period in which the
merchandise is shipped. Customers who purchase certain minimum quantities
receive extended payment terms.
Primrose recognizes royalties based on the monthly revenues of the franchisees.
Franchise fees are collected at various intervals prior to the opening of a
school and are deferred until the franchised school has commenced operations.
Real estate service fees are recognized as earned. Assignment fees relate to
revenue earned for site identification and preparation for the construction of
the building, including zoning permits. Assignment fees are recognized upon the
closing of the purchase of the property. School tuition revenue is recognized as
earned over the school year. All fees received in advance of time of recognition
are recorded as unearned revenue.
Employer cost containment-related service contract revenues are derived from
claims management, administrative, consulting services and managed care
administration services which are recorded as earned based on the requirements
and duration of the related contract. Revenue from the managed care
administration services is recognized on a monthly basis based on the contracted
administrative fee with the Ohio Bureau of Workers' Compensation. In addition,
contract revenue is recorded for certain incentive awards when the claims are
processed to which the incentive is related and a bonus award is recorded in the
year earned. Revenue on certain contracts has been deferred and is recognized in
income on a pro rata basis over the related contract periods, which typically
range between 3 and 12 months. Commission expense associated with these
contracts is also deferred and recognized as an expense on a pro rata basis over
the related contract periods. For services related to group rating contracts,
fees are paid to the group's sponsor and netted against contract revenues.
Contract revenues received in advance are included in deferred revenues.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
RECEIVABLES
A summary of the changes in the allowance for doubtful accounts at December 31
is as follows:
2000 1999 1998
------- ----- -----
Balance at beginning of year .... $ 213 $ 214 $ 119
Amount purchased - acquisition of
WC Holdings, Inc. ............. 510 -- --
Provisions ...................... 403 182 200
Deductions ...................... (69) (183) (105)
------- ----- -----
Balance at end of year .......... $ 1,057 $ 213 $ 214
======= ===== =====
32
INVENTORIES
Inventories are principally comprised of finished goods, are stated at the lower
of cost or market, using the first-in, first-out method.
PREPAID CATALOG COSTS
Prepaid catalog expenses consist of the cost to produce, print and distribute
catalogs. These costs are considered direct-response advertising and, as such,
are capitalized as incurred and amortized over a period which is generally
less than one year.
PROPERTY AND EQUIPMENT - NET
Property and equipment are carried at cost. Significant renewals and betterments
to property and equipment are capitalized, and maintenance and repairs that do
not improve or extend the lives of the assets are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 27 years. Leasehold
improvements are amortized over the shorter of the useful life or the lease
term.
GOODWILL AND INTANGIBLE ASSETS - NET
Goodwill relates to the cost in excess of the fair value of the net assets
acquired in the purchase business combinations of Possible Dreams, Pumpkin,
Primrose, and WC Holdings. Goodwill is being amortized over periods of 20 to 25
years. Patent rights, acquired in such acquisitions, are being amortized over
the 9 to 17 year remaining lives of the respective patents.
Deferred financing costs are amortized over the term of the related debt.
Franchise agreements, curriculum, and non-compete agreements related to Primrose
are being amortized over periods of 21, 10 and 2 years, respectively. All such
assets are being amortized on a straight-line basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of current assets (except inventories), current
liabilities, notes receivable, notes payable, additional payment obligations and
long-term debt. Current assets and current liabilities are carried at cost,
which approximates fair value. Notes receivable, notes payable, the additional
payment obligations and long-term debt bear interest at current market rates
and, accordingly, the carrying value of the notes receivable and the debt
approximates fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets, including goodwill and intangible
assets, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability is
determined based on future undiscounted net cash flows from the use and
ultimate disposition of the asset. Impairment loss is calculated as the
difference
33
between the carrying amount of the asset and its fair value. Fair value is
determined primarily by using the anticipated cash flows discounted at a rate
commensurate with the risk involved. As of December 31, 2000, the Company had
not recognized any impairment losses.
WARRANT OBLIGATIONS
Warrants to acquire subsidiary shares issued in connection with the acquisitions
of the subsidiaries can be settled in cash at the option of the holders.
Accordingly, the estimated fair value of the warrants have been recorded as
liabilities and changes in the estimated fair value of the warrants are recorded
as other income or expense in the respective statements of income.
PREFERRED STOCK ACCRETION
Differences between the carrying value of redeemable preferred shares and their
redemption value are accreted using the interest method over the remaining
estimated period to redemption, by charges to additional paid-in capital.
DEBT DISCOUNT AMORTIZATION
Differences between the carrying value and the face amount of the debt are
amortized to interest expense over the life of the debt using the effective
interest method.
STOCK OPTIONS
The Company measures compensation cost for stock options issued to employees
using the intrinsic value method of accounting for stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
EARNINGS PER SHARE
Basic earnings per common share amounts are based on the weighted average number
of Common and Class A Common shares outstanding. The sum of Common Stock and
Class A Common Stock is used because the two classes are identical except for
certain transfer restrictions. Diluted earnings per common share are based on
the weighted average shares outstanding and the dilutive effect, if any, of
outstanding stock options and convertible securities.
INCOME TAXES
The Company computes income taxes using the asset and liability method, under
which deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the assets and liabilities,
using presently enacted rates.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement is effective
for the Company
34
on January 1, 2001, and addresses the accounting for derivative instruments and
hedging activities. The Company has not entered into such types of transactions
in the past and does not believe that the adoption of this new statement will
have a material effect on the Company's financial statements.
3. ACQUISITIONS
WC Holdings, Inc.
In December 2000, the Company purchased a 100% interest in WC Holdings, Inc.
who, in turn, purchased an 80% interest in Health Power, Inc. The results of
operations of WC Holdings have been included in the financial statements from
the date of acquisition. The Company paid $37,128 in cash. The acquisition has
been accounted for as a purchase, with the purchase price, net of cash acquired
of $15,963 preliminarily allocated as follows based on estimates for values at
the date of acquisition:
Goodwill ( 20 years).......................... $ 28,818
Other assets ................................. 12,172
Unearned revenue ............................. (10,853)
Accrued liabilities .......................... (8,972)
--------
Total ........................................ $ 21,165
========
In connection with the financing of the acquisition, the Company borrowed funds
under bank credit agreements. Under terms of the bank credit agreements, the
borrowings are secured by a pledge of all assets of the WC Holdings businesses,
and by the capital stock of WC Holdings held by the Company.
The following unaudited pro forma financial information presents the combined
results of the Company and Health Power, Inc as if the acquisition had taken
place at the beginning of each period presented. The pro forma amounts give
effect to certain adjustments including the amortization of goodwill and
intangibles, increased interest expense and income tax effects. This pro forma
information does not necessarily reflect the results of operations as they
would have been if the business had been managed by the Company during these
periods and is not indicative of results that may be obtained in the future:
YEAR ENDED YEAR ENDED
DEC. 31, 2000 DEC. 31,1999
Pro-forma: (unaudited) (unaudited)
Revenue ................................. $80,983 $75,607
Net income .............................. $ 4,221 $ 2,619
Basic earnings per share ................ $ 0.65 $ 0.42
Diluted earnings per share .............. $ 0.64 $ 0.41
35
PRIMROSE
In April 1999, the Company purchased a 98% interest in Primrose. The results of
operations of Primrose have been included in the financial statements from the
date of acquisition. The Company paid $26,225 in cash, issued 500,000 shares of
zero coupon redeemable convertible preferred stock valued at $2,000, and issued
a warrant to a bank to purchase shares of Primrose. The acquisition has been
accounted for as a purchase, with the purchase price, net of cash acquired of
$838 allocated as follows:
Goodwill ............................................ $ 18,937
Intangibles, principally franchise agreements ....... 9,522
Other assets ........................................ 1,773
Unearned revenue .................................... (1,600)
Accrued liabilities ................................. (1,244)
--------
Total ............................................... $ 27,388
========
In connection with the financing of the acquisition, the Company sold 1,136,364
shares of Class A Common Stock for $5,000 in a private placement transaction
with an affiliate of the Company's controlling shareholder, and borrowed funds
under bank credit agreements. Under terms of the bank credit agreements, the
borrowings are secured by a pledge of all assets of the Primrose businesses, and
by the capital stock of Primrose held by the Company.
The following unaudited pro forma financial information presents the combined
results of the Company and Primrose as if the acquisition had taken place on
January 1, 1998. The pro forma amounts give effect to certain adjustments
including the amortization of goodwill and intangibles, increased interest
expense and income tax effects. This pro forma information does not necessarily
reflect the results of operations as they would have been if the business had
been managed by the Company during these periods and is not indicative of
results that may be obtained in the future:
YEAR ENDED
DEC. 31, 1999
Pro-forma: (unaudited)
Revenue ........................... $40,655
Net income ........................ 1,396
Basic earnings per share .......... .22
Diluted earnings per share ........ $ .22
36
4. INVENTORIES
DECEMBER 31,
2000 1999
------ ------
Finished goods ................. $5,199 $3,411
Raw materials .................. 395 782
------ ------
Total .......................... $5,594 $4,193
====== ======
5. PROPERTY AND EQUIPMENT - NET
DECEMBER 31,
2000 1999
-------- -------
Land and improvements ............... $ 370 $ 370
Buildings and improvements .......... 1,218 909
Computer equipment and software ..... 6,362 478
Machinery and equipment ............. 428 328
Furniture and fixtures .............. 1,739 174
-------- -------
10,117 2,259
Less accumulated depreciation ....... (4,151) (478)
-------- -------
Total ............................... $ 5,966 $ 1,781
======== =======
6. INTANGIBLE ASSETS - NET
DECEMBER 31,
2000 1999
-------- --------
Patents .......................... $ 1,223 $ 1,033
Deferred financing costs ......... 1,403 1,403
Franchise agreements ............. 8,750 8,750
Curriculum ....................... 250 250
Non-compete agreement ............ 89 89
-------- --------
11,715 11,525
Less accumulated amortization .... (2,133) (1,257)
-------- --------
Total ............................ $ 9,582 $ 10,268
======== ========
37
7. NOTES PAYABLE
Primrose, Pumpkin, Possible Dreams and WC Holdings each have short-term
borrowing facilities under bank credit agreements. Each such agreement
contains restrictive covenants which prohibit or limit certain actions,
including levels of capital expenditures, investments, incurrence of
additional debt, and which require the maintenance of defined levels of
profitability and tangible net worth. In March 2000, the agreements for
Possible Dreams and Primrose were amended to waive technical violation of
certain covenants which existed as of December 31, 1999, and to change the
covenant thresholds on a prospective basis. In March 2001, the agreement for
Primrose was amended to waive similar covenant violations at December 31, 2000.
Based upon the amendments, management expects to be in compliance with the
covenants in the foreseeable future. Borrowings under the agreements are
secured by a pledge of substantially all of the Company's assets as well as a
pledge of the Company's share ownerships in the subsidiaries.
Possible Dreams' agreement is a $10,000 line of credit, under which borrowing
capacity is limited to a defined borrowing base, of which $2,700 and $750 was
borrowed at December 31, 2000 and 1999, respectively, at the commercial paper
rate of interest plus 4% (10.5% and 9.52% at December 31, 2000 and 1999,
respectively). Additional borrowing capacity at December 31, 2000 was $1,644.
The agreement expires in 2003.
Pumpkin's agreement is a $3,500 line of credit, under which borrowing capacity
is limited to a defined borrowing base. Interest is calculated at the commercial
paper rate plus 4.25% (10.61% and 9.77% at December 31, 2000 and 1999,
respectively). There were no borrowings outstanding at either balance sheet
date. Borrowing capacity under the line was $1,560 at December 31, 2000. The
agreement expires in 2003 or upon the repayment of the Pumpkin Tranche A and B
term loans, if earlier.
Primrose's agreement is a $2,500 line of credit, under which $500 was borrowed
at both December 31, 2000 and December 31, 1999 at the greater of the prime rate
plus 2% or the federal funds rates plus 2.5% (11.5% and 10.5% at December 31,
2000 and 1999, respectively). Additional borrowing capacity under the line was
$141 at December 31, 2000. The agreement expires in 2002.
WC Holdings' agreement is an $8,000 line of credit under which $1,000 was
borrowed at December 31, 2000 at an interest rate of prime less 1/2% (9.0% at
December 31, 2000). Due to a restriction placed on the facility for a $500
letter of credit outstanding at year-end, the additional borrowing capacity
under this line was $6,500 at December 31, 2000.
38
8. LONG-TERM DEBT AND OTHER OBLIGATIONS
DECEMBER 31,
2000 1999
-------- --------
Possible Dreams Tranche A Term Loan, payable in twenty quarterly installments
through July 1, 2001; interest payable monthly at the commercial paper rate
plus 4% (10.5% and 9.515% at December 31, 2000 and 1999, respectively) ......... $ 800 $ 1,800
Possible Dreams Tranche B Term Loan, payable in seven annual installments
commencing upon the repayment of Tranche A Term Loan, is due no later than
April 1, 2003; interest payable monthly at the commercial paper rate plus 6%
(11.5% and 11.515% at December 31, 2000 and 1999, respectively) ............... 3,500 3,500
Possible Dreams Subordinated promissory notes, interest rates from 10 - 14% (10%
at December 31, 2000 and 1999, respectively), principal due on May 31, 2003;
interest payable semi-annually on May 1 and November 1 ........................ 1,960 1,960
Pumpkin Tranche A Term Loan, repaid early during 2000; interest was payable
monthly at the commercial paper rate plus 4.5% (10.52% at December 31, 1999) .. 0 817
Pumpkin Tranche B Term Loan, payable in eight quarterly installments through
October 2002; interest payable monthly at the commercial paper rate plus 6.5%
(12.86% and 12.52% at December 31, 2000 and 1999, respectively) ............. 2,000 2,000
Primrose Tranche A Term loan, payable in quarterly installments of $438 and a
balloon at March 31, 2002; interest payable quarterly at the Eurodollar
rate plus the applicable margin as defined in the credit agreement (10.16% and
8.9475% at December 31, 2000 and 1999, respectively) .......................... 9,900 11,837
WC Holdings capital lease for computer equipment
payable through May 2003 ...................................................... 248 --
39
WC Holdings note to Community Insurance payable in annual installments of
principle and interest through May 31, 2004 with interest imputed at 8% ....... 1,873 --
WC Holdings senior term debt payable in monthly installments through January
2007; interest payable monthly; $8,500 of the principal bears a fixed 7.60%
rate expiring in December 2005 but cancelable at the lender's option after
December 2003; the remainder of the debt carries a rate of prime minus 1/2%
or LIBOR plus 175 basis points (9.0% at December 31, 2000) .................... 17,000 --
WC Holdings subordinated debt, with a balloon payment due in December 2003 and
interest payable monthly at 20% per annum ..................................... 6,000 --
Pumpkin additional earnout payment
obligations (see Note 17) ..................................................... 53 160
-------- --------
43,334 22,074
Less unamortized debt discount .................................................. (934) (1,153)
Less current portion ............................................................ (7,840) (3,617)
-------- --------
Total long term debt ............................................................ $ 34,560 $ 17,304
======== ========
Maturities of long-term debt and other obligations for the next five years are
as follows:
$7,840 - 2001; $13,958 - 2002; $12,554 - 2003; $3,314 - 2004; $2,834 - 2005; and
$2,834 - thereafter.
Consistent with the bank lines of credit, most of the Company's long-term
obligations carry restrictive covenants which prohibit or limit certain actions,
including levels of capital expenditures, investments, incurrence of additional
debt, and which require the maintenance of defined levels of profitability and
tangible net worth. Most borrowings are secured by a pledge of substantially
all assets at the subsidiary level, as well as by a pledge of the Company's
share ownerships in the subsidiary.
The maturities of the Possible Dreams Tranche A and Tranche B term loans and of
the Pumpkin Tranche B term loan are subject to acceleration if defined cash flow
thresholds are not achieved. Such borrowings are also subject to prepayment
penalties.
The Company has a tax sharing agreement with its subsidiaries, under which
income tax liabilities at each subsidiary are determined on a stand-alone basis,
with amounts payable to
40
Security Capital as the consolidated taxpayer. With respect to Possible Dream's,
Primrose's, Pumpkin's and WC Holdings and subsidiaries' term loan and bank
credit arrangements, any amounts remitted to Security Capital in excess of
amounts approved by the lender are required to be set aside, and are pledged to
the lenders as additional collateral for the borrowings at such subsidiaries. At
December 31, 2000, no such amounts were set aside and pledged as collateral
under such arrangements.
WC Holdings leases computer equipment under an agreement which is classified as
a capital lease. Equipment subject to capital leases with a cost of $360 and
accumulated depreciation of $187 at December 31, 2000 is included in property
and equipment. At December 31, 2000, future minimum lease payments under the
capital lease obligations for the periods ending December 31 are as follows:
2001 $ 108
2002 108
2003 59
-----
Total minimum lease payments 275
Amounts representing interest (27)
-----
Present value of minimum lease payments $ 248
=====
Warrants to acquire shares of Possible Dreams, Pumpkin and Primrose are
redeemable at the election of the warrant holders for cash. The estimated fair
value of the warrants are recorded as liabilities and changes in the estimated
fair value of the warrants during a period are included in the results of
operations. Warrant expense, classified as "Other (expense) income" was $559,
$290 and $180 in the years ended December 31, 2000, 1999 and 1998, respectively.
Warrant liabilities, included in "other long-term obligations," were $3,026 and
$2,466 at December 31, 2000 and 1999, respectively.
9. PREFERRED STOCK
The Company has issued and outstanding 500,000 shares of zero coupon,
redeemable, preferred stock, that have a stated liquidation value of $10 per
share. Such preferred shares are convertible into Class A common stock on a 1:1
basis. The preferred shares are redeemable at their liquidation value upon the
earlier of (1) the date of Primrose' earnings before interest, income taxes,
depreciation and amortization ("EBITDA") exceeds $8,500 on a latest twelve month
basis on or after April, 2002, or (2) on April 6, 2006.
The Company has 2,500,000 shares of authorized preferred shares, $.01 par value,
of which 2,000,000 shares remain issuable at December 31, 2000 and 1999.
10. STOCKHOLDERS' EQUITY
The authorized capital of the Company consists of Common Stock and Class A
Common Stock. The Class A Common Stock shares are identical in rights to the
Common Stock shares, except that transfer of shares of the Class A Common Stock
is prohibited to a person who is, or would thereby become, a holder of 4.75% or
more of the fair market value of the Common Stock and the Class A Common Stock.
41
During 2000, the Company retired all of the 318,575 shares held in its treasury
returning them to their status of authorized and unissued shares of Common and
Class A Common Stock.
Stock-Based Compensation Plans - The Company records compensation expense for
its stock-based employee compensation plan in accordance with the
intrinsic-value method prescribed by APB No. 25, "Accounting for Stock Issued to
Employees." Intrinsic value is the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option or award on the
measurement date, which is generally the date of grant.
Security Capital Corporation - Pursuant to the provisions of the 2000 Long-Term
Incentive Plan, (which allows for the grant of up to 966,000 shares) on July
13, 2000 the Company granted options to acquire 549,000 shares of its Class A
common stock at market value, which was $6.125. Of the 549,000 shares granted
48,000 vest over a three-year period while the remaining 501,000 vest over a
five-year period. The Company, but not the holder, has the right to settle the
options in cash.
MINORITY INTEREST OWNERSHIPS
The owners of the minority interests in Health Power, Pumpkin and Primrose have
each entered into agreements with the Company providing for restrictions on the
transfer of such shares, and other related share rights. The minority
shareholders of Pumpkin have the right to put their shares of Pumpkin to the
Company for cash and the Company has the right to call the shares for cash upon
the earlier of (1) June 2003, (2) payment in full of the acquisition
indebtedness or (3) anytime after Pumpkin's average EBITDA exceeds $2,500 for a
four year period commencing in 1997. The put and call price is determined by
using a formula of EBITDA. At the mutual agreement of the parties, settlement
can occur in Security Capital Common Stock. If the lender objects to settlement
in cash, the Company may issue a subordinate note. Future cash settlement of
such puts and calls would result in additional purchase price consideration
payable to the former owners of Pumpkin and would result in the recording of
additional goodwill relating to the acquisition.
SUBSIDIARY OPTIONS AND WARRANTS
Possible Dreams - Options to acquire 175 shares of Possible Dreams at
approximately $1,900 per share were granted in 1996, which were cancelled on
January 1, 2000. Options to acquire 87.5 shares at $1,905 per share and 87.5
shares at $3,810 per share of Possible Dreams stock were granted on July 1,
2000. Such options vest over five years and expire in 2009. The Company, but not
the holder, has the right to settle the options in cash. In addition, warrants
to purchase 250 shares of Possible Dreams Class B common shares were issued in
1996 and remain outstanding at December 31, 2000. The warrants are exercisable
at the earlier of (1) May 17, 2001 or (2) repayment in full of the acquisition
note and any related interest, at a price of $.01 per share and expire in 2006.
Such Class B common shares would be non-voting, but would be convertible at the
option of the holder into Class A voting common shares. The holder may exercise
the warrants for cash. If all such outstanding options and warrants had been
exercised for Possible Dream's shares at December 31, 2000, the Company's
ownership share of Possible Dreams would have been 78%.
42
Pumpkin - Options to acquire a total of 39 Class A common shares of Pumpkin at
$1,754 per share were issued in 1997 and 1998. Such options are fully vested and
expire in 2007 and 2008. The holder, has the right to settle the options in cash
at the earlier of (1) three years of employment (2) June 27, 2003 (3) repayment
in full of the acquisition note and any related interest or (4) any time after
average EBITDA exceeds $2,500 for a four year period commencing in 1997. In
addition, warrants to purchase 100 shares of Pumpkin's Class B common stock at
$.01 per share were issued in 1997 and remain outstanding at December 31, 2000.
Class B common shares would be non-voting, but would be convertible into Class A
voting shares at the option of the holder. The warrants are exercisable at the
earlier of (1) June 27, 2002 or (2) repayment in full of the acquisition note
and any related interest. Such warrants expire in 2007. The holder may exercise
the warrants for cash. If all such outstanding options and warrants had been
exercised for Pumpkin shares at December 31, 2000, the Company's ownership share
of Pumpkin would have been 69%.
Primrose - Options to acquire 2,311 common shares of Primrose at $500 per share
were issued in 1999 and expire in 2009. 462 options are currently exercisable.
The holder has the right to settle the options in cash. Warrants to acquire
2,415.3 shares of Primrose at $.01 per share were issued in connection with the
acquisition in 1999. The holder may exercise the warrants at the earlier of (1)
April 6, 2004 (2) any public offering of Primrose pursuant to a registration
statement, a private placement or otherwise or (3) any private sale of Primrose
representing 20% or more of Primrose stock, for shares of Primrose, exchange
value of the warrants for an equivalent value of shares of Security Capital, or
be paid for the value of the warrants in cash. If all such outstanding options
and warrants had been exercised for Primrose shares at December 31, 2000, the
Company's ownership share of Primrose would have been 83%.
11. EMPLOYEE BENEFIT PLANS
The Company sponsors defined contribution 401(k) plans at each of its
subsidiaries for which qualifying employees of the Company may participate.
Employees must be twenty-one years of age to participate. Under these plans -
some of which include Company matching contributions - participants may elect to
make pretax contributions of up to 15% of their eligible earnings.
12. LONG-TERM INCENTIVE PLAN
Options granted under the 2000 long-term incentive plan are exercisable at the
market price at the date of grant and, subject to termination of employment,
expire ten years from the date of grant, are not transferable other than on
death, and are exercisable in four equal annual installments commencing one year
from the date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 2000:
risk-free interest rate of 5.16% and dividend yield of 0%; volatility factors of
the expected market price of the Company's common stock of .32 and a
43
weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
2000
----
Pro forma net income $1,017
Pro forma earnings per common share:
Basic .16
Diluted .16
A summary of the Company's stock option activity, and related information for
the year ended December 31, 2000 follows:
Weighted-
Average
Options Exercise
(000) Price
------ ------
Outstanding at the beginning of the year -- $ --
Granted 549 $6.125
Exercised -- $ --
Forfeited -- --
------ ------
Outstanding at the end of the year 549 $6.125
====== ======
Exercisable at the end of the year 16 $6.125
====== ======
Weighted-average fair value of
options granted during the year $2.76
======
$6.125 is the exercise price for options outstanding as of December 31, 2000.
The weighted-average remaining contractual life of those options is 9.5 years.
44
13. OTHER INCOME (EXPENSE)
YEAR ENDED DECEMBER 31
----------------------
2000 1999 1998
----- ----- -----
Interest income ............. $ 25 $ 33 $ 347
Warrant expense ............. (559) (290) (180)
Other ....................... 27 21 32
----- ----- -----
Total ....................... $(507) $(236) $ 199
===== ===== =====
14. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, is as
follows:
2000 1999 1998
------- ------- -------
Current:
Federal ............. $ 62 $ 17 $ 57
State ............... 318 106 167
------- ------- -------
380 123 224
------- ------- -------
Deferred:
Federal ............. 821 (872) (665)
State ............... (61) (19) (6)
------- ------- -------
760 (891) (659)
------- ------- -------
Total .................. $ 1,140 $ (768) $ (435)
======= ======= =======
At December 31, 2000, the Company had net operating loss carry-forwards for
Federal income tax purposes of approximately $21,671, the expiration dates of
which are as follows: 2004 - $18,571, 2005 - $2,430, 2007 - $397, 2008 - $133,
2009 and thereafter - $140.
45
The items comprising the Company's net deferred tax assets, are as follows:
DECEMBER 31,
2000 1999
-------- -------
Deferred tax assets (liabilities):
Allowance for doubtful accounts and inventory differences $ 2,582 $ 218
Operating loss carry-forwards ........................... 7,367 11,360
Alternative minimum tax carryover ....................... 241 179
Accelerated depreciation and other ...................... (1,002) (242)
------- -------
9,188 11,515
Valuation allowance ..................................... (6,540) (9,453)
------- -------
Net deferred tax asset ...................................... $ 2,648 $ 2,062
======= =======
Reconciliation to financial statements:
Current deferred tax asset .............................. $ 1,943 $ 287
Long term deferred tax asset ............................ 1,074 1,875
Other long-term obligations ............................. (1,509) (100)
------- -------
Net deferred tax asset .................................. $ 2,648 $ 2,062
======= =======
The valuation allowance reduces the deferred tax assets to the amount that is
more likely than not to be realized. Reconciliations of the income tax benefit
to income taxes based on the 34% statutory rate are as follows:
2000 1999 1998
------- ------- -------
Federal income taxes based on 34% of pre-tax income ....... $ 952 $ 490 $ 581
State income taxes, net of Federal benefit ................ 170 57 88
Recognition of deferred tax asset for Federal net operating
loss carry-forwards ....................................... (204) (1,347) (1,149)
Other ..................................................... 222 32 45
------- ------- -------
Income tax benefit ........................................ $ 1,140 $ (768) $ (435)
======= ======= =======
15. EARNINGS PER SHARE
Diluted earnings per share reflect per share amounts that would have resulted if
dilutive potential common stock had been converted to common stock. The
following reconciles amounts reported in the financial statements:
2000 1999 1998
- --------------------------------------------------------------------------------
Numerator:
Net income available to common stockholders $1,116 $1,729 $2,149
- --------------------------------------------------------------------------------
Diluted weighted average shares outstanding:
Common stock 6,442 6,150 5,306
Options 42 -- --
- --------------------------------------------------------------------------------
Diluted weighted average shares outstanding 6,484 6,150 5,306
- --------------------------------------------------------------------------------
46
At December 31, 2000 and 1999, 500,000 shares of zero coupon redeemable
convertible preferred shares, which were convertible to 500,000 common shares,
were excluded from the computation of diluted earnings per share ("EPS") because
their inclusion would have had an antidilutive effect on EPS. In addition,
subsidiary options and warrants were also excluded from the computation of
diluted EPS for the years 1999 and 1998, because their inclusion would have had
an antidilutive effect on consolidated EPS.
16. RELATED PARTY TRANSACTIONS
In 1999, the Company sold 1,136,364 shares of Class A Common Stock for $5,000 in
a private placement to an affiliate of the Company's controlling stockholder.
The Company has an agreement with Capital Partners, Inc. ("CPI"), a shareholder
of the Company. CPI and its affiliates and principals owned 83% of the
Company's common shares at both December 31, 2000 and 1999. Under the
agreement, CPI provides certain advisory services and management services
related to investments, general administration, corporate development, strategic
planning, stockholder relations, financial matters and general business policy.
Fees paid by the Company to CPI are based upon the greater of either a fixed
dollar amount or 5% of earnings before income taxes, depreciation and
amortization, as defined. Subsequent to the acquisition of WC Holdings, the
minimum annual fixed dollar amount is $1,095. Fees paid to CPI are generally
subordinate to the rights of the lenders to the Company. In addition, the
Company has agreed to pay fees to CPI for acquisition opportunities presented to
the Company by CPI at a usual and customary rates for investment banking fees
for transactions of similar size and complexity. The agreement is renewable
annually. Fees incurred by the Company to CPI were $1,153, $1,092 and $500 in
the years ended December 31, 2000, 1999 and 1998, respectively.
17. COMMITMENTS AND CONTINGENCIES
The Company rents showrooms, office space and certain equipment under operating
lease agreements. The Company through its subsidiary, WC Holdings, leases a
70,000 square foot office building in Dublin, Ohio that is used as this
subsidiary's principal office facilities. The lease for the building is for a
term of 15 years, which began in 1997, provides for annual rent payments and
requires the Company to pay all operating expenses for the building. The lease
also provides for three renewal options of five years each, an option to
purchase the building between the fourth and fifth years of the lease term at a
price determined under a formula based on the rentable and unimproved square
footage of the building, and a right of first offer to purchase the building
before the Landlord enters into a contract to sell the building to a third
party. The lease restricts WC Holdings' subsidiary, CompManagement, Inc., from
paying a dividend, or otherwise distributing funds or assets outside the
ordinary course of business to Health Power, Inc. or another affiliate unless
CompManagement, Inc. meets certain tangible net worth requirements. WC
Holdings also leases office space in Akron, Cincinnati, Cleveland and Toledo,
Ohio; Seattle, Washington; Charleston, West Virginia; Lexington, Kentucky; and
Indianapolis, Indiana. These spaces are used as regional offices and service
centers for its operations. Certain office space, included in the following
table, is rented from Security Capital's redeemable preferred stockholder for
which the annual rent will be $176 and $46 for
47
2001 and 2002, respectively. The Company also has operating leases at other
subsidiaries which contain renewal options and escalation clauses.
Future minimum rental commitments at December 31, 2000 are as follows:
2001 $ 2,959
2002 2,550
2003 2,130
2004 1,766
2005 1,649
Thereafter 7,311
-------
Total $18,365
=======
The Company had rents expense of $563, $362, and $131 for 2000, 1999, and 1998,
respectively.
Pumpkin and Possible Dreams are parties to agreements with certain artists which
require payment of royalties based upon a percentage of net sales of certain
products and other formulas as stated in the agreements.
The purchase agreement for the Company's 1997 acquisition of Pumpkin provides
for additional payments which were contingent upon future EBITDA. At a minimum,
the Company will be required to make additional payments totaling $120 annually
through 2001. The present value of minimum additional payments of $53 and $160
at December 31, 2000 and 1999, respectively, based on an imputed interest rate
of 10.0%, has been recorded as a liability in the accompanying balance sheets.
The annual additional payment will increase to $160 in any year in which
EBITDA is greater than $2,400. During 2000 and 1999, the Company's EBITDA
exceeded $2,400, and accordingly, during the years ended December 31, 2000
and 1999, the Company recorded an additional obligation of $40 for each
year. Additionally since Pumpkin's four year average EBITDA exceeded the
specified threshold, the seller is entitled to an additional $1,812 earnout
amount payable in 2002. This amount is shown on the balance sheet in other
long-term obligations and has been recorded as additions to goodwill.
CONCENTRATIONS
Possible Dreams purchased approximately 76% and 74% of its supplies from two
companies during 2000 and 1999, respectively. The loss of either supplier could
have an adverse effect on Possible Dreams' results of operations and financial
condition.
WC Holdings, Inc. subsidiaries earned 90% of its revenues in the state of Ohio.
CONTINGENCIES
The Company is party to several legal actions arising in the ordinary course of
business. In management's opinion, the Company has adequate legal defenses to
these actions, such that the resolution of such matters will not have a material
effect on the financial position or results of operations of the Company.
18. HOLDING COMPANY INFORMATION
Total assets at the holding company net of investments in and amounts due from
subsidiaries was approximately $735 which includes approximately $200 of
current assets at December 31, 2000. In addition the redeemable convertible
preferred stock discussed in Note 9 is a holding company obligation.
48
19. SEGMENT DISCLOSURE
Following the 2000 acquisition of WC Holdings and the 1999 acquisition of
Primrose, the Company has three segments. The seasonal products segment consists
of the Company's activities principally in the design, importing and
manufacturing of Halloween and Christmas products, the educational segment
consists of Primrose, and the employer cost containment-related service segment
consists of WC Holdings who, through its subsidiary Health Power, provides
services to corporations and their employees primarily relating to industrial
health and safety, industrial medical care and workers' compensation insurance.
Management evaluates performance of its segments based upon adjusted EBITDA,
defined for the purposes of the segment disclosures as earnings before interest,
taxes, depreciation, amortization, minority interest expense, management fees
and non-recurring charges or gains. EBITDA is used to evaluate performance
because the Company feels that it is the true measurement of its ability to
generate cash flow and is a widely-accepted financial indicator of value and
ability to incur and service debt. EBITDA is not a substitute for operating
income or cash flow from operating activities in accordance with accounting
principles generally accepted in the United States. The accounting policies of
the segments are the same as those described in Note 1.
YEAR ENDED DECEMBER 31
2000 1999 1998
--------- --------- ---------
Revenues from external customers:
Seasonal products ........................ $ 33,759 $ 33,117 $ 30,018
Educational services ..................... 6,844 4,228 --
Employer cost containment-related services 1,301 -- --
--------- --------- ---------
Total revenue .................................. $ 41,904 $ 37,345 $ 30,018
========= ========= =========
Segment income (adjusted EBITDA):
Seasonal products ........................ $ 6,704 $ 5,852 $ 5,772
Educational services ..................... 3,204 1,770 --
Employee cost containment-related services 369 -- --
--------- --------- ---------
Total segment income ........................... 10,277 7,622 5,772
Reconciliation to net income:
Depreciation and amortization expense .... (2,436) (1,886) (888)
Interest expense ......................... (3,442) (3,122) (2,385)
Income tax (expense)/benefit ............. (1,140) 768 435
Minority interest expense ................ (236) (273) (165)
Management fees .......................... (700) (692) (500)
Other (expense)/income ................... (507) (236) 199
Corporate and other expenses ............. (391) (246) (319)
--------- --------- ---------
Net income ............................... $ 1,425 $ 1,935 $ 2,149
========= ========= =========
DECEMBER 31
2000 1999
--------- ---------
Segment assets:
Seasonal products ........................ $ 27,563 $ 23,850
Educational services ..................... 28,494 29,303
Employer cost containment-related services 43,462 --
Corporate and other ............................ 1,038 2,167
--------- ---------
Total assets ................................... $ 100,557 $ 55,320
========= =========
20. SUBSEQUENT EVENT
On April 1, 2001, the Company's subsidiary Health Power, Inc. acquired 100% of
the common stock of Trigon Administrators, Inc., a TPA administrator in
Virginia and Maryland. 100% of the acquisition, $6,000, was financed through
its revolving line of credit.
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission by April 30, 2001 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission by April 30, 2001 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission by April 30, 2001 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from the
definitive proxy statement to be filed with the Securities and Exchange
Commission by April 30, 2001 pursuant to Regulation 14A of the Securities and
Exchange Act of 1934.
51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements and Financial Statement Schedules
and (2)
See "Index to Financial Statements and Schedules"
set forth in Item 8 on page 24 of this Form 10-K.
(a) (3) Exhibits Required To Be Filed By Item 601 of Regulation
S-K
The documents required to be filed as exhibits to
this Form 10-K are listed below. Each management
contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form
10-K pursuant to Item 14(c) of Form 10-K is marked
with an asterisk.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 -- Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 2 to
the Registrant's Form 8-K Current Report dated June
22, 1990), and amendment thereto (incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K
Current Report dated February 23, 1994).
3.1A -- Certificate of Amendment dated March 27, 1996 to
Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1A
to the Registrant's Form 10-K Annual Report for the
fiscal year ended September 30, 1996).
3.1B -- Certificate of Amendment dated March 27, 1996 to
Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1B
to the Registrant's Form 10-K Annual Report for the
fiscal year ended September 30, 1996).
3.2 -- By-laws of the Registrant (incorporated by reference
to Exhibit 3 to the Registrant's Form 8-K Current
Report dated June 22, 1990).
4.2 -- Reference is made to Exhibit 3.1.
*10.1 -- Security Capital Corporation 1982 Incentive Stock
Option Plan, as amended through December 10, 1990
(incorporated by reference to Exhibit (10)(A) to the
Registrant's Form 10-K Annual Report for the fiscal
year ended September 30, 1990).
52
10.4 -- Stock Purchase Agreement between Security Capital
Corporation and FGS, Inc. dated January 26, 1990, as
amended May 14, 1990 (incorporated by reference to
Exhibit(c) to the Registrant's Form 8-K Current
Report dated January 26, 1990 and Exhibit 10.7 to the
Registrant's Registration Statement on Form S-4 (Reg.
33-34324) as filed on May 17, 1990).
10.5 -- Agreement Regarding Adjustment of Purchase Price
Pursuant to Section 2 of Stock Purchase Agreement
between Security Capital Corporation and FGS, Inc.,
executed September 28, 1990, between and among the
Corporation, FGS, Inc., CP Acquisition, L.P. No. 1
and Mr. John A. Bogardus, Jr. (incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K
Current Report dated September 28, 1990).
10.7 -- Advisory Services Agreement dated as of April 27,
1990 and effective as of January 26, 1990, between
Security Capital Corporation and Capital Partners,
Inc. (incorporated by reference to Exhibit (10)(B) to
the Registrant's Form 10-Q Quarterly Report for the
period ended March 31, 1991).
10.19 -- Subscription Agreement dated as of March 28, 1994
between the Registrant and CP Acquisition, L.P. No. 1
("CP Acquisition") (incorporated by reference to
Exhibit 10.19 to the Registrant's Statement on Form
S-1 (Reg. No. 33-74680)).
10.20 -- Registration Rights Agreement and Amendment to Stock
Purchase Agreement dated as of March 28, 1994 among
the Registrant, CP Acquisition and FGS, Inc.
(incorporated by reference to Exhibit 10.20 to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 33-74680)).
10.21 -- Undertaking dated March 28, 1994 from Brian D.
Fitzgerald to the Registrant (incorporated by
reference to Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-74680)).
10.23 -- Asset Purchase Agreement dated as of May 17, 1996 by
and among Possible Dreams, Ltd., a Massachusetts
corporation, Columbia National Corporation, a
Massachusetts corporation, Leonard Miller, Richard L.
Seegal, as trustee of the Samuel C. Miller Trust
u/d/t 8/5/85, Warren Stanley and Arnold Lee and
Possible Dreams, Ltd., a Delaware corporation
("Possible Dreams") (incorporated by reference to
Exhibit 1 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
53
10.24 -- Subordinated Promissory Note dated May 17, 1996 in
the amount of $2,128,000 from Possible Dreams to
Possible Dreams, Ltd., a Massachusetts corporation
(incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.25 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in
the amount of $2,128,000 from Possible Dreams to
Possible Dreams, Ltd., a Massachusetts corporation
(incorporated by reference to Exhibit 10.25 to the
Registrant's Form 10-K Annual Report for the fiscal
year ended September 30, 1996).
10.26 -- Subordinated Promissory Note dated May 17, 1996 in
the amount of $332,000 from Possible Dreams to
Columbia National Corporation (incorporated by
reference to Exhibit 3 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
10.27 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in
the amount of $332,000 from Possible Dreams to
Columbia National Corporation (incorporated by
reference to Exhibit 10.27 to the Registrant's Form
10-K Annual Report for the fiscal year ended
September 30, 1996).
10.28 -- Credit Agreement dated as of May 17, 1996 among
Possible Dreams, P.D. Holdings, Inc., a Delaware
corporation ("Holdings"), the Lenders referred to
therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent (incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
10.29 -- Warrant dated May 17, 1996 from Possible Dreams to
NationsCredit (incorporated by reference to Exhibit 5
to the Registrant's Form 8-K Current Report dated May
17, 1996).
10.30 -- Warrantholders Rights Agreement dated as of May 17,
1996 among Possible Dreams, Holdings, Security
Capital Corporation ("Security Capital"), Warren
Stanley and Arnold Lee and NationsCredit
(incorporated by reference to Exhibit 6 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.31 -- Security Capital Pledge and Guarantee Agreement dated
as of May 17, 1996 between Security Capital and
NationsCredit, as Agent (incorporated by reference to
Exhibit 7 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
54
10.32 -- Holdings Pledge Agreement dated as of May 17, 1996
among Holdings and NationsCredit, as Agent
(incorporated by reference to Exhibit 8 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.33 -- Investors Subordination Agreement dated as of May 17,
1996 among Possible Dreams, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 9 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
10.34 -- Sellers Subordination Agreement dated as of May 17,
1996 among Possible Dreams, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 10 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.35 -- Stockholders' Agreement dated as of May 17, 1996
among Holdings, Arnold Lee, Warren Stanley and
Security Capital (incorporated by reference to
Exhibit 11 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
*10.36 -- Employment, Consulting and Non-Competition Agreement
dated May 17, 1996 by and between Possible Dreams and
Warren Stanley (incorporated by reference to Exhibit
12 to the Registrant's Form 8-K Current Report dated
May 17, 1996).
*10.37 -- Employment, Consulting and Non-Competition Agreement
dated May 17, 1996 by and between Possible Dreams and
Arnold Lee (incorporated by reference to Exhibit 13
to the Registrant's Form 8-K Current Report dated May
17, 1996).
10.38 -- First Amendment to Advisory Services Agreement dated
as of May 17, 1996 by and between Security Capital
and Capital Partners, Inc. (incorporated by reference
to Exhibit 14 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.39 -- Consolidated Income Tax Sharing Agreement dated as of
May 17, 1996 among Possible Dreams, Holdings and
Security Capital (incorporated by reference to
Exhibit 15 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.40 -- Asset Purchase Agreement dated as of June 27, 1997 by
and among Pumpkin, Ltd. d/b/a Pumpkin Masters, Inc.,
a Colorado corporation (the "Seller"), Pumpkin Ltd.,
a Delaware corporation ("Pumpkin"), Pumpkin Masters
Holdings, Inc., a Delaware corporation ("Pumpkin
Holdings"), and the Registrant
55
(incorporated by reference to Exhibit 1(c)(1) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
10.41 -- Credit Agreement dated as of June 27, 1997 among
Pumpkin, Pumpkin Holdings, the Lenders referred to
therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent (incorporated by
reference to Exhibit 1(c)(2) to the Registrant's Form
8-K Current Report dated June 27, 1997).
10.42 -- Warrant dated June 27, 1997 from Pumpkin to
NationsCredit (incorporated by reference to Exhibit
1(c)(3) to the Registrant's Form 8-K Current Report
dated June 27, 1997).
10.43 -- Warrantholders Rights Agreement dated as of June 27,
1997 among Pumpkin, Pumpkin Holdings, the Registrant,
Seller and NationsCredit (incorporated by reference
to Exhibit 1(c)(4) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
10.44 -- Company Security Agreement dated as of June 27, 1997
between Pumpkin and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(5) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
10.45 -- Pumpkin Holdings Pledge Agreement dated as of June
27, 1997 between Pumpkin Holdings and NationsCredit,
as Agent (incorporated by reference to Exhibit
1(c)(6) to the Registrant's Form 8-K Current Report
dated June 27, 1997).
10.46 -- Security Capital Pledge and Guarantee Agreement dated
as of June 27, 1997 between the Registrant and
NationsCredit, as Agent (incorporated by reference to
Exhibit 1(c)(7) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.47 -- Security Capital Subordination Agreement dated as of
June 27, 1997 among Pumpkin, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 1(c)(8) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.48 -- Investors Subordination Agreement dated as of June
27, 1997 among Pumpkin, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as
Agent (incorporated by reference to Exhibit 1(c)(9)
to the Registrant's Form 8-K Current Report dated
June 27, 1997).
10.49 -- Seller Subordination Agreement dated as of June 27,
1997 among Pumpkin, Pumpkin Holdings, the
Subordinated Obligations
56
Holders (as defined therein) and NationsCredit, as
Agent (incorporated by reference to Exhibit 1(c)(10)
to the Registrant's Form 8-K Current Report dated
June 27, 1997).
10.50 -- Stockholders' Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings and Gay Burke
(incorporated by reference to Exhibit 1(c)(11) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
*10.51 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and John Bardeen (incorporated by
reference to Exhibit 1(c)(12) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
*10.52 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and Kea Bardeen (incorporated by
reference to Exhibit 1(c)(13) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
*10.53 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and Gay Burke (incorporated by
reference to Exhibit 1(c)(14) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
*10.54 -- Stock Option Agreement dated June 27, 1997 by and
between Pumpkin and Gay Burke (incorporated by
reference to Exhibit 1(c)(15) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
10.55 -- Advisory Services Agreement dated June 27, 1997, by
and between Pumpkin and the Registrant (incorporated
by reference to Exhibit 1(c)(16) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
10.56 -- Second Amendment to Advisory Services Agreement dated
June 27, 1997 by and between the Registrant and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(17) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.57 -- Joinder Agreement dated June 27, 1997 among Pumpkin,
Pumpkin Holdings and the Registrant to Consolidated
Income Tax Sharing Agreement dated as of May 17, 1996
among Possible Dreams, Holdings and the Registrant
(incorporated by reference to Exhibit 1(c)(18) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
10.58 -- Purchase Agreement dated as of July 3, 1997 by and
among
57
FIM, FIS, BMD&B, Inc., a Texas corporation, formerly
known as BMD&B, Inc., Larry M. Karren and Edward G.
Britt, Jr. (incorporated by reference to Exhibit 4 to
the Registrant's Form 8-K Current Report dated July
17, 1997).
10.59 -- Modification Agreement dated as of July 3, 1997 by
and among FIM, FIS, BMD, and BMD&B, Inc. and BMD&B,
Inc. (incorporated by reference to Exhibit 5 to the
Registrant's Form 8-K Current Report dated July 17,
1997).
10.60 -- Exchange Agreement among the Registrant, each holder
of Class A Preferred Stock and Brian D. Fitzgerald.
10.61 -- Stock Purchase Agreement, dated as of April 6th,
1999, by and among Primrose Holdings, Inc., a
Delaware corporation ("Holdings"), Security Capital
Corporation, a Delaware corporation ("Security
Capital"), Paul L. Erwin Grantor Retained Annuity
Trust (together with Paul L. Erwin, the
"Shareholders") Registrant (incorporated by reference
to Exhibit 1(c)(1) to the Registrant's Form 8-K
Current Report dated April 6, 1999).
10.62 -- Credit Agreement, dated as of April 6th, 1997, among
Primrose School Franchising Company, ("Primrose"),
Holdings, the Lenders referred to therein and
Canadian Imperial Bank of Commerce ("CIBC"), as Agent
(incorporated by reference to Exhibit 1(c)(2) to the
Registrant's Form 8-K Current Report dated April 6,
1999).
10.63 -- Warrant Agreement, dated as of April 6th, 1999
between Security Capital and CIBC (incorporated by
reference to Exhibit 1(c)(3) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.64 -- Stockholders' Agreement, dated as of April 6th, 1999,
among Holdings, Jo Kirchner, Raymond Orgera, Robert
Benowitz and Security Capital (incorporated by
reference to Exhibit 1(c)(4) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.65 -- Management Advisory Services Agreement, dated as of
April 6th, 1999, by and among Primrose, Metrocorp,
Country Day and Security Capital (incorporated by
reference to Exhibit 1(c)(5) to the Registrant's Form
8-K Current Report dated April 6, 1999).
58
10.66 -- Third Amendment to Advisory Services Agreement, dated
April 6th, 1999, by and between Security Capital and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(6) to the Registrant's Form 8-K Current
Report dated April 6, 1999).
10.67 -- Tax Sharing Joinder Agreement, dated April 6th, 1999,
among Holdings, Primrose, Metrocorp, Country Day and
Security Capital to Consolidated Income Tax Sharing
Agreement, dated as of April 17th, 1996, among
Possible Dreams, Ltd., P.D. Holdings, Inc. and
Security Capital (incorporated by reference to
Exhibit 1(c)(7) to the Registrant's Form 8-K Current
Report dated April 6, 1999).
10.68 -- Lease Agreement, dated April 6th, 1999 by and between
Erwin Family Partnership, LLLP and Primrose
(incorporated by reference to Exhibit 1(c)(8) to the
Registrant's Form 8-K Current Report dated April 6,
1999).
10.69 -- Lease Agreement, dated April 6th, 1999 by and between
Paul L. Erwin and country Day (incorporated by
reference to Exhibit 1(c)(9) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.70 -- Stockholders' Agreement dated as of December 21,
2000, by and among Security Capital, WC Holdings,
Inc. ("WC Holdings"), HP Acquisition, Health Power,
CompManagement, Inc. ("CMI"), CompManagement Health
Systems, Inc. ("CHS"), M&N Enterprises, Inc.
("M&NE"), M&N Risk Management, Inc. ("M&NRM") (CMI,
CHS, M&NE and M&NRM being collectively referred to
with Health Power as the "Companies"), Robert J.
Bossart, Jonathan R Wagner, Richard T. Kurth, Randy
E. Jones, Daniel R. Sullivan and Paul A. Miller
(incorporated by reference to Exhibit 1(c)(4.1) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.71 -- Loan Agreement dated as of December 21, 2000, among
each of the Companies, as borrowers, WC Holdings, as
guarantor, and Bank One, N.A. ("Bank One"), as lender
(incorporated by reference to Exhibit 1(c)(99.1) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.72 -- Note Purchase Agreement dated as of December 21,
2000, among WC Holdings, as borrower, each of the
Companies, as a guarantor, and Banc One Mezzanine
Corporation ("Banc One Mezzanine"), as purchaser
(incorporated by reference to Exhibit 1(c)(99.2) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
59
10.73 -- Intercreditor and Subordination Agreement dated as of
December 21, 2000, among the Companies, WC Holdings,
Bank One and Banc One Mezzanine (incorporated by
reference to Exhibit 1(c)(99.3) to the registrant's
Form 8-K Current Report dated December 21, 2000).
10.74 -- Capital Contribution Agreement dated as of December
21, 2000, between Security Capital and Banc One
Mezzanine (incorporated by reference to Exhibit
1(c)(99.4) to the Registrant's Form 8-K Current
report dated December 21, 2000).
10.75 -- Tax Allocation Agreement dated as of December 21,
2000, among Security Capital, WC Holdings and each of
the Companies (incorporated by reference to Exhibit
1(c)(99.5) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.76 -- Management Advisory Services Agreement dated as of
December 21, 2000, among each of the Companies and
Security Capital (incorporated by reference to
Exhibit 1(c)(99.6) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.77 -- Fourth Amendment to Advisory Services Agreement dated
as of December 21, 2000 between Security Capital and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(99.7) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.78 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Robert J. Bossart (incorporated by reference to
Exhibit 1(c)(99.8) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.79 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Jonathan R. Wagner (incorporated by reference to
Exhibit 1(c)(99.9) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.80 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Richard T. Kurth (incorporated by reference to
Exhibit 1(c)(99.10) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.81 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Randy E. Jones (incorporated by reference to Exhibit
1(c)(99.11) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
60
10.82 -- Employment Agreement effective as of December 21, 2000,
among WC Holdings, Health Power, CMI, CHS and
Daniel R. Sullivan (incorporated by reference to
Exhibit 1(c)(99.12) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.83 -- Employment Agreement effective as of December 21, 2000,
among WC Holdings, Health Power, CMI, CHS and
Paul A. Miller (incorporated by reference to Exhibit
1(c)(99.13) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.84 -- Management Consulting Agreement dated as of December
21, 2000, among WC Holdings and each of the Companies
(incorporated by reference to Exhibit 1(c)(99.14) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.85 -- CompManagement, Inc. Deferred Compensation Plan
adopted December 21, 2000 (incorporated by reference
to Exhibit 1(c)(99.15) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.86 -- Press Release issued by Security Capital on December
21, 2000 (incorporated by reference to Exhibit
1(c)(99.16) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.87 -- Security Capital Corporation's 2000 Long-Term
Incentive Plan (incorporated by reference to Exhibit
1(4.1) to the Registrant's Registration Statement on
Form S-8 dated February 8, 2001).
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young.
61
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
SECURITY CAPITAL CORPORATION
By /s/ Brian D. Fitzgerald
------------------------------------
Brian D. Fitzgerald
Chairman of the Board
Date: April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
SIGNATURE POSITION DATE
- --------- -------- ----
/s/ BRIAN D. FITZGERALD Chairman of the Board April 2, 2001
Brian D. Fitzgerald (Principal Executive Officer)
/s/ WILLIAM R. SCHLUETER Vice President (Principal Financial April 2, 2001
William R. Schlueter and Accounting Officer)
/s/ A. GEORGE GEBAUER Vice Chairman April 2, 2001
A. George Gebauer
/s/ M. Paul Kelly Director April 2, 2001
M. Paul Kelly
/s/ Craig R. Stapleton Director April 2, 2001
Craig R. Stapleton
62
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 -- Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 2 to
the Registrant's Form 8-K Current Report dated June
22, 1990), and amendment thereto (incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K
Current Report dated February 23, 1994).
3.1A -- Certificate of Amendment dated March 27, 1996 to
Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1A
to the Registrant's Form 10-K Annual Report for the
fiscal year ended September 30, 1996).
3.1B -- Certificate of Amendment dated March 27, 1996 to
Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1B
to the Registrant's Form 10-K Annual Report for the
fiscal year ended September 30, 1996).
3.2 -- By-laws of the Registrant (incorporated by reference
to Exhibit 3 to the Registrant's Form 8-K Current
Report dated June 22, 1990).
4.2 -- Reference is made to Exhibit 3.1.
*10.1 -- Security Capital Corporation 1982 Incentive Stock
Option Plan, as amended through December 10, 1990
(incorporated by reference to Exhibit (10)(A) to the
Registrant's Form 10-K Annual Report for the fiscal
year ended September 30, 1990).
10.4 -- Stock Purchase Agreement between Security Capital
Corporation and FGS, Inc. dated January 26, 1990, as
amended May 14, 1990 (incorporated by reference to
Exhibit(c) to the Registrant's Form 8-K Current
Report dated January 26, 1990 and Exhibit 10.7 to the
Registrant's Registration Statement on Form S-4 (Reg.
33-34324) as filed on May 17, 1990).
10.5 -- Agreement Regarding Adjustment of Purchase Price
Pursuant to Section 2 of Stock Purchase Agreement
between Security Capital Corporation and FGS, Inc.,
executed September 28, 1990, between and among the
Corporation, FGS, Inc., CP Acquisition, L.P. No. 1
and Mr. John A. Bogardus, Jr. (incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K
Current Report dated September 28, 1990).
10.7 -- Advisory Services Agreement dated as of April 27,
1990 and
63
effective as of January 26, 1990, between Security
Capital Corporation and Capital Partners, Inc.
(incorporated by reference to Exhibit (10)(B) to the
Registrant's Form 10-Q Quarterly Report for the
period ended March 31, 1991).
10.19 -- Subscription Agreement dated as of March 28, 1994
between the Registrant and CP Acquisition, L.P. No. 1
("CP Acquisition") (incorporated by reference to
Exhibit 10.19 to the Registrant's Statement on Form
S-1 (Reg. No. 33-74680)).
10.20 -- Registration Rights Agreement and Amendment to Stock
Purchase Agreement dated as of March 28, 1994 among
the Registrant, CP Acquisition and FGS, Inc.
(incorporated by reference to Exhibit 10.20 to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 33-74680)).
10.21 -- Undertaking dated March 28, 1994 from Brian D.
Fitzgerald to the Registrant (incorporated by
reference to Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-74680)).
10.23 -- Asset Purchase Agreement dated as of May 17, 1996 by
and among Possible Dreams, Ltd., a Massachusetts
corporation, Columbia National Corporation, a
Massachusetts corporation, Leonard Miller, Richard L.
Seegal, as trustee of the Samuel C. Miller Trust
u/d/t 8/5/85, Warren Stanley and Arnold Lee and
Possible Dreams, Ltd., a Delaware corporation
("Possible Dreams") (incorporated by reference to
Exhibit 1 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
10.24 -- Subordinated Promissory Note dated May 17, 1996 in
the amount of $2,128,000 from Possible Dreams to
Possible Dreams, Ltd., a Massachusetts corporation
(incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.25 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in
the amount of $2,128,000 from Possible Dreams to
Possible Dreams, Ltd., a Massachusetts corporation
(incorporated by reference to Exhibit 10.25 to the
Registrant's Form 10-K Annual Report for the fiscal
year ended September 30, 1996).
10.26 -- Subordinated Promissory Note dated May 17, 1996 in
the amount of $332,000 from Possible Dreams to
Columbia National Corporation (incorporated by
reference to Exhibit 3 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
64
10.27 -- Corrective Amendment dated November 25, 1996 to
Subordinated Promissory Note dated May 17, 1996 in
the amount of $332,000 from Possible Dreams to
Columbia National Corporation (incorporated by
reference to Exhibit 10.27 to the Registrant's Form
10-K Annual Report for the fiscal year ended
September 30, 1996).
10.28 -- Credit Agreement dated as of May 17, 1996 among
Possible Dreams, P.D. Holdings, Inc., a Delaware
corporation ("Holdings"), the Lenders referred to
therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent (incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K
Current Report dated May 17, 1996).
10.29 -- Warrant dated May 17, 1996 from Possible Dreams to
NationsCredit (incorporated by reference to Exhibit 5
to the Registrant's Form 8-K Current Report dated May
17, 1996).
10.30 -- Warrantholders Rights Agreement dated as of May 17,
1996 among Possible Dreams, Holdings, Security
Capital Corporation ("Security Capital"), Warren
Stanley and Arnold Lee and NationsCredit
(incorporated by reference to Exhibit 6 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.31 -- Security Capital Pledge and Guarantee Agreement dated
as of May 17, 1996 between Security Capital and
NationsCredit, as Agent (incorporated by reference to
Exhibit 7 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
10.32 -- Holdings Pledge Agreement dated as of May 17, 1996
among Holdings and NationsCredit, as Agent
(incorporated by reference to Exhibit 8 to the
Registrant's Form 8-K Current Report dated May 17,
1996).
10.33 -- Investors Subordination Agreement dated as of May 17,
1996 among Possible Dreams, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 9 to the Registrant's Form 8-K Current Report
dated May 17, 1996).
10.34 -- Sellers Subordination Agreement dated as of May 17,
1996 among Possible Dreams, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 10 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
65
10.35 -- Stockholders' Agreement dated as of May 17, 1996
among Holdings, Arnold Lee, Warren Stanley and
Security Capital (incorporated by reference to
Exhibit 11 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
*10.36 -- Employment, Consulting and Non-Competition Agreement
dated May 17, 1996 by and between Possible Dreams and
Warren Stanley (incorporated by reference to Exhibit
12 to the Registrant's Form 8-K Current Report dated
May 17, 1996). *10.37 -- Employment, Consulting and
Non-Competition Agreement dated May 17, 1996 by and
between Possible Dreams and Arnold Lee (incorporated
by reference to Exhibit 13 to the Registrant's Form
8-K Current Report dated May 17, 1996).
10.38 -- First Amendment to Advisory Services Agreement dated
as of May 17, 1996 by and between Security Capital
and Capital Partners, Inc. (incorporated by reference
to Exhibit 14 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.39 -- Consolidated Income Tax Sharing Agreement dated as of
May 17, 1996 among Possible Dreams, Holdings and
Security Capital (incorporated by reference to
Exhibit 15 to the Registrant's Form 8-K Current
Report dated May 17, 1996).
10.40 -- Asset Purchase Agreement dated as of June 27, 1997 by
and among Pumpkin, Ltd. d/b/a Pumpkin Masters, Inc.,
a Colorado corporation (the "Seller"), Pumpkin Ltd.,
a Delaware corporation ("Pumpkin"), Pumpkin Masters
Holdings, Inc., a Delaware corporation ("Pumpkin
Holdings"), and the Registrant (incorporated by
reference to Exhibit 1(c)(1) to the Registrant's Form
8-K Current Report dated June 27, 1997).
10.41 -- Credit Agreement dated as of June 27, 1997 among
Pumpkin, Pumpkin Holdings, the Lenders referred to
therein and NationsCredit Commercial Corporation
("NationsCredit"), as Agent (incorporated by
reference to Exhibit 1(c)(2) to the Registrant's Form
8-K Current Report dated June 27, 1997).
10.42 -- Warrant dated June 27, 1997 from Pumpkin to
NationsCredit (incorporated by reference to Exhibit
1(c)(3) to the Registrant's Form 8-K Current Report
dated June 27, 1997).
10.43 -- Warrantholders Rights Agreement dated as of June 27,
1997 among Pumpkin, Pumpkin Holdings, the Registrant,
Seller and NationsCredit (incorporated by reference
to Exhibit 1(c)(4) to the Registrant's Form 8-K
Current Report dated June 27, 1997).
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10.44 -- Company Security Agreement dated as of June 27, 1997
between Pumpkin and NationsCredit, as Agent
(incorporated by reference to Exhibit 1(c)(5) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
10.45 -- Pumpkin Holdings Pledge Agreement dated as of June
27, 1997 between Pumpkin Holdings and NationsCredit,
as Agent (incorporated by reference to Exhibit
1(c)(6) to the Registrant's Form 8-K Current Report
dated June 27, 1997).
10.46 -- Security Capital Pledge and Guarantee Agreement dated
as of June 27, 1997 between the Registrant and
NationsCredit, as Agent (incorporated by reference to
Exhibit 1(c)(7) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.47 -- Security Capital Subordination Agreement dated as of
June 27, 1997 among Pumpkin, the Subordinated
Obligations Holders (as defined therein) and
NationsCredit, as Agent (incorporated by reference to
Exhibit 1(c)(8) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.48 -- Investors Subordination Agreement dated as of June
27, 1997 among Pumpkin, the Subordinated Obligations
Holders (as defined therein) and NationsCredit, as
Agent (incorporated by reference to Exhibit 1(c)(9)
to the Registrant's Form 8-K Current Report dated
June 27, 1997).
10.49 -- Seller Subordination Agreement dated as of June 27,
1997 among Pumpkin, Pumpkin Holdings, the
Subordinated Obligations Holders (as defined therein)
and NationsCredit, as Agent (incorporated by
reference to Exhibit 1(c)(10) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
10.50 -- Stockholders' Agreement dated as of June 27, 1997
among Pumpkin, Pumpkin Holdings and Gay Burke
(incorporated by reference to Exhibit 1(c)(11) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
*10.51 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and John Bardeen (incorporated by
reference to Exhibit 1(c)(12) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
*10.52 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and Kea Bardeen (incorporated by
reference to Exhibit 1(c)(13) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
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*10.53 -- Employment Agreement dated June 27, 1997 by and
between Pumpkin and Gay Burke (incorporated by
reference to Exhibit 1(c)(14) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
*10.54 -- Stock Option Agreement dated June 27, 1997 by and
between Pumpkin and Gay Burke (incorporated by
reference to Exhibit 1(c)(15) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
10.55 -- Advisory Services Agreement dated June 27, 1997, by
and between Pumpkin and the Registrant (incorporated
by reference to Exhibit 1(c)(16) to the Registrant's
Form 8-K Current Report dated June 27, 1997).
10.56 -- Second Amendment to Advisory Services Agreement dated
June 27, 1997 by and between the Registrant and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(17) to the Registrant's Form 8-K Current
Report dated June 27, 1997).
10.57 -- Joinder Agreement dated June 27, 1997 among Pumpkin,
Pumpkin Holdings and the Registrant to Consolidated
Income Tax Sharing Agreement dated as of May 17, 1996
among Possible Dreams, Holdings and the Registrant
(incorporated by reference to Exhibit 1(c)(18) to the
Registrant's Form 8-K Current Report dated June 27,
1997).
10.58 -- Purchase Agreement dated as of July 3, 1997 by and
among FIM, FIS, BMD&B, Inc., a Texas corporation,
formerly known as BMD&B, Inc., Larry M. Karren and
Edward G. Britt, Jr. (incorporated by reference to
Exhibit 4 to the Registrant's Form 8-K Current Report
dated July 17, 1997).
10.59 -- Modification Agreement dated as of July 3, 1997 by
and among FIM, FIS, BMD, and BMD&B, Inc. and BMD&B,
Inc. (incorporated by reference to Exhibit 5 to the
Registrant's Form 8-K Current Report dated July 17,
1997).
10.60 -- Exchange Agreement among the Registrant, each holder
of Class A Preferred Stock and Brian D. Fitzgerald.
10.61 -- Stock Purchase Agreement, dated as of April 6th,
1999, by and among Primrose Holdings, Inc., a
Delaware corporation ("Holdings"), Security Capital
Corporation, a Delaware corporation ("Security
Capital"), Paul L. Erwin Grantor Retained Annuity
Trust (together with Paul L. Erwin, the
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"Shareholders") Registrant (incorporated by reference
to Exhibit 1(c)(1) to the Registrant's Form 8-K
Current Report dated April 6, 1999).
10.63 -- Credit Agreement, dated as of April 6th, 1997, among
Primrose School Franchising Company, ("Primrose"),
Holdings, the Lenders referred to therein and
Canadian Imperial Bank of Commerce ("CIBC"), as Agent
(incorporated by reference to Exhibit 1(c)(2) to the
Registrant's Form 8-K Current Report dated April 6,
1999).
10.63 -- Warrant Agreement, dated as of April 6th, 1999
between Security Capital and CIBC (incorporated by
reference to Exhibit 1(c)(3) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.64 -- Stockholders' Agreement, dated as of April 6th, 1999,
among Holdings, Jo Kirchner, Raymond Orgera, Robert
Benowitz and Security Capital (incorporated by
reference to Exhibit 1(c)(4) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.65 -- Management Advisory Services Agreement, dated as of
April 6th, 1999, by and among Primrose, Metrocorp,
Country Day and Security Capital (incorporated by
reference to Exhibit 1(c)(5) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.66 -- Third Amendment to Advisory Services Agreement, dated
April 6th, 1999, by and between Security Capital and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(6) to the Registrant's Form 8-K Current
Report dated April 6, 1999).
10.67 -- Tax Sharing Joinder Agreement, dated April 6th, 1999,
among Holdings, Primrose, Metrocorp, Country Day and
Security Capital to Consolidated Income Tax Sharing
Agreement, dated as of April 17th, 1996, among
Possible Dreams, Ltd., P.D. Holdings, Inc. and
Security Capital (incorporated by reference to
Exhibit 1(c)(7) to the Registrant's Form 8-K Current
Report dated April 6, 1999).
10.68 -- Lease Agreement, dated April 6th, 1999 by and between
Erwin Family Partnership, LLLP and Primrose
(incorporated by reference to Exhibit 1(c)(8) to the
Registrant's Form 8-K Current Report dated April 6,
1999).
69
10.69 -- Lease Agreement, dated April 6th, 1999 by and between
Paul L. Erwin and country Day (incorporated by
reference to Exhibit 1(c)(9) to the Registrant's Form
8-K Current Report dated April 6, 1999).
10.70 -- Stockholders' Agreement dated as of December 21,
2000, by and among Security Capital, WC Holdings,
Inc. ("WC Holdings"), HP Acquisition, Health Power,
CompManagement, Inc. ("CMI"), CompManagement Health
Systems, Inc. ("CHS"), M&N Enterprises, Inc.
("M&NE"), M&N Risk Management, Inc. ("M&NRM") (CMI,
CHS, M&NE and M&NRM being collectively referred to
with Health Power as the "Companies"), Robert J.
Bossart, Jonathan R Wagner, Richard T. Kurth, Randy
E. Jones, Daniel R. Sullivan and Paul A. Miller
(incorporated by reference to Exhibit 1(c)(4.1) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.71 -- Loan Agreement dated as of December 21, 2000, among
each of the Companies, as borrowers, WC Holdings, as
guarantor, and Bank One, N.A. ("Bank One"), as lender
(incorporated by reference to Exhibit 1(c)(99.1) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.73 -- Note Purchase Agreement dated as of December 21,
2000, among WC Holdings, as borrower, each of the
Companies, as a guarantor, and Banc One Mezzanine
Corporation ("Banc One Mezzanine"), as purchaser
(incorporated by reference to Exhibit 1(c)(99.2) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.73 -- Intercreditor and Subordination Agreement dated as of
December 21, 2000, among the Companies, WC Holdings,
Bank One and Banc One Mezzanine (incorporated by
reference to Exhibit 1(c)(99.3) to the registrant's
Form 8-K Current Report dated December 21, 2000).
10.74 -- Capital Contribution Agreement dated as of December
21, 2000, between Security Capital and Banc One
Mezzanine (incorporated by reference to Exhibit
1(c)(99.4) to the Registrant's Form 8-K Current
report dated December 21, 2000).
10.75 -- Tax Allocation Agreement dated as of December 21,
2000, among Security Capital, WC Holdings and each of
the Companies (incorporated by reference to Exhibit
1(c)(99.5) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.79 -- Management Advisory Services Agreement dated as of
December 21, 2000, among each of the Companies and
Security Capital (incorporated by reference to
Exhibit 1(c)(99.6) to the Registrant's Form 8-K
Current
70
Report dated December 21, 2000).
10.80 -- Fourth Amendment to Advisory Services Agreement dated
as of December 21, 2000 between Security Capital and
Capital Partners, Inc. (incorporated by reference to
Exhibit 1(c)(99.7) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.81 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Robert J. Bossart (incorporated by reference to
Exhibit 1(c)(99.8) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.79 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Jonathan R. Wagner (incorporated by reference to
Exhibit 1(c)(99.9) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.80 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Richard T. Kurth (incorporated by reference to
Exhibit 1(c)(99.10) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.81 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Randy E. Jones (incorporated by reference to Exhibit
1(c)(99.11) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.82 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Daniel R. Sullivan (incorporated by reference to
Exhibit 1(c)(99.12) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
10.83 -- Employment Agreement effective as of December 21,
2000, among WC Holdings, Health Power, CMI, CHS and
Paul A. Miller (incorporated by reference to Exhibit
1(c)(99.13) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.85 -- Management Consulting Agreement dated as of December
21, 2000, among WC Holdings and each of the Companies
(incorporated by reference to Exhibit 1(c)(99.14) to
the Registrant's Form 8-K Current Report dated
December 21, 2000).
10.85 -- CompManagement, Inc. Deferred Compensation Plan
adopted December 21, 2000 (incorporated by reference
to Exhibit 1(c)(99.15) to the Registrant's Form 8-K
Current Report dated December 21, 2000).
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10.86 -- Press Release issued by Security Capital on December
21, 2000 (incorporated by reference to Exhibit
1(c)(99.16) to the Registrant's Form 8-K Current
Report dated December 21, 2000).
10.87 -- Security Capital Corporation's 2000 Long-Term
Incentive Plan (incorporated by reference to Exhibit
1(4.1) to the Registrant's Registration Statement on
Form S-8 dated February 8, 2001).
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young.
72