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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
(Name of Subject Company)
------------------------
SHURGARD STORAGE CENTERS, INC.
(Bidder)
LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
------------------------
448933-200
(CUSIP Number of Class of Securities)
------------------------
KRISTIN H. STRED, ESQ.
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
SHURGARD STORAGE CENTERS, INC.
1201 THIRD AVENUE
SUITE 2200
SEATTLE, WASHINGTON 98101
(206) 624-8100
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
COPIES TO:
JEFFERY T. PERO, ESQ.
WILLIAM J. CERNIUS, ESQ.
LATHAM & WATKINS
650 TOWN CENTER DRIVE
TWENTIETH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 540-1235
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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$16,016,000........................................................ $5,523
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* For purposes of calculating amount of filing fee only. This amount assumes
the purchase of 52,000 Units (the "Units"), at a price per Unit of $308 in
cash. Pursuant to, and as provided by, Rule 0-11(d), the amount being paid
with the filing of this Schedule 14D-1 is $5,523.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
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Amount Previously Paid: None Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
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14D-1
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CUSIP NO.
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1 NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SHURGARD STORAGE CENTERS, INC. (91-1603837)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCES OF FUNDS
BK
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR / /
2(f)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
APPROXIMATELY 1,603 UNITS
8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / /
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) APPROXIMATELY 1.3%
10 TYPE OF REPORTING PERSON -- CO
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This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to a
tender offer by Shurgard Storage Centers, Inc., a Delaware corporation (the
"Purchaser"), to purchase up to 52,000 units of limited partnership interest
(the "Units") of IDS/Shurgard Income Growth Partners, L.P. III, a Washington
limited partnership (the "Partnership"), at $308 per Unit, net to the seller in
cash and without interest, upon the terms of and subject to the conditions set
forth in the Offer to Purchase, dated July 2, 1996 (the "Offer to Purchase"),
and in the related Letter of Transmittal, copies of which are attached hereto,
respectively, as Exhibits 99.1 and 99.2 (and which together constitute the
"Offer"). This Statement is being filed by the Purchaser.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject Company is IDS/Shurgard Income Growth Partners
L.P. III. The address of its principal executive offices is 1201 Third Avenue,
Suite 2200, Seattle, Washington 98101.
(b) The exact title of the class of equity securities being sought in the
Offer is Limited Partnership Units. The information set forth in the SUMMARY of
the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in "MARKET PRICE OF UNITS" of the Offer to
Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by the Purchaser. The information
set forth in the SUMMARY, "BACKGROUND AND PURPOSES OF THE TRANSACTION -- The
Purchaser" and Schedule I of the Offer to Purchase is incorporated herein by
reference.
(e)-(f) Neither the Purchaser nor, to the of its knowledge, any of the
persons listed in Schedule I of the Offer to Purchase has during the last five
years (i) been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (ii) been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in "BACKGROUND AND PURPOSES OF THE
TRANSACTION -- The Purchaser," "BACKGROUND AND PURPOSES OF THE TRANSACTION --
Background of the Transaction" and "INTERESTS OF CERTAIN PERSONS" of the Offer
to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in the SUMMARY, "SOURCE AND AMOUNT OF
FUNDS" and "THE OFFER" -- Section 10 ("Fees and Expenses") of the Offer to
Purchase and in Exhibits 10.1 and 10.2 hereto is incorporated herein by
reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in the SUMMARY, "SPECIAL CONSIDERATIONS,"
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- Background of the Transactions"
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- Purposes and Structure of the
Offer," "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL PARTNER -- Factors
Considered by the General Partner," "INTERESTS OF CERTAIN PERSONS" and "EFFECTS
OF THE TRANSACTION ON NON-TENDERING UNITHOLDERS" of the Offer to Purchase is
incorporated herein by reference.
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ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth in the SUMMARY, "SPECIAL CONSIDERATIONS,"
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- Background of the Transactions"
and "INTERESTS OF CERTAIN PERSONS" of the Offer to Purchase is incorporated
herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the SUMMARY, "SPECIAL CONSIDERATIONS -- Voting
Power," "BACKGROUND AND PURPOSES OF THE TRANSACTION -- Background of the
Transactions," "THE ACQUISITION AGREEMENT" and "INTERESTS OF CERTAIN PERSONS" of
the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the SUMMARY, "APPRAISAL; OPINIONS OF FINANCIAL
ADVISORS" and "THE OFFER" -- Section 10 ("Fees and Expenses") of the Offer to
Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in "BACKGROUND AND PURPOSES OF THE TRANSACTION --
The Purchaser" and Schedule VII of the Offer to Purchase and the financial
information of the Purchaser incorporated by reference into the Offer to
Purchase are incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in the SUMMARY, "SPECIAL CONSIDERATIONS,"
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- The Purchaser," "BACKGROUND AND
PURPOSES OF THE TRANSACTION -- Background of the Transaction" and "INTERESTS OF
CERTAIN PERSONS" of the Offer to Purchase is incorporated herein by reference.
(b)-(d) The information set forth in "THE OFFER" -- Section 8 ("Certain
Legal Matters and Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase, the Letter of
Transmittal and the press release by the Purchaser of July 2, 1996, copies of
which are attached hereto as Exhibits 99.1, 99.2 and 99.3, respectively, is
incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
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2.1 Acquisition Agreement dated July 1, 1996, by and among Shurgard Storage Centers,
Inc., IDS/Shurgard Income Growth Partners L.P., IDS/Shurgard Income Growth
Partners L.P. II and IDS/Shurgard Income Growth Partners L.P. III.
10.1 Loan Agreement among Shurgard Storage Centers, Inc., Seattle-First National
Bank, Key Bank of Washington and West One Bank dated August 19, 1994
(incorporated by reference to exhibit filed with the Purchaser's Registration
Statement on Form S-4, Amendment No. 2, filed with the Securities and Exchange
Commission on March 31, 1995).
10.2 Revolving Loan Agreement among Shurgard Storage Centers, Inc., SSC Acquisitions,
Inc. and Nomora Asset Capital Corp. dated as of December 23, 1994 (incorporated
by reference to exhibit filed with the Purchaser's Registration Statement on
Form S-4, Amendment No. 2, filed with the Securities and Exchange Commission on
March 31, 1995).
99.1 Offer to Purchase dated July 2, 1996.
99.2 Letter of Transmittal.
99.3 Text of Press Release dated July 2, 1996.
99.4 Letter to Unitholders.
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99.5 Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9.
99.6 Letter to Financial Advisors.
99.7 Management Services Agreement between IDS/Shurgard Income Growth Partners L.P.
III and Shurgard Incorporated (incorporated by reference to Exhibit 10(a) to
the Partnership's Registration Statement on Form S-11 (File No. 33-25729-01)).
99.8 General Partner Undertaking dated July 1, 1996, by and among Shurgard Storage
Centers, Inc., Shurgard Associates L.P., Shurgard Associates L.P. II and
Shurgard Associates L.P. III (included as Exhibit A to Exhibit 2.1).
</TABLE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: July 1, 1996
SHURGARD STORAGE CENTERS, INC.
By: /s/ HARRELL L. BECK
-----------------------------------
Name: Harrell L. Beck
Title: Senior Vice President,
Chief Financial Officer and
Treasurer
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ACQUISITION AGREEMENT
BY AND AMONG
IDS/SHURGARD INCOME GROWTH PARTNERS L.P.,
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
AND
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
(TOGETHER, THE "PARTNERSHIPS")
AND
SHURGARD STORAGE CENTERS, INC.
(THE "COMPANY")
JULY 1, 1996
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CONTENTS
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ARTICLE I. THE OFFERS.................................................................. 1
1.1 The Offers................................................................... 1
1.2 Conditions to Commencement of the Offers..................................... 1
1.3 Actions and Agreements of the Partnerships and the Company................... 2
1.4 Offer Documents.............................................................. 2
1.5 General Partner Recommendation............................................... 3
3
ARTICLE II. THE MERGER.................................................................
2.1 The Merger................................................................... 3
2.2 Effective Time of the Merger................................................. 3
2.3 Certificate of Incorporation of the Surviving Corporation.................... 3
2.4 Bylaws of the Surviving Corporation.......................................... 4
2.5 Board of Directors and Officers of the Surviving Corporation................. 4
4
ARTICLE III. CONVERSION OF PARTNERSHIP INTERESTS IN THE MERGER.......................
3.1 Merger Consideration......................................................... 4
3.2 Certain Definitions.......................................................... 4
3.3 Distribution of Merger Consideration......................................... 5
3.4 No Fractional Shares......................................................... 5
3.5 Dissenting Units............................................................. 5
3.6 Issuance of Certificates for REIT Shares..................................... 6
3.7 Transfer of Units............................................................ 6
6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.............................................
4.1 Representations and Warranties of the Partnerships........................... 6
4.2 Representations and Warranties of the Company................................ 9
11
ARTICLE V. COVENANTS AND AGREEMENTS....................................................
5.1 Ordinary Course; No Acquisitions or Dispositions............................. 11
5.2 Distributions................................................................ 11
5.3 Amendment of Governing Documents............................................. 12
5.4 Exclusivity.................................................................. 12
5.5 Other Actions................................................................ 12
5.6 Advise of Changes............................................................ 13
5.7 Meetings of Limited Partner.................................................. 13
5.8 Registration and Listing of REIT Shares...................................... 13
5.9 S-4 Registration Statement and Proxy Statement/Prospectus.................... 13
5.10 Consents and Approvals....................................................... 13
5.11 Limitation on Number of REIT Shares Issued................................... 14
14
ARTICLE VI. CLOSING....................................................................
6.1 Closing Date................................................................. 14
6.2 Additional Closings.......................................................... 14
6.3 Further Acts................................................................. 14
14
ARTICLE VII. CONDITIONS................................................................
7.1 Conditions to Each Party's Obligations....................................... 14
7.2 Conditions to the Obligations of the Company................................. 15
7.3 Conditions to the Obligations of the Partnerships............................ 15
16
ARTICLE VIII. TERMINATION AND WAIVER...................................................
8.1 Termination.................................................................. 16
8.2 Effect of Termination........................................................ 17
8.3 Fees and Expenses............................................................ 17
8.4 Extension; Waiver............................................................ 19
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8.5 No Survival of Representations and Warranties................................ 19
19
ARTICLE IX. MISCELLANEOUS..............................................................
9.1 Assignment of Contract....................................................... 19
9.2 Risk of Loss................................................................. 19
9.3 Entire Agreement; Modifications.............................................. 19
9.4 Notices...................................................................... 19
9.5 Interpretation............................................................... 20
9.6 Captions..................................................................... 20
9.7 Multiple Counterparts........................................................ 20
9.8 Binding Effect............................................................... 20
9.9 Attorneys' Fees.............................................................. 20
9.10 No Waiver; Severability...................................................... 21
9.11 No Joint and Several Liability............................................... 21
9.12 Applicable Law............................................................... 21
</TABLE>
Exhibit A General Partner Undertaking
Exhibit B Opinion of Counsel to the Partnerships
Exhibit C Opinion of Special Counsel to the Company
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GLOSSARY
The following is a list of the defined terms used in this Agreement and the
Sections in which such terms are defined:
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<CAPTION>
TERM SECTION
<S> <C>
Additional Consideration Section 3.2(c)
Agreement Preamble
Alternative Transaction Section 8.3(c)
Appraised Value Section 3.2(a)
Appraiser Section 3.2(a)
Assets Recital A
Balance Sheet Section 4.1(i)
Closing Section 6.1
Closing Balance Sheet Not defined therein
Closing Date Section 6.1
Closing Net Asset Value Section 5.2
Commission Section 1.4
Company Preamble
Company SEC Documents Section 4.2(f)
Constituent Entities Section 2.1
DGCL Section 2.1
Dissenting Units Section 3.5
Dissolution Section 3.1(a)
Effective Time Section 2.2
Exchange Act Section 1.1
Exchange Agent Section 3.3
Exchange Fund Section 3.3
General Partner Recital B
General Partner Recommendation Section 1.5
General Partner Undertaking Recital C
Governmental Regulations Section 4.1(l)
GP Interest Section 3.1(b)
Hazardous Materials Section 4.1(l)
IDS1 Preamble
IDS2 Preamble
IDS3 Preamble
Individual Transaction Expenses Section 8.3(a)
LP Units Section 1.1
Merger Section 2.1
Merger Consideration Section 3.1
Net Asset Value Section 3.2(a)
NYSE Section 3.2(b)
Offer Section 1.1
Offer Documents Section 1.4
Offer Price Section 1.1
Participating Partnership Section 2.1
Partnership Preamble
Partnership Agreement Section 4.1(a)
Partnership Financial Statements Section 4.1(e)
Partnership SEC Documents Section 4.1(d)
Property Recital A
Proxy Statement/Prospectus Section 5.9
REIT Share Price Section 3.2(b)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
REIT Share Price Range Section 3.2(b)
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REIT Shares Section 3.1(a)
S-4 Registration Statement Section 4.1(f)
Schedules Section 1.4
Schedules 13E-3 Section 1.4
Schedules 14D-1 Section 1.4
Schedules 14D-9 Section 1.4
Securities Act Section 4.1(d)
Share Consideration Not defined therein
Shared Transaction Expenses Section 8.3(a)
Special Committee Section 1.2
Standstill Section 1.3(d)
Surviving Corporation Section 2.1
Terminating Breach Section 8.1(f)
Third Party Section 8.3(c)
WULPA Section 2.1
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ACQUISITION AGREEMENT
This ACQUISITION AGREEMENT (this "Agreement") is entered into as of July 1,
1996 by IDS/ Shurgard Income Growth Partners L.P. ("IDS1"), IDS/Shurgard Income
Growth Partners L.P. II ("IDS2") and IDS/Shurgard Income Growth Partners L.P.
III ("IDS3"), each a Washington limited partnership (individually, a
"Partnership" and together, the "Partnerships"), and Shurgard Storage Centers,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Partnerships are the owners of certain self storage and other
properties (which properties, including any buildings, structures or other
improvements situated thereon are herein referred to as the "Property") and
related personal property and other assets (together with the Property, the
"Assets").
B. Shurgard Associates L.P., Shurgard Associates L.P. II and Shurgard
Associates L.P. III (each, a "General Partner" and together, the "General
Partners") and the Board of Directors of the Company believe that it is in the
best interests of the Partnerships and the Company, respectively, and their
respective limited partners and stockholders to enter into and consummate this
Agreement.
C. Concurrently with the execution of this Agreement, the General Partners
and the Company are entering into a General Partner Undertaking, dated as of
July 1, 1996 (the "General Partner Undertaking"), in the form attached hereto as
Exhibit A.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I. THE OFFERS
1.1 THE OFFERS
As soon as practicable after the date hereof, the Company shall commence
(within the meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), a tender offer for up to 65,000 units of limited
partner interests (the "LP Units") of IDS1, 49,000 LP Units of IDS2 and 52,000
LP Units of IDS3 (each, an "Offer" and together the "Offers"), at a net cash
price per LP Unit equal to the Net Asset Value (as defined in Section 3.2(a)
hereof) of the applicable Partnership that would be allocated to one LP Unit if
the Partnership's Net Asset Value were distributed in a dissolution of such
Partnership in accordance with its Partnership Agreement (as defined in Section
4.1(a) hereof). The parties hereto acknowledge that the Net Asset Value per LP
Unit is equal to $257, $222 and $308 for IDS1, IDS2 and IDS3, respectively
(each, the "Offer Price" and together the "Offer Prices"). The Company may not
change the form of consideration, reduce the Offer Price or amend any material
term of an Offer in a manner adverse to the interests of the limited partners of
the applicable Partnership without the prior written consent of the General
Partner of such Partnership. The Company agrees to use its reasonable best
efforts to consummate the Offers as soon as legally permissible and, subject to
the terms and conditions of the Offers, to accept for payment and pay for all LP
Units tendered pursuant to the Offers promptly following the expiration of the
Offers.
1.2 CONDITIONS TO COMMENCEMENT OF THE OFFERS
The commencement of the Offers is conditioned upon:
(a) the receipt by the Special Committee of the Board of Directors of the
Company appointed to review the transactions contemplated by this Agreement (the
"Special Committee") of an opinion from Alex. Brown & Sons Incorporated as to
the fairness to the Company, from a financial point of view, of the Offer
Prices;
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(b) the receipt by each of the Partnerships of an opinion from Robert A.
Stanger & Co., Inc., as to the fairness to the limited partners of such
Partnership, from a financial point of view, of the applicable Offer Price; and
(c) the General Partners shall have executed and delivered to the Company
the General Partner Undertaking and shall have performed their obligations
thereunder that are capable of being performed prior to commencement of the
Offers.
1.3 ACTIONS AND AGREEMENTS OF THE PARTNERSHIPS AND THE COMPANY
(a) The Partnerships hereby consent to the making of the Offers.
(b) The Partnerships shall promptly cause to be furnished to the Company a
list containing the names and addresses of all record holders and beneficial
owners known to them of LP Units as of a recent date, and shall promptly furnish
the Company with such additional information and such other assistance as the
Company or its agents may reasonably request in connection with the Offers.
(c) The Partnerships and the Company will take such actions as are required
under the applicable Partnership Agreement to effect the admission of the
Company as a limited partner of the Partnership with respect to all LP Units
acquired by it pursuant to the applicable Offer in accordance with the terms of
the Partnership Agreement.
(d) The Company agrees that if it is admitted as a substitute limited
partner in a Partnership and except as otherwise contemplated by this Agreement,
it will not, directly or indirectly, without the prior written consent of a
majority of the general partners of the General Partner of that Partnership (i)
acquire any additional LP Units of that Partnership, (ii) propose any merger or
other business combination involving that Partnership, or (iii) propose any
other transaction pursuant to which it would control or acquire any of the
assets of that Partnership (this agreement being referred to as the
"Standstill").
1.4 OFFER DOCUMENTS
On the date of commencement of the Offers, (a) the Company shall file with
the Securities and Exchange Commission (the "Commission") with respect to the
Offers, (i) a Tender Offer Statement on Schedule 14D-1 with respect to each of
the Partnerships (together with any supplements or amendments thereto, the
"Schedules 14D-1") and (ii) jointly with each of the Partnerships (if required
by the Exchange Act), a Transaction Statement on Schedule 13E-3 (together with
any supplements or amendments thereto, the "Schedules 13E-3") and (b) each
Partnership shall file with the Commission with respect to the Offer a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
supplements or amendments thereto, the "Schedules 14D-9"; the Schedules 14D-1,
the Schedules 13E-3 and the Schedules 14D-9 are referred to collectively as the
"Schedules") and, jointly with the Company (if required by the Exchange Act),
shall file with the Commission the applicable Schedule 13E-3. The Schedules
14D-1 and the Schedules 13E-3 will contain (including as an exhibit) or will
incorporate by reference an offer to purchase (or portions thereof) and a form
of the related letter of transmittal (which documents, together with any
supplements or amendments thereto and any other documents filed with the
Commission or disseminated to holders of LP Units by the Company pursuant to
which the Offers are made, are referred to collectively as the "Offer
Documents").
The Partnerships and the Company shall cooperate with each other and shall
supply each other with any assistance that the other shall reasonably request in
preparing and filing the Schedules and distributing the Offer Documents,
including, without limitation, supplying each other with any and all information
that is required to be furnished in the Schedules. The Company may include in
the Offer Documents any information with respect to the Partnerships that the
Company shall reasonably determine is required under the Exchange Act and the
rules promulgated thereunder to be included in the Offer Documents, with such
qualifications and disclaimers as are reasonably acceptable to the
2
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applicable Partnership. The Company represents and warrants to the Partnerships,
and each Partnership represents and warrants to the Company, that the
information provided by it, and to be provided by it for use in the Schedules,
shall not, on the date the Schedules are filed with the Commission, and on the
date the Offer Documents are first published, sent or given to holders of LP
Units, as the case may be, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company shall promptly notify the
Partnerships of, and shall promptly correct, and the Partnerships shall promptly
notify the Company of, and shall promptly correct, any information provided by
it for use in the Schedules that shall have become untrue or misleading in any
material respect and shall take all steps necessary to cause the Schedules as so
corrected to be filed with the Commission and disseminated to holders of LP
Units, in each case to the extent required by applicable federal securities
laws.
1.5 GENERAL PARTNER RECOMMENDATION
The Offer Documents, the Schedules 14D-9 and the Schedules 13E-3 shall
contain, to the extent applicable, at all times from the commencement of the
Offers through the consummation of the Offers the recommendation of the General
Partner set forth in Section 1.2 of the General Partner Undertaking (the
"General Partner Recommendation"), unless the General Partner has withdrawn or
changed such recommendation in accordance with the exercise of its fiduciary
duties or as otherwise required by law.
ARTICLE II. THE MERGER
2.1 THE MERGER
Upon the terms and subject to the conditions hereof, at the Effective Time
(as defined in Section 2.2 hereof), each Partnership as to which the conditions
to closing set forth in Article VII hereof have been met (each such Partnership,
a "Participating Partnership") shall be merged (the "Merger") with and into the
Company in accordance with the applicable provisions of the Delaware General
Corporation Law (the "DGCL") and the Washington Uniform Limited Partnership Act
(the "WULPA"). When the Merger has been effected the Participating Partnerships
and the Company (together, the "Constituent Entities") will be a single
corporation; the separate existence of each of the Participating Partnerships
will cease; the Company, as the corporation surviving the Merger (the "Surviving
Corporation"), will continue its corporate existence under the DGCL; all Assets
and every other interest of or belonging to or due to each of the Participating
Partnerships will be deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; the title to the Property, or any
interest therein, vested in any of the Constituent Entities will not revert or
be in any way impaired by reason of the Merger; and the Surviving Corporation
will thenceforth be responsible and liable for all the liabilities and
obligations of each of the Constituent Entities.
2.2 EFFECTIVE TIME OF THE MERGER
The Merger will become effective when a properly executed Certificate of
Merger is duly filed with the Secretary of State of Delaware and the Secretary
of State of Washington, which filing will be made as soon as practicable after
the closing of the transactions contemplated by this Agreement in accordance
with Section 6.1 hereof. When used in this Agreement, the term "Effective Time"
means the date and time on which such Certificate is so filed.
2.3 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Time, and without any further action on the part of the
Constituent Entities, the Certificate of Incorporation of the Company will
continue in effect and will be the Certificate of Incorporation of the Surviving
Corporation and thereafter may be amended in accordance with its terms and as
provided by law.
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2.4 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Time, and without any further action on the part of the
Constituent Entities, the Bylaws of the Company will continue in effect without
amendment and will be the Bylaws of the Surviving Corporation and thereafter may
be amended or repealed in accordance with their terms and the Certificate of
Incorporation of the Surviving Corporation and as provided by law.
2.5 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
At the Effective Time, the persons serving as directors of the Company will
be the directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the Certificate of Incorporation
and Bylaws of the Surviving Corporation, until the expiration of the current
term for which they are serving as a director and until their successors are
duly elected or appointed and qualified. The officers of the Company immediately
prior to the Effective Time will be the officers of the Surviving Corporation
until their respective successors are duly elected or appointed and qualified.
ARTICLE III. CONVERSION OF PARTNERSHIP INTERESTS IN THE MERGER
3.1 MERGER CONSIDERATION
At the Effective Time, and subject to Sections 3.4 and 3.5 hereof, by virtue
of the Merger and without any further action by the limited partners or General
Partners of the Participating Partnerships,
(a) each LP Unit (other than LP Units owned by the Company) of each of the
Participating Partnerships will be converted into the right to receive (i) that
number of shares of Class A Common Stock of the Company, par value $.001 per
share (the "REIT Shares"), derived by dividing the Net Asset Value (as defined
in Section 3.2(a) hereof) of the applicable Participating Partnership that would
be allocated to one LP Unit if such Partnership's Net Asset Value were
distributed in a dissolution of such Partnership in accordance with its
Partnership Agreement, taking into account all outstanding LP Units, including
those owned by the Company (a "Dissolution"), by the REIT Share Price (as
defined in Section 3.2(b) hereof) and (ii) if any is payable, the amount of the
Additional Consideration (as defined in Section 3.2(c) hereof) that would be
allocated to one LP Unit if the Additional Consideration were distributed in a
Dissolution;
(b) the General Partner interest (the "GP Interest") of each of the
Participating Partnerships will be converted into the right to receive (i) that
number of REIT Shares derived by dividing the Net Asset Value of the applicable
Participating Partnership that would be allocated to the GP Interest if such
Partnership's Net Asset Value was distributed in a Dissolution by the REIT Share
Price and (ii) if any is payable, the amount of the Additional Consideration
that would be allocated to the GP Interest if the Additional Consideration were
distributed in a Dissolution; and
(c) the LP Units owned by the Company shall be canceled.
(The REIT Shares issuable pursuant to the Merger, together with cash paid in
lieu of fractional REIT Shares as provided in Section 3.4 hereof and any
Additional Consideration, if any, that is payable, are referred to herein as the
"Merger Consideration.") If, prior to the Effective Time, the Company should
split or combine the REIT Shares, or pay a stock dividend, the number of REIT
Shares issuable in the Merger will be appropriately adjusted to reflect such
action.
3.2 CERTAIN DEFINITIONS
(a) As used herein, "Net Asset Value" means, with respect to each of the
Partnerships, (i) the sum of (A) the appraised fair market values of the real
estate assets of the Partnership as of December 31, 1995 set forth in the
Portfolio Appraisal Reports dated June 26, 1996 (the "Appraised Value") prepared
by Robert A. Stanger & Co., Inc. (the "Appraiser"), which Appraised Value
reflected the value of in-progress unit conversions and buildouts, and (B) the
book values of the non-real estate assets, except for amortizable assets, of the
Partnership as of March 31, 1996, less (ii) the sum of (X) such Partnership's
liabilities as of March 31, 1996, (Y) the estimated cost remaining to be
incurred
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as of March 31, 1996 to complete in-progress unit conversions and buildouts, the
value of which was included in the Appraised Value and (Z) the estimated costs
of the Offer and the Merger that would be borne by the Partnership in accordance
with Article VIII hereof, assuming the Merger is consummated.
(b) As used herein, "REIT Share Price" means, with respect to each of the
Partnerships, the average of the per share closing prices on the New York Stock
Exchange, Inc. (the "NYSE") of REIT Shares during the 20 consecutive trading
days ending on the fifth trading day prior to the day of the meeting of limited
partners of the applicable Partnership on which the General Partner actually
calls for the vote of the limited partners to approve of the Merger.
Notwithstanding the foregoing, in the event the REIT Share Price exceeds $27.75,
then for purposes of calculating the number of REIT Shares to be issued pursuant
to Section 3.1 hereof the REIT Share Price shall be deemed to equal $27.75; and,
in the event the REIT Share Price is less than $22.25, then for purposes of
calculating the number of REIT Shares to be issued pursuant to this Section 3.2
the REIT Share Price shall be deemed to equal $22.25 (the range of prices from
the upper to the lower limit on the REIT Share Price is referred to as the "REIT
Share Price Range"). The parties hereto acknowledge that in the event the REIT
Share Price exceeds $28.50, the Company may terminate this Agreement as provided
in Section 8.1(e)(iv) hereof, and in the event the REIT Share Price is less than
$21.50, the Partnership may terminate this Agreement as provided in Section
8.1(h) hereof unless the Company agrees to pay the Additional Consideration.
(c) As used herein, "Additional Consideration" means, with respect to each
of the Partnerships, that amount of cash equal to the difference between the
REIT Share Price calculated without regard to the REIT Share Price Range and
$21.50, multiplied by the number of REIT Shares issuable pursuant to the Merger.
3.3 DISTRIBUTION OF MERGER CONSIDERATION
Prior to the Effective Time, the Company shall deposit (or cause to be
deposited) with Gemisys Corporation, as exchange agent (the "Exchange Agent"),
for the benefit of the General Partners and the limited partners of the
Participating Partnerships for exchange in accordance with this Article III, a
number of REIT Shares and that amount of cash as is sufficient to pay the Merger
Consideration (such REIT Shares and cash being hereinafter referred to as the
"Exchange Fund"). The REIT Shares into which LP Units and GP Interests shall be
converted in the Merger shall be deemed to have been issued at the Effective
Time.
3.4 NO FRACTIONAL SHARES
No fractional REIT Shares will be issued in the Merger. In the event that,
as a result of the conversion of LP Units or GP Interests into REIT Shares, a
limited partner or General Partner, as the case may be, would be entitled to
receive a fractional REIT Share, a cash adjustment will be paid in lieu of any
fractional REIT Share that would otherwise be issuable, and the amount of such
cash adjustment shall equal the product of such fractional amount and the REIT
Share Price. The determination under this Section 3.4 as to whether a limited
partner would otherwise be entitled to receive a fractional REIT Share will be
based on the aggregate number of LP Units such limited partner holds in the
applicable Partnership, not on a per LP Unit basis.
3.5 DISSENTING UNITS
Notwithstanding anything in this Agreement to the contrary, LP Units held by
a limited partner who has properly exercised dissenters' rights with respect
thereto ("Dissenting Units") in accordance with Section 25.10.900 ET SEQ. of the
WULPA will not be converted into the right to receive the Merger Consideration,
but the holder thereof will instead be entitled to receive payment of the fair
value of such LP Units in accordance with the provisions of the WULPA unless and
until such holder fails to perfect or has effectively withdrawn or lost such
holder's rights to receive fair value under the WULPA. If, after the Effective
Time, any holder of Dissenting Units withdraws or loses (through a failure to
perfect or otherwise) such holder's right to receive fair value with respect to
the Dissenting Units, such Dissenting Units will automatically be converted into
the right to receive the Merger
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Consideration pursuant to Section 3.1 hereof. The Partnerships shall give the
Company prompt notice of any demands received by them for the receipt of fair
value for LP Units and, prior to the Effective Time, the Company will have the
right to participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Partnerships may not, except with the
Company's prior written consent, make any payment with respect to, or settle or
offer to settle, any such demands.
3.6 ISSUANCE OF CERTIFICATES FOR REIT SHARES
As soon as practicable after the Effective Time, the Exchange Agent will
advise the beneficial owners of LP Units of a Participating Partnership of the
effectiveness of the Merger and will distribute the Merger Consideration in
accordance with instructions given by such beneficial owners. None of the
Company, the Partnerships, the Surviving Corporation, the Exchange Agent or any
other person shall be liable to any former holder of LP Units or GP Interests
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
Any portion of the Exchange Fund (including the proceeds from any
investments thereof and any REIT Shares) that remains unclaimed by the former
partners of the Participating Partnerships six months after the Effective Time
shall be delivered to the Surviving Corporation. Any former partner of the
Participating Partnerships who has not theretofore complied with this Article
III shall thereafter look only to the Surviving Corporation for payment of the
applicable Merger Consideration and unpaid dividends and distributions payable
with respect thereto, in each case without any interest thereon.
3.7 TRANSFER OF UNITS
There will be no further registration of transfers of LP Units on the
Partnerships' records after the commencement of the Offers and until the Closing
(as defined in Section 6.1 hereof) or termination of this Agreement, except for
the transfer of LP Units to the Company pursuant to the Offers and custodial
transfers, intrafamily transfers, including transfers to trusts, transfers
pursuant to divorce decrees and transfers relating to deaths or settlements of
estates.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS
For the purposes of inducing the Company to enter into this Agreement and to
consummate the Merger, each of the Partnerships severally represents and
warrants to the Company as follows with respect to itself and its Assets:
(a) ORGANIZATION. The Partnership is a limited partnership duly organized
and validly existing under the laws of the state of Washington. The Partnership
has provided the Company with a true and complete copy of its Amended and
Restated Agreement of Limited Partnership and all amendments thereto (as
amended, the "Partnership Agreement"). The Partnership has no direct or indirect
equitable or beneficial ownership interest in any other entity, except as may be
disclosed in the Partnership SEC Documents (as defined hereof).
(b) POWER AND AUTHORITY. The Partnership (i) has the authority to conduct
its business as currently conducted and to own and operate the properties that
it now owns and operates, (ii) is qualified to do business in all jurisdictions
in which such qualification is necessary, except where the failure to be so
qualified would not have a material adverse effect on the Partnership, and (iii)
has all requisite power, authority and legal right to enter into this Agreement
and to consummate the Merger. The execution and delivery of this Agreement by
the Partnership and, subject to the approval of this Agreement by the limited
partners of the Partnership, the consummation by the Partnership of the Merger
have been duly authorized by all necessary partnership action on the part of the
Partnership, and this Agreement is a legal, valid and binding obligation of the
Partnership, enforceable against the Partnership in accordance with its terms.
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(c) NO VIOLATIONS. Except to the extent that lender consents may be
required from mortgagees having liens against the Property and except for such
other consents as have been obtained or will be obtained prior to the Closing,
and assuming approval of this Agreement by the limited partners of the
Partnership, the execution and delivery of this Agreement do not, and the
consummation of the Merger and compliance with the provisions hereof will not,
result in any breach or violation of any (i) agreement to which the Partnership
is a party or by which it or any of its Assets may be bound, (ii) permit,
license or other governmental authorization applicable to the Partnership or its
Assets, or (iii) judgment, order, law, rule or regulation applicable to the
Partnership or its Assets, other than any such items that in the aggregate do
not have a material adverse effect on the Partnership's ability to perform its
obligations under this Agreement or a material adverse effect on the financial
condition of the Partnership.
(d) SEC DOCUMENTS. The Partnership has furnished and will continue to
furnish the Company with a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the Partnership
with the Commission since January 1, 1994 (the "Partnership SEC Documents"). The
Partnership SEC Documents furnished to the Company as of the date of this
Agreement are all the documents (other than preliminary material) that the
Partnership has been required to file with the Commission since such date. As of
their respective dates, the Partnership SEC Documents complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, as applicable, and the
applicable rules and regulations of the Commission thereunder, and none of the
Partnership SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(e) FINANCIAL STATEMENTS. The financial statements of the Partnership
included in the Partnership SEC Documents (the "Partnership Financial
Statements") complied, as of the date of the applicable document, as to form in
all material respects with applicable accounting requirements and published
rules and regulations of the Commission with respect thereto, have been prepared
in accordance with generally accepted accounting principles, applied on a basis
consistent with prior periods (except as otherwise noted therein), and present
fairly the financial position and results of operations of the Partnership as of
their respective dates and for the periods presented therein (subject, in the
case of unaudited interim financial statements, to normal year-end adjustments).
(f) FULL DISCLOSURE; NO MISSTATEMENTS. The representations of the
Partnership contained in this Agreement do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made herein not misleading, and none of the information supplied or
to be supplied by the Partnership for inclusion in the Offer Documents or
registration statement on Form S-4 provided for in Section 5.9 hereof (the "S-4
Registration Statement") or the Proxy Statement/Prospectus (as defined in
Section 5.9 hereof) contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the termination of the Offer or,
with respect to the S-4 Registration Statement or the Proxy
Statement/Prospectus, prior to the Closing Date (as defined in Section 6.1
hereof), any event relating to the Partnership should occur that is required to
be described in an amendment of or supplement to the Offer Documents, S-4
Registration Statement or the Proxy Statement/Prospectus, the Partnership
promptly shall inform the Company and assist in the preparation, filing and, if
necessary, dissemination of such amendment or supplement.
(g) NO DEFAULTS. The Partnership is not in default or violation of any
term, condition or provision of any agreement to which the Partnership is a
party or by which it or any of its Assets may be bound that would materially
interfere with the Partnership's participation in the Merger or that would
result in a material liability not reflected in the Partnership Financial
Statements.
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(h) ABSENCE OF LITIGATION. There is no suit, action or proceeding pending
or, to the Partnership's knowledge, threatened against the Partnership that
might materially adversely affect the Partnership's ability to perform this
Agreement or to consummate the transactions contemplated hereby.
(i) NO MATERIAL ADVERSE CHANGES. Except as disclosed in writing to the
Special Committee concurrently with the execution of this Agreement, there have
been no material adverse changes in the business, operations, properties, assets
or condition, financial or otherwise, of the Partnership from that set forth in
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1995, as supplemented by the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, both as filed with the Commission.
(j) TITLE TO ASSETS. The Partnership has good and marketable title to the
assets reflected in the most recent balance sheet (the "Balance Sheet") included
in the Partnership Financial Statements and reflected in its Net Asset Value and
will hold good and marketable title to such assets, and any assets acquired by
the Partnership prior to the Effective Time, except for assets disposed of in
the ordinary course of business (which assets do not include any of the
Property) and except as the failure of the Partnership to have such good and
marketable title is not, in the aggregate, material to the Partnership. The
assets reflected on the Balance Sheet include the Property. Except as otherwise
disclosed in the Balance Sheet or related notes accompanying it, all the assets
referred to in the preceding sentence are owned free and clear of any and all
material adverse claims, security interests, charges or other encumbrances or
restrictions of every nature, except liens for current taxes not yet due and
payable or landlords' liens as provided for in the relevant leases, or by
applicable law.
(k) LIABILITIES OF THE PARTNERSHIP. The Partnership has no material
liabilities, contingent or otherwise, except to the extent reflected, reserved
against or provided for in the Balance Sheet, and except for any material
liabilities disclosed in writing to the Special Committee concurrently with the
execution of this Agreement or any other obligations incurred after the date of
the Balance Sheet in the ordinary course of business, which subsequently
incurred obligations are of an amount and nature as to be capable of being
discharged from the operations of the Partnership without requiring additional
equity or borrowing.
(l) PROPERTY.
(i) Materially complete and correct legal descriptions of the Property
have been delivered to the Company concurrently with the execution of this
Agreement.
(ii) All information provided by the Partnership to the Appraiser with
respect to the Property for use in preparing the appraisals of the Property
was true and correct in all material respects as of the date given.
(iii) Except as disclosed in writing to the Special Committee
concurrently with the execution of this Agreement, to the best knowledge of
those representatives and agents of the Partnership to whom notice should
have been given, there is no material violation of any law, ordinance, rule,
requirement, resolution, policy statement or regulation (including, without
limitation, those relating to land use, subdivision, zoning, environmental,
occupational health and safety, water, and building and fire codes) of any
governmental authority (collectively, "Governmental Regulations") applicable
to the construction, alteration, rehabilitation, maintenance, use, operation
or sale of any of the Property, which violation would have a material
adverse effect on the use of the Property. The Partnership has neither
received notice nor has knowledge that any governmental authority, or any
employee or agent thereof, considers the operations, use or ownership of any
of the Property to violate or have violated in a material manner any
Governmental Regulations, or that any investigation has been commenced or is
contemplated regarding such possible violation.
(iv) To the best knowledge of those representatives and agents of the
Partnership to whom notice should have been given, the Partnership has
neither received notice nor has knowledge of any plan or study of any
governmental authority that would materially adversely affect the use of
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the Property for its intended uses, or result in any public improvements
that will result in any material charge being levied against, or any
material lien assessed upon, all or any portion of such Property.
(v) Except as disclosed in writing to the Special Committee
concurrently with the execution of this Agreement, to the best knowledge of
those representatives and agents of the Partnership to whom notice should
have been given, there are no delinquent taxes, assessments, charges, debts,
liabilities, claims or obligations arising from the construction, design,
development, ownership, maintenance or operation of, or otherwise relating
to, the Property, which matters could give rise to any mechanics' or
materialmen's or other statutory or common-law lien against such Property or
any party thereof that, individually or in the aggregate, would have a
material adverse effect on the value of the Property, taken as a whole.
(vi) Except as disclosed in writing to the Special Committee
concurrently with the execution of this Agreement, to the best knowledge of
those representatives and agents of the Partnership to whom notice should
have been given or who, by virtue of his or her position, could be expected
to have knowledge of any of the following matters, (A) none of the Property,
which for purposes of this paragraph shall include, without limitation,
subsurface soil and ground water, contains any substance, including, without
limitation, any asbestos, formaldehyde, radioactive substance, hydrocarbons,
industrial solvents, flammables, explosives and any hazardous substance or
toxic material (collectively, "Hazardous Materials"), that could presently
or at any time in the future cause a material detriment to or materially
impair the value or beneficial use of the Property or constitute or cause a
health, safety or environmental hazard on or relating to the Property or to
any person who may enter onto the Property or require remediation at the
behest of any governmental agency, which health, safety or environmental
hazard or remediation could have a material adverse effect on the
Partnership; (B) there are no environmental conditions relating to any of
the Property giving rise to material liability, and the Property is in
compliance in all material respects with existing applicable federal, state
and local environmental laws and regulations; and (C) the Partnership has
not received notice that the ownership, operation, use and condition of any
of the Property is in violation of any federal, state or local law,
ordinance or regulation pertaining to industrial hygiene, Hazardous
Materials or environmental protection. To the best knowledge of the
Partnership, there is no proceeding or action pending or, to its actual
knowledge, threatened by any person or governmental agency regarding the
environmental condition of any of the Property.
(vii) The Partnership has not entered into any contracts for the sale
of all or any portion of the Property.
(m) TAXES. The Partnership has filed all federal, state and local tax
returns that it is required to file, has provided to its limited partners all
required Forms K-1 and such other tax forms as may be required by federal, state
or local authorities, and has no outstanding material liability for any federal,
state or local taxes or interest or penalties thereon, whether disputed or not,
except taxes disputed or not yet payable that have been provided for in
accordance with generally accepted accounting principles and are disclosed in
the Partnership Financial Statements; the Partnership is taxable as a
partnership (and not as an association taxable as a corporation) for federal and
applicable state income tax purposes.
4.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
For the purposes of inducing each of the Partnerships to enter into this
Agreement and to consummate the Merger, the Company represents and warrants to
each Partnership as follows:
(a) ORGANIZATION; POWER AND AUTHORITY. The Company is duly organized,
validly existing and in good standing under the laws of the state of Delaware.
The Company (i) has the authority to conduct its business as currently conducted
and to own and operate the properties that it now owns and operates, (ii) is
qualified to do business in all jurisdictions in which such qualification is
necessary,
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except where the failure to be so qualified would not have a material adverse
effect on the Company, and (iii) has all requisite power, authority and legal
right to enter into this Agreement and to consummate the Merger. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the Merger have been duly authorized by all necessary corporate
action on the part of the Company, and this Agreement is a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
(b) CONSENTS. Except as expressly contemplated by this Agreement, no other
action is required to be taken by the Company to permit the execution, delivery
and performance of this Agreement, all other documents and certificates
expressly contemplated hereby, and the Merger, and no consent or approval of any
third party or governmental authority is or was required or appropriate in
connection with the execution of this Agreement, or to consummate the
transactions expressly contemplated hereunder, except such as have been obtained
or will be obtained prior to the Closing.
(c) NO VIOLATIONS. The execution and delivery of this Agreement do not,
and the consummation of the Merger and compliance with the provisions hereof
will not, result in any breach or violation of any (i) agreement (including,
without limitation, the organizational documents under which the Company is
organized) to which the Company is a party or by which it or any of its
properties may be bound, (ii) permit, license or other governmental
authorization applicable to the Company or its properties, or (iii) judgment,
order, law, rule or regulation applicable to the Company, other than any such
items that in the aggregate do not have a material adverse effect on the
Company's ability to perform its obligations under this Agreement or a material
adverse effect on the value of the Merger Consideration.
(d) CAPITALIZATION. The authorized capital stock of the Company consists
of (i) 120,000,000 REIT Shares, (ii) 500,000 shares of Class B Common Stock,
$.001 par value per share, (iii) 160,000,000 shares of Excess Stock, $.001 par
value per share, and (iv) 80,000,000 shares of Preferred Stock, $.001 par value
per share. All outstanding REIT Shares are duly authorized, validly issued,
fully paid and nonassessable, and no class of capital stock of the Company is
entitled to preemptive or cumulative voting rights. As of March 31, 1996,
23,046,517 REIT Shares, 154,605 shares of Class B Common Stock, no shares of
Excess Stock, and no shares of Preferred Stock were issued and outstanding.
(e) AUTHORIZATION OF REIT SHARES. Prior to the Effective Time, the Company
will have taken all necessary action to permit it to issue the number of REIT
Shares required to be issued pursuant to Article III hereof. Such REIT Shares
will, when issued pursuant to this Agreement, be duly authorized, validly
issued, fully paid and nonassessable, and no stockholder of the Company will
have any preemptive right of subscription or purchase in respect thereof. The
REIT Shares will, when issued pursuant to this Agreement, be registered under
the Securities Act and the Exchange Act, will be registered or exempt from
registration under all applicable state securities laws and will be listed for
quotation on the NYSE.
(f) SEC DOCUMENTS. The Company has furnished and will continue to furnish
the Partnerships with a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the Company with
the Commission since January 1, 1994 (the "Company SEC Documents"). The Company
SEC Documents furnished to the Partnerships as of the date of this Agreement are
all the documents (other than preliminary material) that the Company has been
required to file with the Commission since such date. As of their respective
dates, the Company SEC Documents complied as to form in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable,
and the applicable rules and regulations of the Commission thereunder, and none
of the Company SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) FINANCIAL STATEMENTS. The financial statements of the Company included
in the Company SEC Documents complied, as of the date of the applicable
document, as to form in all material respects with applicable accounting
requirements and published rules and regulations of the Commission with
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respect thereto, have been prepared in accordance with generally accepted
accounting principles, applied on a basis consistent with prior periods (except
as otherwise noted therein), and present fairly the financial position and
results of operations of the Company as of their respective dates and for the
periods presented therein (subject, in the case of unaudited interim financial
statements, to normal year-end adjustments).
(h) FULL DISCLOSURE; NO MISSTATEMENTS. The representations of the Company
contained in this Agreement do not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made
herein not misleading, and none of the information supplied or to be supplied by
the Company for inclusion or incorporation by reference in the S-4 Registration
Statement, the Offer Documents or the Proxy Statement/Prospectus relating to the
Company contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the termination of the Offer or, with
respect to the S-4 Registration Statement or the Proxy Statement/Prospectus, the
Closing Date, any event relating to the Company should occur that is required to
be described in an amendment of or supplement to the Offer Documents or the
Proxy Statement/Prospectus, the Company promptly shall inform the Partnerships
and prepare, file and, if necessary, disseminate such amendment or supplement.
(i) ABSENCE OF LITIGATION. There is no suit, action or proceeding pending
or, to the Company's knowledge, threatened against the Company that might
materially adversely affect the Company's ability to perform this Agreement or
to consummate the transactions contemplated hereby.
(j) NO MATERIAL ADVERSE CHANGES. There have been no material adverse
changes in the business, operations, properties, assets or condition, financial
or otherwise, of the Company from that set forth in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, as supplemented by the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
both as filed with the Commission.
ARTICLE V. COVENANTS AND AGREEMENTS
During the period from the date of this Agreement and continuing until the
Closing Date or the termination of this Agreement, the Company and each of the
Partnerships agree to act in accordance with the following covenants:
5.1 ORDINARY COURSE; NO ACQUISITIONS OR DISPOSITIONS
Except as provided in Section 5.2 hereof, each Partnership shall carry on
its business in the ordinary course in substantially the same manner as
heretofore conducted and use all reasonable efforts to (a) preserve intact its
present business, organization and goodwill, (b) maintain all permits, licenses
and authorizations required by applicable laws, and (c) preserve its
relationships with customers, suppliers, lenders, lessors, governmental entities
and others having business or regulatory dealings with it. No Partnership shall
acquire or agree to acquire by any manner any business or business organization
or division thereof or otherwise acquire or agree to acquire any assets that are
material, individually or in the aggregate, to such Partnership, other than
high-quality, short-term investments made in the ordinary course of business. No
Partnership shall sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its Assets, except in the ordinary course of
business and consistent with past practice, and except as required by law. Each
Partnership shall promptly notify the Company of any event or occurrence not in
the ordinary course of business or that may have a material adverse effect on
such Partnership's financial condition.
5.2 DISTRIBUTIONS
Each Partnership shall use its best efforts to manage its business,
including, but not limited to, suspending cash distributions to its partners if
the General Partner deems it advisable to do so, such that such Partnership's
Closing Net Asset Value (as defined in Section 5.2 hereof) will equal such
Partnership's Net Asset Value. Immediately prior to the Closing, each
Partnership will declare a cash
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distribution payable to those who are partners of the Partnership at such time
in an aggregate amount equal to the amount, if any, by which such Partnership's
Closing Net Asset Value exceeds its Net Asset Value. As soon as reasonably
practicable following the Closing, the Company, as the Surviving Corporation,
will take all actions necessary to transfer the amount necessary to pay such
distribution to Gemisys Corporation, the transfer and distribution agent for the
Partnership, for distribution in accordance with the terms of the Partnership
Agreement.
As used herein, "Closing Net Asset Value" means, with respect to each of the
Partnerships, (i) the sum of (a) the Appraised Value (b) the cost incurred to
the Closing Date of buildouts and unit conversions, if any, that were not
reflected in the Appraised Value and (c) the book values of the non-real estate
assets, except for amortizable assets, of the Partnership as of the Closing
Date, less (ii) the sum of (x) such Partnership's liabilities as of the Closing
Date, (y) the estimated cost remaining to be incurred, if any, as of the Closing
Date to complete the buildouts and unit conversions that were included in the
Appraised Value, and (z) such Partnership's Individual Transaction Expenses and
pro rata share of Shared Transaction Expenses (as such terms are defined in
Section 8.3(a) hereof).
5.3 AMENDMENT OF GOVERNING DOCUMENTS
The IDS2 and IDS3 Partnerships shall take all actions necessary to amend
their respective Partnership Agreements to add the following subsection to
Section 13.3(c) of those agreements, it being understood that the approval of
such amendment by limited partners will be a part of their approval of this
Agreement and the transactions contemplated hereby:
(iii) Notwithstanding any provision of this Agreement, the Partnership
may merge with and into Shurgard Storage Centers, Inc. (the "Company")
pursuant to, and consummate all other transactions contemplated by, the
terms of the Acquisition Agreement dated July 1, 1996, between the
Company, the Partnership, IDS/Shurgard Income Growth Partners L.P.,
IDS/Shurgard Income Growth Partners L.P. II and IDS/Shurgard Income
Growth Partners L.P. III.
Except as provided above, no Partnership shall amend or propose to amend any
of its organizational documents, including its Certificate of Limited
Partnership or Partnership Agreement, without the prior written consent of the
Company.
5.4 EXCLUSIVITY
No Partnership will, nor will it permit its partners (including any general
or limited partner of its General Partner), agents or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) to, directly or indirectly, initiate, solicit or encourage or,
except as required by law, including fiduciary duties required by law as
determined by the General Partner in good faith, engage in discussions or
negotiations with or provide any information to any entity or group (other than
the Company or an affiliate of the Company) concerning any acquisition proposal,
tender offer, exchange offer, merger, consolidation, sale of a substantial
amount of assets, or sale of securities or equity interests, or in connection
with a liquidation, dissolution or similar transaction involving such
Partnership. Each Partnership will notify the Company immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, the Partnership, and will keep the Company informed of the status and
terms of any such proposals and any such negotiations or discussions.
5.5 OTHER ACTIONS
The Partnerships and the Company shall not take or omit to take any action
that would result in any of the representations and warranties of the
Partnerships or the Company, respectively, made in or pursuant to this Agreement
becoming untrue or incomplete, in any of the covenants and agreements of the
Partnerships or the Company, respectively, being breached, or in any of the
conditions to the Closing not being satisfied.
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5.6 ADVISE OF CHANGES
Each Partnership promptly shall advise the Company in writing, and the
Company promptly shall advise the Partnerships in writing, of any change or
event that has made, or could be reasonably expected to make, untrue or
inaccurate any representation or warranty made by such party in or pursuant to
this Agreement or that has prevented or may prevent the performance by such
party of any covenant or agreement made in or pursuant to this Agreement.
5.7 MEETINGS OF LIMITED PARTNER
Each Partnership will take all action necessary in accordance with
applicable law and its Partnership Agreement to convene a meeting of its limited
partners as promptly as practicable to consider and vote upon approval of this
Agreement and the consummation of the Merger.
5.8 REGISTRATION AND LISTING OF REIT SHARES
The Company will use its best efforts to register the REIT Shares under the
Securities Act and to cause the REIT Shares to be listed for trading on the NYSE
upon official notice of issuance.
5.9 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS
The Company and the Partnerships will promptly prepare and file with the
Commission a preliminary proxy statement/prospectus in connection with the vote
of the limited partners of the Partnerships on the approval of this Agreement
and the consummation of the transactions contemplated hereby (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, in each case in the form or forms to be mailed to the limited partners
of the Partnerships, being called herein the "Proxy Statement/Prospectus"). The
Company will, as promptly as practicable, prepare and file with the Commission
the S-4 Registration Statement, containing the Proxy Statement/Prospectus, in
connection with the registration under the Securities Act of the REIT Shares to
be issued in the Merger. The Company and the Partnerships will each use their
best efforts to have the S-4 Registration Statement declared effective by the
Commission as promptly as practicable, and also will take any other action
required to be taken under federal or state securities laws, and each of the
Partnerships will use its best efforts to cause the Proxy Statement/Prospectus
to be mailed to the record and beneficial owners of LP Units at the earliest
practicable date. The Company agrees that (a) if at any time prior to the
Effective Time any event with respect to the Company should occur that is
required to be described in an amendment of, or a supplement to, the Proxy
Statement/ Prospectus or the S-4 Registration Statement, such event shall be so
described, and such amendment or supplement shall be promptly filed with the
Commission and, as required by law, the Partnership will cause the amendment or
supplement to be disseminated to the record and beneficial owners of LP Units
and (b) the S-4 Registration Statement and the Proxy Statement/Prospectus will
(with respect to the Company) comply as to form in all material respects with
the requirements of the federal securities laws. Each of the Partnerships agrees
that (i) if at any time prior to the Effective Time any event with respect to
the Partnership should occur that is required to be described in an amendment
of, or a supplement to, the Proxy Statement/Prospectus or the S-4 Registration
Statement, such event shall be so described, and such amendment or supplement
shall be promptly filed with the Commission and, as required by law,
disseminated to the record and beneficial owners of LP Units and (ii) the Proxy
Statement/Prospectus will (with respect to the Partnership) comply as to form in
all material respects with the requirements of the federal securities laws. The
Proxy Statement/Prospectus shall include the recommendation and consent
described in Section 2.1 of the General Partner Undertaking.
5.10 CONSENTS AND APPROVALS
The Company and the Partnerships shall each use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary consents, waivers, approvals,
authorizations and orders and to make all necessary registrations and filings,
and otherwise to satisfy or cause to be satisfied all conditions precedent to
its obligations under this Agreement.
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5.11 LIMITATION ON NUMBER OF REIT SHARES ISSUED
Notwithstanding any other provision of this Agreement, in the event that the
payment of Merger Consideration in the Merger would result in the issuance by
the Company of more than 20% of the total number of REIT Shares then
outstanding, then the Company may elect to pay cash in lieu of such REIT Shares
in excess of 20% of the total number of REIT Shares then outstanding (with the
cash amount to be paid in lieu of such REIT Shares to be based on the REIT Share
Price), and such cash in lieu of REIT Shares shall, to the extent reasonably
practicable, be allocated proportionately to all partners in the Partnerships
receiving Merger Consideration.
ARTICLE VI. CLOSING
6.1 CLOSING DATE
The consummation of the transactions contemplated hereby (the "Closing")
shall be held within five business days of the satisfaction or waiver of the
conditions to closing set forth in Article VII hereof. The Closing shall be held
at the offices of Perkins Coie, 1201 Third Avenue, 40th Floor, Seattle,
Washington, or at such other place as may be agreed upon in writing by the
Participating Partnerships and the Company. The date and hour of the Closing are
referred to as the "Closing Date." At the Closing each of the parties shall take
all such action and deliver all such documents, instruments, certificates and
other items as may be required under this Agreement or otherwise in order to
perform or fulfill all covenants, conditions and agreements on its part to be
performed or fulfilled on or prior to the Closing Date and to cause all
conditions precedent to the other parties' obligations under this Agreement to
be satisfied in full.
6.2 ADDITIONAL CLOSINGS
Notwithstanding any other provision of this Agreement, if the conditions
precedent to Closing set forth in Article VII hereof have been satisfied or
waived with respect to the Closing of this Agreement as to one or two
Participating Partnerships, this Agreement may be closed with respect to such
Participating Partnership(s) and, in the event the conditions precedent to
Closing set forth in Article VII hereof are subsequently satisfied or waived
with respect to any additional Participating Partnership(s), there may be an
additional Closing or Closings with respect to such Participating
Partnership(s). All references herein to the Closing and the Closing Date shall
mean the original Closing or such additional Closing(s), as applicable, and all
references herein to Effective Time shall mean the Effective Time of the Merger
of the applicable Participating Partnership; provided, however, that the
determination of the amount of Shared Transaction Expenses pursuant to Section
8.3 hereof shall be made prior to the initial Closing and shall not be further
adjusted at any subsequent Closing.
6.3 FURTHER ACTS
If at any time after the Closing Date any further action by any of the
parties to this Agreement is necessary or desirable to carry out the purposes of
this Agreement and/or to vest in the Company full title to all Assets and rights
of the Participating Partnerships, such party shall take all such necessary or
desirable action or use its best efforts to cause such action to be taken.
ARTICLE VII. CONDITIONS
The respective obligations of the parties hereto to consummate the Merger
pursuant to the terms of this Agreement are subject to satisfaction of the
following conditions precedent on or prior to the Closing Date. In the event
that one or more of these conditions are not satisfied on or prior to the
Closing Date, the party or parties whose obligations hereunder are subject to
the satisfaction of such condition or conditions may either elect to terminate
this Agreement or waive the satisfaction of such condition. The consummation of
the Merger as to any Partnership is not conditioned upon the consummation of the
Merger as to any other Partnership.
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party to consummate the Mergers are
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
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(a) APPROVAL OF LIMITED PARTNERS. This Agreement and the consummation of
the Merger shall have been duly approved by the requisite vote of the limited
partners of the Partnership in accordance with the applicable provisions of its
Partnership Agreement and the WULPA.
(b) ABSENCE OF INJUNCTIONS. No injunctions relating to the transactions
contemplated by this Agreement or any of the parties hereto that would have a
material adverse effect on the Company or on the business or Property of the
Partnerships, taken as a whole or individually, or that would prevent
consummation of the Merger, shall have been issued and remain outstanding.
(c) EFFECTIVENESS OF S-4 REGISTRATION STATEMENT. The S-4 Registration
Statement shall have been declared effective by the Commission under the
Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose and no similar proceeding in respect of the Proxy
Statement/Prospectus shall have been initiated or threatened by the Commission.
(d) LISTING OF REIT SHARES. The REIT Shares issuable in the Merger shall
have been authorized for listing on the NYSE upon official notice of issuance.
7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to consummate the Merger as to each
Partnership shall be subject to the fulfillment on or prior to the Closing Date
of the following conditions, unless waived in writing by the Company:
(a) FAIRNESS OPINION. The Company shall have received an opinion from
Alex. Brown & Sons Incorporated as to the fairness to the Company, from a
financial point of view, of the Offer Prices and the Merger Consideration.
(b) CLOSING NET ASSET VALUE. The Company shall have received a certificate
from the General Partner dated the Closing Date certifying that the Closing Net
Asset Value of each Partnership is no less than its Net Asset Value of the
Partnership.
(c) ABSENCE OF ADVERSE CHANGE. Subsequent to the date hereof, there has
not been any material adverse change in the Partnership's ability to consummate
the Merger, or in the Partnership's business, operations, properties, assets or
condition, financial or otherwise.
(d) REPRESENTATIONS AND WARRANTIES TRUE AS OF BOTH PRESENT DATE AND CLOSING
DATE. The representations and warranties of the Partnership contained herein
shall be true in all material respects as of the date of this Agreement and on
the Closing Date.
(e) COMPLIANCE WITH COVENANTS. The Partnership shall have performed or
complied with in all material respects all obligations, agreements and covenants
contained in this Agreement to be performed and complied with by it on or prior
to the Closing Date.
(f) THIRD-PARTY CONSENTS. All necessary consents and approvals from third
parties to the transfers, conveyances and transactions set forth herein shall
have been obtained.
(g) OPINION. The Company shall have received an opinion from counsel to
the Partnership in the form attached hereto as Exhibit B.
(h) ACCOUNTANT'S LETTER. The Special Committee shall have received from
Deloitte & Touche LLP a letter, in form and substance satisfactory to the
Special Committee, acting in good faith, applying certain agreed-upon procedures
to designated information contained in the S-4 Registration Statement and the
Offer Documents.
7.3 CONDITIONS TO THE OBLIGATIONS OF THE PARTNERSHIPS
The obligation of each of the Partnerships to consummate the Merger is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, unless waived in writing by the applicable Partnership:
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(a) FAIRNESS OPINION. The Partnership shall have received opinions from
Robert A. Stanger & Co., Inc. as to the fairness to the limited partners of the
Partnership, from a financial point of view, of the Offer Price and the Merger
Consideration.
(b) ABSENCE OF ADVERSE CHANGE. Subsequent to the date hereof, there has
not been any material adverse change in the Company's ability to pay the Merger
Consideration, or in the Company's business, operations, properties, assets or
condition, financial or otherwise.
(c) REPRESENTATIONS AND WARRANTIES TRUE AS OF BOTH PRESENT DATE AND CLOSING
DATE. The representations and warranties of the Company contained herein shall
be true in all material respects as of the date of this Agreement and on the
Closing Date.
(d) COMPLIANCE WITH COVENANTS. The Company shall have performed or
complied with in all material respects all obligations, agreements and covenants
contained in this Agreement to be performed and complied with by it on or prior
to the Closing Date.
(e) THIRD-PARTY CONSENTS. All necessary consents and approvals from third
parties to the transfers, conveyances and transactions set forth herein shall
have been obtained.
(f) OPINION. The Partnership shall have received an opinion from special
counsel to the Company in the form attached hereto as Exhibit C.
ARTICLE VIII. TERMINATION AND WAIVER
8.1 TERMINATION
With respect to any Partnership, this Agreement may be terminated at any
time prior to the Effective Time, notwithstanding approval thereof by the
limited partners of such Partnership:
(a) by mutual consent duly authorized by the Board of Directors of the
Company and the General Partner of the Partnership; or
(b) by either the Company or the Partnership if the Merger has not been
consummated by March 31, 1997, or such later date as mutually agreed upon by the
parties; provided, however, that the right to terminate this Agreement under
this Section 8.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of or resulted in the
failure of such Merger to occur on or before such date; or
(c) by either the Company or the Partnership if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a nonappealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger between the Company and the Partnership;
provided, however, that the right to terminate this Agreement under this Section
8.1(c) shall not be available to any party who has not complied with its
obligations under Sections 5.9 and 5.10 hereof and such noncompliance materially
contributed to the issuance of any such order, decree or ruling or the taking of
such action; or
(d) by either the Company or the Partnership if the requisite vote of the
limited partners of the Partnership shall not have been obtained by March 31,
1997; or
(e) by the Company if (i) the General Partner of the Partnership shall
withdraw or change its approval of this Agreement or the General Partner
Recommendation in a manner determined by the Company in good faith to be adverse
to the Company or shall have resolved to do so; or (ii) the General Partner of
the Partnership, shall have recommended to the limited partners of the
Partnership an Alternative Transaction (as defined in Section 8.3(c) hereof); or
(iii) any person (other than the Company or an affiliate of the Company) shall
have acquired voting rights to, or the right to acquire voting rights to, or any
"group" (as such term is defined in Section 14(d) of the Exchange Act and the
rules and regulations promulgated thereunder) shall have been formed which has
voting rights to, or
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the right to acquire voting rights to, 20% or more of the then-outstanding LP
Units of such Partnership; or (iv) if the REIT Share Price, without taking into
account the application of the REIT Share Price Range, exceeds $28.50; or
(f) by the Company or the Partnership if (i) any representation or warranty
of the Partnership or the Company, respectively, set forth in this Agreement
shall be materially untrue when made or shall become materially untrue or (ii)
upon a breach of any covenant or agreement on the part of the Partnership or the
Company, respectively, set forth in this Agreement, such that the conditions set
forth in Section 7.2(e) or 7.3(d) hereof, as the case may be, would not be
satisfied (either (i) or (ii) above being a "Terminating Breach"); provided,
however, that if such Terminating Breach is curable prior to March 31, 1997 by
the Company or the Partnership, as the case may be, through the exercise of its
reasonable best efforts and for so long as the Company or the Partnership, as
the case may be, continues to exercise such reasonable best efforts, neither the
Partnership nor the Company, respectively, may terminate this Agreement under
this Section 8.1(f); or
(g) by the Partnership or the Company if the Partnership enters into a
definitive agreement accepting an Alternative Transaction; or
(h) by the Partnership if the REIT Share Price, without taking into account
the application of the REIT Share Price Range, is less the $21.50 and the
Company has not agreed to pay the Additional Consideration in accordance with
Section 2.2 of the General Partner Undertaking.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
partners or stockholders, whether prior to or after the execution of this
Agreement.
8.2 EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in Section 8.1
hereof, this Agreement shall become void and there shall be no liability or
obligation on the part of any party hereto or its respective affiliates,
partners, officers, directors or stockholders except (a) for the provisions of
Section 1.3(d) (if, and only if, an Offer has been consummated and the Company
has been admitted as a limited partner of the applicable Partnership with
respect to the LP Units purchased in the Offer) and Section 8.3 hereof, which
provisions shall survive the termination of this Agreement, and (b) to the
extent that such termination results from the willful breach of a party hereto
of any of its representations, warranties, covenants or agreements made in or
pursuant to this Agreement.
8.3 FEES AND EXPENSES
(a) The costs and expenses that have been and will be incurred by the
Partnerships and the Company in connection with the preparation and negotiation
of this Agreement, the making of the Offers and the solicitation of the approval
of the limited partners of each of the Partnerships to the Merger, except those
costs and expenses identified below as "Individual Transaction Expenses" will be
shared by the Partnerships and the Company (the "Shared Transaction Expenses").
The Shared Transaction Expenses include, without limitation, accounting fees and
expenses, filing, printing and mailing costs of the Offer Documents, the S-4
Registration Statement, the Proxy Statement/Prospectus and other soliciting
materials, proxy solicitation fees, depositary fees and closing costs. Except as
otherwise provided in this Section 8.3, the Shared Transaction Expenses will be
shared by the Company and the Partnerships as follows: (a) 50% of the Shared
Transaction Expenses will be borne by the Company and (b) 50% of the Shared
Transaction Expenses will be borne by the Partnerships, with the amount of
Shared Transaction Expenses to be borne by the Partnerships to be allocated to
each Partnership pro rata based on its relative Net Asset Value. "Individual
Transaction Expenses" consist of (i) legal fees and expenses; (ii) fees and
expenses of investment bankers and other financial advisors; (iii) the cost of
the Partnerships' real estate portfolio appraisals and (iv) the transfer fees
payable by the Company for the LP Units acquired through the Offers. Individual
Transaction
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Expenses that are incurred by the Company will be borne by the Company.
Individual Transaction Expenses that are incurred by the Partnerships will be
allocated to each Partnership pro rata based on the relative Net Asset Value of
each Partnership.
The Partnerships and the Company agree to contribute their share of the
Shared Transaction Expenses to the party that has incurred such Shared
Transaction Expenses as they are incurred if requested by the Other Party. In
the event that the amount of such Shared Transaction Expenses is not finally
determined prior to the Closing, the parties hereto will agree on a reasonable
estimate of the final amount of such Shared Transaction Expenses, and such
estimated amount, together with the amount of expenses already incurred, will be
the total Shared Transaction Expenses. The Company shall pay to each of the
Partnerships, or each of the Partnerships shall pay to the Company or shall
accrue to the extent not already accrued as of the Closing Date, as the case may
be, its allocated portion of Shared Transaction Expenses that have not already
been paid, in full satisfaction of its obligations under this Section 8.3. No
adjustments will be made following the Closing if the total amount of the Shared
Transaction Expenses estimated by the parties hereto prior to the Closing is
different from the amount actually incurred.
(b) Except for IDS1, as to whom this Section 8.3(b) is not applicable, a
Partnership shall pay the Company a pro rata portion (based on such
Partnership's relative Net Asset Value, taking into account all three
Partnerships) of the Shared Transaction Expenses and Individual Transaction
Expenses that would otherwise be borne by the Company pursuant to Section 8.3(a)
hereof, upon the first to occur of any of the following events:
(i) the termination of this Agreement by the Company or the Partnership
pursuant to Section 8.1(d) hereof or the termination of this Agreement by
the Company pursuant to Section 8.1(f) hereof and, in either such case, the
Partnership has furnished information to, or entered into discussions or
negotiations with, any person or entity with respect to an Alternative
Transaction and the General Partner Recommendation shall not have been
reaffirmed to the limited partners of the Partnership by the date of the
meeting of limited partners and remain effective on that date; or
(ii) the termination of this Agreement by the Company pursuant to
Section 8.1(e)(i), (ii), or (iii) hereof; or
(iii) the termination of this Agreement by the Partnership or the
Company pursuant to Section 8.1(g) hereof.
(c) "Alternative Transaction" means any (i) transaction pursuant to which
any person or group of persons other than the Company or any affiliate of the
Company (a "Third Party") acquires or would acquire more than 25% of the
outstanding LP Units of the Partnership, whether from the Partnership or
pursuant to a tender offer or exchange offer or otherwise, (ii) merger or other
business combination involving the Partnership pursuant to which any Third Party
acquires more than 25% of the LP Units or other equity securities of the
Partnership or the entity surviving such merger or business combination, or
(iii) any other transaction pursuant to which any Third Party acquires or would
acquire control of the assets of the Partnership having a fair market value (as
determined by the General Partner of the Partnership in good faith) equal to
more than 25% of the fair market value of all the assets of the Partnership
immediately prior to such transaction.
(d) In the event of the termination of this Agreement by the Company or the
Partnership pursuant to Section 8.1(d) hereof following the vote of limited
partners of the Partnership and if Section 8.3(b)(i) hereof is not applicable,
then the Partnership shall bear a percentage of the Shared Merger Expenses that
the Partnership would otherwise have borne pursuant to Section 8.3(a) hereof
equal to the percentage of outstanding LP Units of the Partnership that were
voted in favor of the Merger. Any Shared Merger Expenses not paid by a
Partnership pursuant to this paragraph shall be paid by the Company (and not
paid by the other Partnerships).
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8.4 EXTENSION; WAIVER
At any time prior to the Closing, the parties hereto may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or made in connection herewith, and (c) waive compliance with
any of the agreements of the other parties hereto contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.5 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties in this Agreement shall survive
the Closing Date.
ARTICLE IX. MISCELLANEOUS
9.1 ASSIGNMENT OF CONTRACT
The Company may not assign its rights under this Agreement without the
consent of the applicable Partnership. None of the Partnerships may assign their
rights under this Agreement.
9.2 RISK OF LOSS
(a) Risk of loss or damage to the Assets by condemnation, eminent domain or
similar proceedings (or deed in lieu thereof), or by fire or any other casualty,
from the date hereof through the Effective Time will be on the Partnership
owning such Assets and thereafter will be on the Company.
(b) In the event of loss or damage to the Assets that occurs prior to the
Effective Time, if the Partnership elects not to or is unable to effect a timely
cure of such loss or damage prior to Closing, the monetary value of such loss or
damage shall be reflected on the Closing Balance Sheet and if, as of the
Effective Time, the reduction in the Partnership's Closing Net Asset Value
resulting from such loss or damage is not offset by an increase in other Assets
of the Partnership (including insurance proceeds payable with respect to such
loss or damage or condemnation awards received) to the extent necessary to
satisfy the condition to Closing set forth in Section 7.2(b) hereof, the Company
may, at its option, elect to terminate this Agreement as to such Partnership, or
the Company may elect to extend the term of this Agreement and resolicit the
limited partners of such Partnership with respect to participation in the Merger
with the Net Asset Value of the Partnership suffering such loss or damage
adjusted to reflect such loss or damage.
9.3 ENTIRE AGREEMENT; MODIFICATIONS
This Agreement, together with the General Partner Undertaking, embodies and
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements, oral or written, are merged into
this Agreement. Neither this Agreement, the General Partner Undertaking nor any
provision hereof or thereof may be waived, modified, amended, discharged or
terminated except by an instrument in writing signed by the party against which
the enforcement of such waiver, modification, amendment, discharge or
termination is sought, and then only to the extent set forth in such instrument.
9.4 NOTICES
All notices, demands or other writings in this Agreement provided to be
given or made or sent, or which may be given or made or sent, by either party
hereto to the other may be given personally or may be delivered by depositing
the same in the U.S. mail, certified, return receipt requested, postage prepaid
or by delivering the same to an air courier service, postage prepaid, properly
addressed and sent to the address of such party as set forth below, or such
other address as either party may from
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time to time designate by written notice to the other. Notice given by mail
shall be considered effective upon the expiration of five business days after
deposit. Notice given in any other manner shall be effective only if and when
received by the addressee.
<TABLE>
<S> <C>
To the Company: Shurgard Storage Centers, Inc.
Attn: Harrell Beck
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
with a copy to: Latham & Watkins
Attn: Scott R. Haber
505 Montgomery Street, 19th Floor
San Francisco, California 94111
To the Partnerships: Shurgard Associates L.P.
Shurgard Associates L.P. II
Shurgard Associates L.P. III
Attn: Charles K. Barbo
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
with a copy to: Perkins Coie
Attn: Linda A. Schoemaker
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
</TABLE>
9.5 INTERPRETATION
Words of any gender used in this Agreement shall be held and construed to
include any other gender, and words of a singular number shall be held to
include the plural and vice versa, unless the context requires otherwise.
9.6 CAPTIONS
The captions used in this Agreement are for convenience only and shall not
be deemed to construe or to limit the meaning of the language of this Agreement.
9.7 MULTIPLE COUNTERPARTS
This Agreement may be executed in any number of identical counterparts. If
so executed, each of such counterparts is to be deemed an original for all
purposes, and all such counterparts shall collectively constitute one agreement,
but in making proof of this Agreement it shall not be necessary to produce or
account for more than one such counterpart.
9.8 BINDING EFFECT
Subject to the restrictions on assignment contained in Section 9.1 hereof,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
9.9 ATTORNEYS' FEES
Subject to the requirements of Section 9.11 hereof, should any party hereto
employ an attorney or attorneys to enforce any of the provisions hereof or to
protect its interest in any manner arising under this Agreement, or to recover
damages for the breach hereof, the nonprevailing party or parties in any action
pursued in courts of competent jurisdiction (the finality of which action is not
legally contested) agrees to pay to the prevailing party or parties all
reasonable costs, damages and expenses, including attorneys' fees, expended or
incurred in connection therewith; provided, however, that if more than one item
is disputed and the final decision is against each party as to one or more of
the disputed items, then such costs, expenses and attorneys' fees shall be
apportioned in accordance with the monetary values of the items decided against
each party.
20
<PAGE>
9.10 NO WAIVER; SEVERABILITY
The failure of any party hereto to enforce at any time any of the provisions
of this Agreement shall in no way be construed to be a waiver of any such
provision, and shall in no way affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach. If any provision of this Agreement, or
the application thereof to any person or circumstances shall, for any reason and
to any extent, be invalid or unenforceable, but the extent of the invalidity or
unenforceability does not destroy the basis of the bargain between the parties
as contained herein, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby but
rather shall be enforced to the greatest extent permitted by law.
9.11 NO JOINT AND SEVERAL LIABILITY
If one of the Partnerships defaults under, or is in breach of, any of its
representations, warranties or covenants contained in this Agreement, such
Partnership shall be accountable to the Company and shall be liable for the
damages caused by such default or breach as provided in this Agreement. Each
Partnership hereunder has undertaken obligations and made representations,
warranties, disclosures and covenants herein and in and pursuant to the exhibits
hereto solely with respect to itself and the Property owned by it. Nothing
contained herein, however, is intended to make any of the Partnerships jointly
and severally liable for the default or breach by any of the other Partnerships,
and with respect to any such default and breach such shall be solely the
obligation and responsibility of the Partnership responsible for the default or
breach.
9.12 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington.
21
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
as of the date first set forth above.
COMPANY:
SHURGARD STORAGE CENTERS, INC.
By /s/_HARRELL BECK___________________
Harrell Beck, Chief Financial
Officer
PARTNERSHIPS:
IDS/SHURGARD INCOME GROWTH PARTNERS
L.P.
By Shurgard Associates L.P.
Its General Partner
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
22
<PAGE>
IDS/SHURGARD INCOME GROWTH PARTNERS
L.P. II
By Shurgard Associates L.P. II
Its General Partner
By /s/_Charles K. Barbo_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
IDS/SHURGARD INCOME GROWTH PARTNERS
L.P. III
By Shurgard Associates L.P. III
Its General Partner
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
23
<PAGE>
EXHIBIT A
GENERAL PARTNER UNDERTAKING
This GENERAL PARTNER UNDERTAKING (this "Agreement") is entered into as of
July 1, 1996 by Shurgard Associates L.P. ("GP1"), the general partner of
IDS/Shurgard Income Growth Partners L.P. ("IDS1"), Shurgard Associates L.P. II
("GP2"), the general partner of IDS/Shurgard Income Growth Partners L.P. II
("IDS2"), and Shurgard Associates L.P. III ("GP3"), the general partner of
IDS/Shurgard Income Growth Partners L.P. III ("IDS3"), and Shurgard Storage
Centers, Inc., a Delaware corporation (the "Company"). GP1, GP2 and GP3 are
individually referred to herein as a "General Partner" and collectively as the
"General Partners." IDS1, IDS2 and IDS3 are individually referred to herein as a
"Partnership" and collectively as the "Partnerships."
RECITALS
A. Concurrently with the execution of this Agreement, the Partnerships and
the Company are entering into an Acquisition Agreement, dated as of July 1, 1996
(the "Acquisition Agreement"), pursuant to which (i) the Company will commence a
tender offer to purchase up to a specified percentage of the limited partnership
units of each of the Partnerships (each, an "Offer" and together the "Offers")
and (ii) the Partnerships will merge with and into the Company upon the
satisfaction or waiver of the conditions to closing contained therein (each, a
"Merger" and together, the "Mergers").
B. The General Partners believe that it is in the best interests of the
Partnerships and their limited partners for the Partnerships to enter into and
consummate the Acquisition Agreement and the General Partners intend to
recommend to the limited partners of the Partnerships that they vote for
approval of the Acquisition Agreement.
C. Capitalized terms used but not defined in this Agreement have the
meanings assigned to such terms in the Acquisition Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I. THE OFFERS
1.1 CONSENT TO OFFERS
The General Partners hereby consent to the making of the Offers.
1.2 GENERAL PARTNER FAIRNESS DETERMINATION AND RECOMMENDATION
With respect to each Offer, the Offer Documents and the Schedules 14D-9 or
the Schedules 13E-3 shall contain, to the extent applicable, (a) the statement
by the General Partner that the terms of the Offers and the Merger are fair to
limited partners and (b) the recommendation by the General Partner that holders
of LP Units who desire immediate liquidity tender their LP Units pursuant to the
Offer and that all other holders of LP Units retain their LP Units and
participate in the Merger.
1.3 ADMISSION OF COMPANY AS SUBSTITUTE LIMITED PARTNER
Each of the General Partners agrees to take such actions as are required
under the applicable Partnership Agreement to effect the admission of the
Company as a limited partner of the Partnership with respect to all LP Units
acquired by it pursuant to the Offer in accordance with the terms of the
Partnership Agreement.
ARTICLE II. THE MERGERS
2.1 MEETINGS OF LIMITED PARTNERS; RECOMMENDATION OF GENERAL PARTNERS
Each General Partner will take all action necessary in accordance with
applicable law and its Partnership's Partnership Agreement to convene a meeting
of its limited partners as promptly as
A-1
<PAGE>
practicable to consider and vote upon approval of the Acquisition Agreement and
consummation of the transactions contemplated thereby. Except as may be required
for the discharge of their fiduciary duties or as otherwise required by law, (a)
the General Partner shall recommend that the limited partners vote in favor of
approval of the Acquisition Agreement and consummation of the transactions
contemplated thereby and shall solicit the vote of the limited partners of such
Partnership in favor of such approval and take all other action necessary or
advisable to secure the vote of such limited partners in favor of such approval
and (b) IDS Partnership Services Corporation ("IPSC") will consent to the
transactions contemplated by the Acquisition Agreement.
2.2 WITHDRAWAL OF RECOMMENDATION IF REIT SHARE PRICE IS LESS THAN $21.50
It is understood that the General Partner of each Partnership may elect to
withdraw or change its recommendation that limited partners vote in favor of
this Agreement if the REIT Share Price calculated without regard to the REIT
Share Price Range in respect of the meeting (the "Meeting") at which limited
partners are expected to vote on the Merger is less than $21.50. Before it does
so, however, the General Partner shall notify the Company of its intent to
withdraw its recommendation not later than the end of the second business day
following the day the REIT Share Price is determined, and the General Partner
shall postpone or adjourn the meeting for such period or periods of time, not to
exceed ten business days, as the Company may reasonably request. The General
Partner shall not withdraw its recommendation if the Company agrees to pay the
Additional Consideration at least two business days prior to the date of such
postponed or adjourned meeting.
ARTICLE III. OTHER AGREEMENTS
3.1 STANDSTILL
The Company agrees that if it is admitted as a substitute limited partner in
a Partnership and except as otherwise contemplated by this Agreement, it will
not, directly or indirectly, without the prior written consent of a majority of
the general partners of the General Partner of that Partnership (a) acquire any
additional LP Units of that Partnership, (b) propose any merger or other
business combination involving that Partnership, or (c) propose any other
transaction pursuant to which it would control or acquire any of the assets of
that Partnership.
3.2 EXCLUSIVITY
Until the termination of the Acquisition Agreement or the Closing of the
Merger, no General Partner will, nor will it permit its partners (including any
general or limited partner), agents or other representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) to,
directly or indirectly, initiate, solicit or encourage or, except as required by
law, including fiduciary duties required by law as determined by the General
Partner in good faith, engage in discussions or negotiations with or provide any
information to any entity or group (other than the Company or an affiliate of
the Company) concerning any acquisition proposal, tender offer, exchange offer,
merger, consolidation, sale of a substantial amount of assets, or sale of
securities or equity interests, or in connection with a liquidation, dissolution
or similar transaction involving such Partnership. Each General Partner will
notify the Company immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Partnership, and
will keep the Company informed of the status and terms of any such proposals and
any such negotiations or discussions.
3.3 INDEMNIFICATION
From and after the Effective Time, the Company will indemnify and hold
harmless the General Partner of each of the Partnerships, that shall have merged
with and into the Company pursuant to a Merger and its general and limited
partners to the same extent that such persons are entitled to be indemnified by
the Partnership under its Partnership Agreement.
A-2
<PAGE>
ARTICLE IV. MISCELLANEOUS
4.1 NOTICES
All notices, demands or other writings in this Agreement provided to be
given or made or sent, or which may be given or made or sent, by either party
hereto to the other may be given personally or may be delivered by depositing
the same in the U.S. mail, certified, return receipt requested, postage prepaid
or by delivering the same to an air courier service, postage prepaid, properly
addressed and sent to the address of such party as set forth below, or such
other address as either party may from time to time designate by written notice
to the other. Notice given by mail shall be considered effective upon the
expiration of five business days after deposit. Notice given in any other manner
shall be effective only if and when received by the addressee.
<TABLE>
<S> <C>
To the Company: Shurgard Storage Centers, Inc.
Attn: Harrell Beck
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
with a copy to: Latham & Watkins
Attn: Scott R. Haber
505 Montgomery Street, 19th Floor
San Francisco, California 94111
To the General Partners: Shurgard Associates L.P.
Shurgard Associates L.P. II
Shurgard Associates L.P. III
Attn: Charles K. Barbo
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
with a copy to: Perkins Coie
Attn: Linda A. Schoemaker
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
</TABLE>
4.2 INTERPRETATION
Words of any gender used in this Agreement shall be held and construed to
include any other gender, and words of a singular number shall be held to
include the plural and vice versa, unless the context requires otherwise.
4.3 CAPTIONS
The captions used in this Agreement are for convenience only and shall not
be deemed to construe or to limit the meaning of the language of this Agreement.
4.4 MULTIPLE COUNTERPARTS
This Agreement may be executed in any number of identical counterparts. If
so executed, each of such counterparts is to be deemed an original for all
purposes, and all such counterparts shall collectively constitute one agreement,
but in making proof of this Agreement it shall not be necessary to produce or
account for more than one such counterpart.
4.5 APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington.
A-3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of the parties
as of the date first set forth above.
COMPANY:
SHURGARD STORAGE CENTERS, INC.
By /s/_HARRELL BECK___________________
Harrell Beck, Chief Financial
Officer
GENERAL PARTNERS:
Shurgard Associates L.P.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
A-4
<PAGE>
Shurgard Associates L.P. II
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
Shurgard Associates L.P. III
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo,
General Partner
/s/_ARTHUR W. BUERK_________________
Arthur W. Buerk,
General Partner
Shurgard General Partner, Inc.
By /s/_CHARLES K. BARBO_______________
Charles K. Barbo, President
A-5
<PAGE>
OFFER TO PURCHASE FOR CASH
UP TO 52,000 UNITS OF LIMITED PARTNERSHIP INTEREST
OF
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
AT
$308 NET PER UNIT
BY
SHURGARD STORAGE CENTERS, INC.
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW
YORK CITY TIME, ON WEDNESDAY, JULY 31, 1996, UNLESS EXTENDED.
------------------------
SHURGARD STORAGE CENTERS, INC. (THE "PURCHASER") IS OFFERING TO PURCHASE UP
TO 52,000 UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS") IN IDS/ SHURGARD
INCOME GROWTH PARTNERS L.P. III (THE "PARTNERSHIP") AT A NET CASH PRICE PER UNIT
OF $308 (THE "OFFER PRICE"). THIS OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER
OF UNITS BEING VALIDLY TENDERED, BUT IT IS SUBJECT TO CERTAIN TERMS AND
CONDITIONS DESCRIBED IN THIS OFFER TO PURCHASE. See "The Offer" -- Section 7
("Certain Conditions of the Offer"). IF MORE THAN 52,000 UNITS (APPROXIMATELY
44% OF THE OUTSTANDING UNITS) ARE VALIDLY TENDERED, THE PURCHASER WILL ACCEPT
ONLY 52,000 UNITS AND WILL PURCHASE UNITS FROM TENDERING UNITHOLDERS ON A PRO
RATA BASIS AS DESCRIBED IN THIS OFFER TO PURCHASE.
PURSUANT TO AN ACQUISITION AGREEMENT DATED JULY 1, 1996 BY AND AMONG THE
PURCHASER, THE PARTNERSHIP AND TWO AFFILIATED PARTNERSHIPS (THE "ACQUISITION
AGREEMENT"), FOLLOWING THE COMPLETION OF THE PURCHASE OF UNITS PURSUANT TO THIS
OFFER, THE REMAINING UNITHOLDERS WILL BE NOTIFIED OF A SPECIAL MEETING OF
UNITHOLDERS TO BE HELD TO CONSIDER AND VOTE UPON APPROVAL OF THE MERGER OF THE
PARTNERSHIP WITH AND INTO THE PURCHASER (THE "MERGER"). IF THE MERGER IS
APPROVED BY THE REQUISITE VOTE OF THE UNITHOLDERS AND CERTAIN OTHER CONDITIONS
TO THE MERGER ARE SATISFIED OR WAIVED, THE PARTNERSHIP WILL MERGE INTO THE
PURCHASER AND CEASE TO EXIST AS A SEPARATE LEGAL ENTITY. UNITHOLDERS
PARTICIPATING IN THE MERGER WILL RECEIVE SHARES OF COMMON STOCK OF THE PURCHASER
IN EXCHANGE FOR THEIR UNITS. See "The Acquisition Agreement."
THE GENERAL PARTNER OF THE PARTNERSHIP IS SHURGARD ASSOCIATES L.P. III (THE
"GENERAL PARTNER"). THE GENERAL PARTNER HAS APPROVED THIS OFFER AND THE MERGER
AND HAS DETERMINED THAT THE TERMS OF THIS OFFER AND THE MERGER ARE FAIR TO THE
UNITHOLDERS. THE GENERAL PARTNER RECOMMENDS THAT THOSE UNITHOLDERS WHO DESIRE
IMMEDIATE LIQUIDITY TENDER THEIR UNITS PURSUANT TO THIS OFFER AND THAT ALL OTHER
UNITHOLDERS RETAIN THEIR UNITS AND, INSTEAD, PARTICIPATE IN THE MERGER. THERE
CAN BE NO ASSURANCE, HOWEVER, THAT THE MERGER WILL BE CONSUMMATED. THE GENERAL
PARTNER HAS SIGNIFICANT CONFLICTS OF INTEREST IN THIS OFFER AND THE MERGER. See
"Special Considerations."
IMPORTANT
ANY UNITHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF HIS OR HER UNITS
SHOULD COMPLETE AND SIGN THE ACCOMPANYING LETTER OF TRANSMITTAL IN ACCORDANCE
WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL, AND MAIL OR DELIVER IT WITH
ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY AT THE ADDRESS SET FORTH ON THE
BACK COVER OF THIS OFFER TO PURCHASE.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES OF THIS OFFER TO
PURCHASE AND THE LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE INFORMATION AGENT
AT ITS ADDRESS AND TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS OFFER TO
PURCHASE. UNITHOLDERS MAY ALSO CONTACT BROKERS, DEALERS, COMMERCIAL BANKS AND
TRUST COMPANIES FOR ASSISTANCE CONCERNING THIS OFFER.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
JULY 2, 1996
<PAGE>
ADDITIONAL INFORMATION
The Purchaser and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
filed by the Purchaser and the Partnership may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such information can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such information for the Purchaser
can also be inspected at the New York Stock Exchange, Inc. ("NYSE"), 20 Broad
Street, New York, New York 10005.
The Purchaser has filed with the Commission a Transaction Statement on
Schedule 13E-3 (the "Schedule 13E-3") pursuant to Rule 13e-3 under the Exchange
Act and a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1")
pursuant to Rule 14d-3 under the Exchange Act furnishing certain information
with respect to this Offer. The General Partner has filed with the Commission a
statement on Schedule 14D-9 furnishing certain information with respect to its
position concerning this Offer pursuant to Rules 14d-9 and 14e-2 under the
Exchange Act. Those Schedules and any amendments to the Schedules should be
available for inspection and copying as set forth above (except that they will
not be available at the regional offices of the Commission).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Purchaser are
incorporated by reference in this Offer to Purchase:
(i) the Purchaser's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
(ii) the Purchaser's Annual Report on Form 10-K for the year ended
December 31, 1995;
(iii) the description of the Purchaser's Class A Common Stock, par value
$.001 per share, contained in the Purchaser's Registration Statement on Form
8-A, as amended, dated April 19, 1995; and
(iv) the description of the Preferred Share Purchase Rights contained in
the Purchaser's Registration Statement on Form 8-A, as amended, dated April
19, 1995.
All documents filed by the Purchaser pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Offer to Purchase and
prior to the Expiration Date (as defined in "The Offer" -- Section 1 ("Terms of
the Offer")) shall be deemed to be incorporated by reference herein from the
date of filing such documents. Any statement contained herein or incorporated by
reference herein shall be deemed to be modified or superseded to the extent that
a statement contained herein or in any subsequently filed document which also is
incorporated by reference herein modifies or supersedes that statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Offer to Purchase.
THIS OFFER TO PURCHASE INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (NOT INCLUDING
EXHIBITS TO THE DOCUMENTS, UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION THAT THIS OFFER TO PURCHASE INCORPORATES) WILL BE
PROVIDED WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS OFFER TO PURCHASE IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS
SHOULD BE DIRECTED TO SHURGARD STORAGE CENTERS, INC., INVESTOR RELATIONS, 1201
THIRD AVENUE, SUITE 2200, SEATTLE, WASHINGTON 98101 (TELEPHONE NUMBER: (206)
624-8100).
CAUTIONARY STATEMENT
Statements contained in this Offer to Purchase that are not based on
historical fact are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements may
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "continue" or similar terms, variations of those terms
or the negative of those terms. Cautionary statements set forth in "Special
Considerations" and elsewhere in this Offer to Purchase identify important
factors that could cause actual results to differ materially from those in the
forward-looking statements.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY.................................................................................................... 1
The Partnership and the Purchaser........................................................................ 1
Purposes of the Transaction.............................................................................. 1
The Offer................................................................................................ 1
The Merger............................................................................................... 1
Conflicts of Interest.................................................................................... 2
Determination of the Offer Price......................................................................... 2
Fairness of the Transaction; Recommendations to Unitholders.............................................. 3
IPSC Consent............................................................................................. 3
Appraisal................................................................................................ 3
Stanger Fairness Opinions................................................................................ 3
The Special Meeting...................................................................................... 3
Related Transactions..................................................................................... 3
Source and Amount of Funds............................................................................... 4
Certain Federal Income Tax Considerations................................................................ 4
Special Considerations................................................................................... 4
SPECIAL CONSIDERATIONS..................................................................................... 5
Conflicts of Interest.................................................................................... 5
No Arms' Length Negotiation.............................................................................. 5
Investment Objectives of the Purchaser................................................................... 5
Voting Power............................................................................................. 5
Lack of Trading Market................................................................................... 5
Alternatives to Tendering Units.......................................................................... 6
BACKGROUND AND PURPOSES OF THE TRANSACTION................................................................. 6
The Partnership.......................................................................................... 6
The Purchaser............................................................................................ 7
Background of the Transaction............................................................................ 9
Relationships............................................................................................ 13
Purposes and Structure of the Transaction................................................................ 13
FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL PARTNER............................................... 15
Recommendation of the General Partner.................................................................... 15
Factors Considered by the General Partner................................................................ 15
Determination of Offer Price........................................................................... 15
Determination of Merger Consideration.................................................................. 15
Real Estate Portfolio Appraisal........................................................................ 16
Stanger Fairness Opinions.............................................................................. 16
Fairness in View of Conflicts of Interest.............................................................. 16
IPSC Consent........................................................................................... 16
Potential Influence of the Purchaser Over the Partnership.............................................. 16
Allocation of Transaction Expenses..................................................................... 17
Impact of Merger on Expected Distributions to Unitholders Who Become Stockholders of the Purchaser..... 17
Impact of Merger on Timing of Partnership Distributions................................................ 17
Comparison of Certain Benefits and Detriments of Alternatives to the Transaction....................... 18
Liquidation of the Partnership....................................................................... 18
Continuation of Partnership.......................................................................... 19
Support of Secondary Market.......................................................................... 19
Reorganization of the Partnership as a Separate REIT................................................. 19
</TABLE>
i
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<TABLE>
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Comparison of Transaction Consideration to Alternatives.................................................. 20
<S> <C>
General................................................................................................ 20
Secondary Market Prices of Units....................................................................... 21
Going Concern Value.................................................................................... 21
Liquidation Value...................................................................................... 22
The Special Committee.................................................................................... 23
Recommendation of the General Partner.................................................................. 23
Consent of IPSC........................................................................................ 23
Appraisal.............................................................................................. 23
Fairness Opinions...................................................................................... 23
Premium Over Recent Market Prices...................................................................... 23
APPRAISAL; OPINIONS OF FINANCIAL ADVISORS.................................................................. 23
Real Estate Portfolio Appraisal by Stanger............................................................... 23
Experience of Stanger.................................................................................. 24
Summary of Methodology................................................................................. 24
Income Approach........................................................................................ 25
Sales Comparison Approach.............................................................................. 25
Conclusions as to Value................................................................................ 26
Assumptions, Limitations and Qualifications of Portfolio Appraisal..................................... 26
Compensation and Material Relationships................................................................ 26
Opinions of the Partnership's Financial Advisor.......................................................... 26
Summary of Materials Considered........................................................................ 27
Summary of Analysis.................................................................................... 27
Appraisal.............................................................................................. 27
Review of Liquidation Analysis......................................................................... 27
Review of Going Concern Analysis....................................................................... 28
Review of Tender Offer and Secondary Market Prices..................................................... 28
Conclusions............................................................................................ 28
Assumptions............................................................................................ 28
Limitations and Qualifications of Fairness Opinions.................................................... 29
Compensation and Material Relationships................................................................ 29
Opinion of the Purchaser's Financial Advisor............................................................. 29
Historical Financial Position.......................................................................... 31
Historical Stock Price Performance..................................................................... 31
Analysis of Certain Other Publicly Traded Companies.................................................... 31
Analysis of Selected Real Estate Acquisitions.......................................................... 31
Discounted Cash Flow Analysis.......................................................................... 32
Pro Forma Combined Earnings Analysis................................................................... 32
Real Estate Market and Economic Factors................................................................ 33
Analysis of Offers Absent Consummation of Mergers...................................................... 33
THE ACQUISITION AGREEMENT.................................................................................. 34
The Tender Offer......................................................................................... 34
The Merger............................................................................................... 34
Representations and Warranties........................................................................... 35
Conduct of Business Pending the Effective Time........................................................... 35
S-4 Registration Statement and Proxy Statement........................................................... 36
Meeting of Limited Partners of the Partnership; Recommendation of General Partners....................... 36
IPSC Consent............................................................................................. 36
Amendments to the Partnership Agreements................................................................. 36
Standstill Agreement..................................................................................... 37
No Solicitation of Transactions.......................................................................... 37
</TABLE>
ii
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<TABLE>
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Indemnification.......................................................................................... 37
<S> <C>
Conditions Precedent to the Merger....................................................................... 37
Conditions to Each Party's Obligations................................................................. 37
Conditions to the Obligations of the Purchaser......................................................... 37
Conditions to the Obligations of the Partnerships...................................................... 38
Termination.............................................................................................. 38
Fees and Expenses........................................................................................ 39
Effect of Termination.................................................................................... 40
Amendment................................................................................................ 40
Dissenters' Rights....................................................................................... 40
General Partner Undertaking.............................................................................. 40
Title Insurance.......................................................................................... 40
Accounting Treatment..................................................................................... 40
EFFECTS OF THE TRANSACTION ON NON-TENDERING UNITHOLDERS.................................................... 40
Effects of the Offer if the Merger Is Not Consummated.................................................... 40
Control of the Partnership............................................................................. 40
Trading Market......................................................................................... 41
Partnership Status..................................................................................... 41
Partnership Business................................................................................... 41
Effects of the Transaction if the Merger Is Consummated.................................................. 41
Partnership Business................................................................................... 41
Unitholders Participating in the Merger................................................................ 41
Unitholders Exercising Dissenters' Rights.............................................................. 41
MARKET PRICES OF UNITS..................................................................................... 41
Volume of Sales.......................................................................................... 41
Secondary Market Information............................................................................. 42
INTERESTS OF CERTAIN PERSONS............................................................................... 43
Overlaps Between Affiliates of the General Partner and Directors and Officers of the Purchaser........... 43
Ownership of Units by the Partners of the General Partner................................................ 44
General Partner's Interest............................................................................... 44
IPSC's Interest.......................................................................................... 44
Property Management Services............................................................................. 44
Purchase of Property from Director....................................................................... 45
Payments for Administrative Services..................................................................... 45
Ownership of Purchaser Common Stock by Affiliates of General Partner..................................... 45
Contingent Share Agreement............................................................................... 45
SOURCE AND AMOUNT OF FUNDS................................................................................. 45
ESTIMATED TAXABLE GAIN OR LOSS............................................................................. 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 46
Recognition of Gain or Loss.............................................................................. 47
Characterization of Gain or Loss......................................................................... 47
Tax Basis in Units....................................................................................... 48
Taxation of Capital Gains/Capital Losses and Ordinary Income............................................. 48
Effect of Passive Loss Rules............................................................................. 48
Publicly Traded Partnership Characterization............................................................. 48
Information Return and Filing Requirements Relating to Withholding....................................... 49
No Constructive Termination of the Partnership........................................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
Tax Consequences of the Merger........................................................................... 49
<S> <C>
Merger as a Taxable Event.............................................................................. 50
Qualification of Purchaser as a REIT................................................................... 50
Tax Treatment of REIT Distributions.................................................................... 51
Characterization of REIT Distributions................................................................. 51
Disposition of REIT Shares............................................................................. 51
THE OFFER.................................................................................................. 51
1. Terms of the Offer................................................................................... 51
2. Acceptance for Payment and Payment of Purchase Price................................................. 52
3. Procedure for Accepting the Offer and Tendering Units................................................ 53
4. Determination of Validity; Rejection of Units; Waiver of Defects..................................... 54
5. Withdrawal Rights.................................................................................... 54
6. Extension of the Offer Period; Termination and Amendment............................................. 54
7. Certain Conditions of the Offer...................................................................... 55
8. Certain Legal Matters and Regulatory Approvals....................................................... 56
State Takeover Laws.................................................................................. 56
Antitrust............................................................................................ 57
Margin Requirements.................................................................................. 57
9. Dissenters' Rights and Investor Lists................................................................ 57
10. Fees and Expenses.................................................................................... 57
11. Miscellaneous........................................................................................ 58
</TABLE>
<TABLE>
<S> <C> <C> <C>
Schedule I -- Directors and Executive Officers of Shurgard Storage Centers, Inc.
Schedule II -- Summary Portfolio Appraisal Report of IDS/Shurgard Income Growth
Partners L.P. III
Schedule III -- Opinions of Robert A. Stanger & Co., Inc.
Schedule IV -- Opinion of Alex. Brown & Sons Incorporated
Schedule V -- Financial Statements of IDS/Shurgard Income Growth Partners L.P. III
Schedule VI -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Partnership
Schedule VII -- Pro Forma Consolidated Financial Statements
Schedule VIII -- Partnership Distributions
Schedule IX -- Property Information
Schedule X -- Calculation of Net Asset Value
</TABLE>
iv
<PAGE>
SUMMARY
UNITHOLDERS ARE URGED TO READ CAREFULLY THIS OFFER TO PURCHASE, INCLUDING
THE MATTERS DISCUSSED UNDER "SPECIAL CONSIDERATIONS," AND THE ACCOMPANYING
LETTER OF TRANSMITTAL BEFORE DECIDING WHETHER TO TENDER THEIR UNITS. THIS OFFER
TO PURCHASE AND THE ACCOMPANYING LETTER OF TRANSMITTAL TOGETHER CONSTITUTE THIS
"OFFER."
CERTAIN SIGNIFICANT MATTERS DISCUSSED IN THIS OFFER TO PURCHASE ARE
SUMMARIZED BELOW. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS OFFER TO PURCHASE. CERTAIN INFORMATION CONTAINED
HEREIN WHICH RELATES TO THE PARTNERSHIP HAS BEEN FURNISHED BY THE PARTNERSHIP OR
OBTAINED FROM PUBLICLY AVAILABLE INFORMATION PREPARED BY OR ON BEHALF OF THE
PARTNERSHIP. ALTHOUGH THE PURCHASER HAS NO KNOWLEDGE THAT WOULD INDICATE THAT
ANY STATEMENTS CONTAINED IN THIS OFFER TO PURCHASE THAT ARE BASED ON THAT
INFORMATION ARE UNTRUE, THE PURCHASER ASSUMES NO RESPONSIBILITY FOR THE ACCURACY
OR COMPLETENESS OF THAT INFORMATION OR FOR THE FAILURE BY THE PARTNERSHIP TO
DISCLOSE FACTS OR EVENTS THAT MAY HAVE OCCURRED OR MAY OCCUR AND MAY HAVE
AFFECTED OR MAY AFFECT THE SIGNIFICANCE OR ACCURACY OF ANY OF THAT INFORMATION.
THE INFORMATION REGARDING THE MERGER CONTAINED IN THIS OFFER TO PURCHASE IS
PROVIDED FOR INFORMATIONAL PURPOSES ONLY SO THAT UNITHOLDERS MAY CONSIDER IT IN
DECIDING WHETHER TO TENDER THEIR UNITS IN THIS OFFER. UNITHOLDERS ARE NOT BEING
ASKED TO VOTE ON THE MERGER AT THIS TIME. FOLLOWING THE COMPLETION OF THIS
OFFER, THE PURCHASER INTENDS TO DELIVER TO UNITHOLDERS A PROXY
STATEMENT/PROSPECTUS DESCRIBING THE MERGER IN GREATER DETAIL. THERE CAN BE NO
ASSURANCE THAT THE MERGER WILL BE CONSUMMATED. THIS OFFER AND THE MERGER ARE
REFERRED TO COLLECTIVELY IN THIS OFFER TO PURCHASE AS THE "TRANSACTION."
THE PARTNERSHIP AND THE PURCHASER
<TABLE>
<S> <C>
IDS/SHURGARD INCOME GROWTH
PARTNERS L.P. III............ The Partnership was organized in 1988 as a Washington
limited partnership and owns interests in 16 self
storage facilities and one office building. As of June
13, 1996, there were approximately 3,900 holders of
record owning approximately 119,215 Units. The Purchaser
owns 1,602.5 Units and an affiliate of IDS Partnership
Services Corporation, a limited partner of the General
Partner ("IPSC"), owns 60 Units. See "Background and
Purposes of the Transaction -- The Partnership."
SHURGARD STORAGE CENTERS,
INC.......................... The Purchaser is a real estate investment trust
("REIT"), organized in 1993 as a Delaware corporation,
and is one of the largest operators of self storage
facilities in the United States. See "Background and
Purposes of the Transaction -- The Purchaser."
</TABLE>
PURPOSES OF THE TRANSACTION
This Offer is being made and the Merger will be proposed for approval to (i)
enable the Purchaser to acquire the entire equity interest in the Partnership
and (ii) give Unitholders an opportunity (a) to liquidate their Units for cash
or (b) to continue to own an economic interest in a portfolio of properties,
including the Partnership's properties, through the acquisition of an equity
interest in the Purchaser. Following completion of this Offer, the Purchaser
intends to acquire the remaining equity interest in the Partnership that is not
then owned by the Purchaser by consummating the Merger. See "Background and
Purposes of the Transaction -- Purposes and Structure of the Transaction."
THE OFFER
<TABLE>
<S> <C>
NUMBER OF UNITS............... Up to 52,000 (approximately 44% of the outstanding
Units).
OFFER PRICE................... $308 per Unit. See "-- Determination of the Offer
Price."
EXPIRATION, WITHDRAWAL AND
PRORATION DATE............... July 31, 1996, unless extended. See "The Offer."
</TABLE>
THE MERGER
<TABLE>
<S> <C>
CONSIDERATION TO
UNITHOLDERS.................. In the Merger, each outstanding Unit (other than Units
owned by the Purchaser, which will be cancelled, and
Units, if any, held by dissenting Unitholders) will be
converted into the right to receive (i) that number of
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
shares of Class A Common Stock of the Purchaser, par
value $.001 per share (the "REIT Shares"), calculated by
dividing $308 by the REIT Share Price (as defined in
"The Acquisition Agreement -- The Merger"), (ii) cash in
lieu of a fractional REIT Share and (iii) in certain
circumstances, additional cash consideration. The total
number of REIT Shares issuable and amount of cash
payable by the Purchaser in the Merger is referred to
herein as the "Merger Consideration." See "The
Acquisition Agreement -- The Merger." Unitholders would
be entitled to exercise dissenters' rights in connection
with the Merger in accordance with the Washington
Uniform Limited Partnership Act (the "WULPA"). See "The
Acquisition Agreement -- Dissenters' Rights."
SPECIAL MEETING............... Following the completion of this Offer, the remaining
Unitholders will be notified of a special meeting of
Unitholders (the "Special Meeting") to be held to vote
upon approval of the Merger.
CONDITIONS TO MERGER.......... The Merger is subject to approval by holders of a
majority of the Units and certain other conditions. The
Purchaser intends to vote the Units it acquires through
this Offer in favor of the Merger. There can be no
assurance that approval of the holders of the requisite
number of Units will be received or that the other
conditions to the Merger will be satisfied or waived and
that the Merger will be consummated. See "The
Acquisition Agreement -- Conditions Precedent to the
Merger."
</TABLE>
CONFLICTS OF INTEREST
The General Partner of the Partnership has substantial conflicts of interest
in the Transaction because (i) Charles K. Barbo, the Chairman of the Board,
President and Chief Executive Officer and a stockholder of the Purchaser, is an
individual general partner of the General Partner and the sole shareholder and
director of the corporate general partner of the General Partner, (ii) Arthur W.
Buerk, a stockholder of the Purchaser, is an individual general partner of the
General Partner, (iii) certain executive officers of the Purchaser are executive
officers of the corporate general partner of the General Partner, (iv) pursuant
to the terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), the General Partner will receive 7.5%
of the Merger Consideration in exchange for its general partner interest ("GP
Interest") in the Partnership and (v) the Purchaser is a limited partner of the
General Partner and manages the Partnership's properties pursuant to the
Management Services Agreement between the Purchaser and the Partnership (the
"Management Services Agreement"). In addition, pursuant to the terms of the
Contingent Share Agreement (as defined in "Fairness of the Transaction; Position
of the General Partner -- Factors Considered by the General Partner -- Fairness
in View of Conflicts of Interest"), Charles K. Barbo, Arthur W. Buerk and
certain executive officers of the Purchaser will receive REIT Shares in
connection with the Merger. See "Background and Purposes of the Transaction --
Relationships" and "Interests of Certain Persons."
DETERMINATION OF THE OFFER PRICE
The Offer Price was determined by allocating the Net Asset Value (as defined
below) of the Partnership among the General Partner and the Unitholders in
accordance with the distribution provisions of the Partnership Agreement. Net
Asset Value is equal to (i) the sum of (a) the appraised fair market value of
the real estate assets of the Partnership as of December 31, 1995 (the
"Appraised Value") set forth in the Appraisal (as defined below), which
reflected the value of buildouts and unit conversions in-progress, and (b) the
book value of the non-real estate assets, except for amortizable assets, of the
Partnership as of March 31, 1996, less (ii) the sum of (x) the Partnership's
liabilities as of March 31, 1996, (y) the estimated cost to complete the
buildouts and unit conversions in-progress as of March 31, 1996 (the value of
which was included in the Appraised Value) and (z) the estimated costs of the
Transaction that would be borne by the Partnership in accordance with the
provisions of the Acquisition Agreement assuming the Merger is consummated. See
"Appraisal; Opinions of Financial Advisors," "The Offer" -- Section 10 ("Fees
and Expenses") and Schedule X ("Calculation of Net Asset Value").
2
<PAGE>
FAIRNESS OF THE TRANSACTION; RECOMMENDATIONS TO UNITHOLDERS
The General Partner and the Purchaser believe that the Transaction is fair
to Unitholders. The General Partner recommends that those Unitholders who desire
immediate liquidity in cash tender their Units pursuant to this Offer and that
all other Unitholders retain their Units and, instead, participate in the
Merger. There can be no assurance that the requisite approval of the Merger by
the Unitholders will be received or that the other conditions to the Merger will
be satisfied or waived and that the Merger will be consummated. See "Fairness of
the Transaction; Position of the General Partner."
IPSC CONSENT
Pursuant to the Agreement of Limited Partnership of Shurgard Associates L.P.
III dated November 15, 1988, as amended March 31, 1989 (the "GP Agreement"), the
general partners of the General Partner may not have authority to approve the
Merger without the consent of IPSC, a limited partner of the General Partner
which is not affiliated with the Purchaser. Based on its review of documents,
the General Partner's review of alternatives to the Transaction and the Stanger
Fairness Opinions (as defined below), IPSC consented to the Merger. IPSC has
certain conflicts of interest in the proposed Transaction because an affiliate
of IPSC plans to tender its Units in this Offer and to tender its units of
IDS/Shurgard Income Growth Partners L.P., a Washington limited partnership
("IDS1") of which an affiliate of the Purchaser is the general partner, and
IDS/Shurgard Income Growth Partners L.P. II, a Washington limited partnership
("IDS2") of which an affiliate of the Purchaser is the general partner, in the
Additional Offers (as defined below) and, as a result, will receive $18,480 for
its tender of Units, $79,156 for its tender of units of IDS1 and $136,752 for
its tender of units of IDS2. See "The Acquisition Agreement -- IPSC Consent" and
"Interests of Certain Persons."
APPRAISAL
Robert A. Stanger & Co., Inc. ("Stanger") has delivered to the Partnership a
written real estate portfolio appraisal of the fair market value of the
Partnership's properties as of December 31, 1995 (the "Appraisal"). The Offer
Price is based primarily on the Net Asset Value which, in turn, is based upon
the Appraisal. See "Appraisal; Opinions of Financial Advisors." A copy of the
Appraisal is attached as Schedule II to this Offer to Purchase.
STANGER FAIRNESS OPINIONS
Stanger has delivered to the Partnership its written opinions dated July 1,
1996 (the "Stanger Fairness Opinions") to the effect that, as of the date of the
Stanger Fairness Opinions and subject to the assumptions, qualifications and
limitations contained therein, the consideration to be received by Unitholders
in this Offer and the Merger is fair to the Unitholders from a financial point
of view. Stanger was not requested to, and therefore did not: (i) select the
method of determining the consideration offered in this Offer and the Merger;
(ii) make any recommendation to Unitholders with respect to whether to tender
their Units or approve or reject the Merger; or (iii) express any opinion as to
the business decision to effect this Offer or the Merger or alternatives to this
Offer or the Merger, the impact of this Offer on non-tendering Unitholders, tax
implications of this Offer or the Merger, the allocation of expenses associated
with this Offer and the Merger between the Partnership and the Purchaser or
among the Partnership and the Other Partnerships (as defined below), the
fairness of the consideration to be received in the Merger if the actual REIT
Share Price is less than $22.25, or any other terms of this Offer or the Merger
other than the consideration to be received by Unitholders. The Stanger Fairness
Opinions are based upon business, economic, real estate and securities markets,
and other conditions as of July 1, 1996, and do not reflect any changes in those
conditions that may have occurred since that date. See "Appraisal; Opinions of
Financial Advisors."
THE SPECIAL MEETING
The Acquisition Agreement between the Partnership, the Purchaser, IDS1 and
IDS2 provides that, following completion of this Offer, Unitholders will be
notified of the Special Meeting to be held to consider and vote upon a proposal
to approve the consummation of the Merger. If the Merger is approved by the
requisite vote of Unitholders and certain other conditions to the Merger are
satisfied or waived, the Partnership will merge with and into the Purchaser with
the Purchaser continuing as the surviving entity. See "Background and Purposes
of the Transaction" and "The Acquisition Agreement."
RELATED TRANSACTIONS
Pursuant to the Acquisition Agreement, the Purchaser is also offering (the
"Additional Offers") to purchase up to approximately 44% and 43% of the units of
limited partnership interest in IDS1 and IDS2 (the "Other Partnerships"),
respectively. The consideration offered to limited partners of the Other
Partnerships in the Additional Offers was determined using the same methodology
as that used
3
<PAGE>
to determine the Offer Price. The Acquisition Agreement provides that, following
each of the Additional Offers, each of the Other Partnerships will convene a
special meeting of its limited partners to consider and vote upon a proposal to
consummate a merger of the respective Other Partnership with and into the
Purchaser (the "Additional Mergers"). If the Additional Mergers are approved by
the holders of more than 75% of the outstanding limited partnership interests of
IDS1 and a majority of the outstanding limited partnership interests of IDS2 and
certain other conditions to the Additional Mergers are satisfied or waived, the
Other Partnerships will merge with and into the Purchaser with the Purchaser
continuing as the surviving entity. The closing of the Merger is not conditioned
upon the closing of either of the Additional Mergers. The Additional Offers and
the Additional Mergers are referred to in this Offer to Purchase as the
"Additional Transactions."
SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the funds required to purchase all Units
validly tendered pursuant to this Offer, up to the maximum number of Units it
may acquire pursuant to this Offer, will be approximately $16.0 million, and
that the funds required to purchase all validly tendered units of limited
partnership interest in the Other Partnerships up to the maximum number of units
it may acquire in the Additional Offers will be approximately $27.6 million. The
Purchaser also estimates that the other costs and expenses allocable to the
Purchaser of the Transaction and the Additional Transactions, assuming the
Merger and the Additional Mergers are consummated, will be approximately $2.3
million. The funds required for these purposes will be obtained through
borrowings under the Purchaser's existing credit facilities. Neither the
Transaction nor the Additional Transactions are subject to any financing
contingency and neither the Purchaser nor any subsidiary or affiliate of the
Purchaser must secure additional financing in connection with the Transaction or
the Additional Transactions. See "Source and Amount of Funds" and "The Offer" --
Section 10 ("Fees and Expenses").
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A Unitholder should consider the federal income tax consequences of this
Offer and the Merger prior to determining whether to accept or reject this
Offer. For a description of these consequences, see "Certain Federal Income Tax
Consequences." These federal income tax consequences include the following:
- Unitholders selling their Units who are subject to income tax will realize
taxable gain or loss equal to the sum of the amount of cash received in
this Offer plus the Unitholder's share of Partnership liabilities less the
Unitholder's adjusted tax basis in the Units sold. Based on the
assumptions stated in "Estimated Taxable Gain or Loss," the General
Partner estimates that Unitholders will realize a taxable gain of
approximately $72 per Unit. The actual gain or loss realized by a
particular partner may differ. Any gain or loss will be recognized in the
year this Offer is closed. See "Estimated Taxable Gain or Loss."
- The gain or loss recognized by a Unitholder on the sale of his or her
Units in this Offer may be treated as a capital gain or loss except to the
extent a portion of the amount realized by the Unitholder is attributable
to depreciation recapture in Partnership property.
- There is a risk that this Offer may cause the Partnership to be treated as
a publicly traded partnership, thereby causing income and loss allocated
to the Unitholders to be treated as "portfolio" income or loss.
- If a Unitholder does not tender his or her Units in this Offer, the
Unitholder must consider the tax consequences of the Merger. The Merger
would be a taxable event in which Unitholders would not receive a cash
distribution to pay the resulting tax liability.
Unitholders are advised to consult their own tax advisors regarding the
specific tax consequences to them resulting from the Transaction, including the
consequences under federal, state, local and foreign tax laws and any potential
changes in applicable tax laws.
SPECIAL CONSIDERATIONS
In their evaluation of this Offer, Unitholders should carefully consider the
information contained under "Special Considerations."
4
<PAGE>
SPECIAL CONSIDERATIONS
In their evaluation of the Transaction, Unitholders should carefully
consider the following:
CONFLICTS OF INTEREST. The General Partner has substantial conflicts of
interest with respect to the Transaction because (i) Charles K. Barbo, the
Chairman of the Board, President and Chief Executive Officer and a stockholder
of the Purchaser, is an individual general partner of the General Partner and
the sole shareholder and director of the corporate general partner of the
General Partner, (ii) Arthur W. Buerk, a stockholder of the Purchaser, is an
individual general partner of the General Partner, (iii) certain executive
officers of the Purchaser are executive officers of the corporate general
partner of the General Partner, (iv) the General Partner will be entitled to
7.5% of the Merger Consideration pursuant to the terms of the Partnership
Agreement and (v) the Purchaser is a limited partner of the General Partner and
the manager of the Partnership's properties pursuant to the Management Services
Agreement. In addition, pursuant to the terms of the Contingent Share Agreement,
Charles K. Barbo, Arthur W. Buerk and certain executive officers of the
Purchaser will receive REIT Shares in connection with the Merger. As general
partners of the General Partner, Messrs. Barbo and Buerk control the day-to-day
affairs of the Partnership. See "Interests of Certain Persons." For certain
limitations on the authority of the general partners of the General Partner to
enter into the Acquisition Agreement, see "The Acquisition Agreement -- IPSC
Consent."
NO ARMS' LENGTH NEGOTIATION. The Offer Price and the Merger Consideration
have been established through negotiations between the Purchaser and the General
Partner, which has substantial conflicts of interest as described above. The
General Partner has not retained any unaffiliated person to represent the
Unitholders. If an unaffiliated person had been engaged to represent the
Unitholders, the terms of this Offer and the Merger might have been different.
INVESTMENT OBJECTIVES OF THE PURCHASER. The Purchaser is making this Offer
with a view to further expanding its portfolio of self storage properties. There
may be a conflict between the desire of the Purchaser to purchase Units at a low
price and the desire of the Unitholders to sell their Units at a high price.
VOTING POWER. If the Purchaser acquires the maximum number of Units
pursuant to this Offer, the Purchaser will own or hold proxies with respect to
approximately 45% of the outstanding Units. The Purchaser could then be in a
position to influence actions of the Partnership on which Unitholders are
entitled to vote. Under the Partnership Agreement, Unitholders are entitled to
vote, subject to certain provisions of the Partnership Agreement, to: (i) amend
the Partnership Agreement; (ii) dissolve the Partnership; (iii) remove the
General Partner or any successor general partner; (iv) elect a new General
Partner; and (v) approve or disapprove the sale, exchange or pledge of all or
substantially all of the properties owned by the Partnership. Although the
Purchaser has no current intention with regard to any of these matters other
than its intention to vote the Units it acquires in this Offer in favor of the
Merger, the Purchaser will vote the Units acquired pursuant to this Offer to the
extent permitted by the Partnership Agreement and applicable law in its
interest, which may, or may not, be in the best interests of non-tendering
Unitholders. Pursuant to the General Partner Undertaking dated as of July 1,
1996 between the Purchaser and the General Partner (the "General Partner
Undertaking") and the Standstill Agreement (as defined in "The Acquisition
Agreement -- Standstill Agreement"), however, the Purchaser has agreed that,
upon its admission as a substitute limited partner with respect to any Units
purchased in this Offer, it will not, except through the Offer and the Merger,
directly or indirectly acquire any additional Units, propose any merger or other
business combination involving the Partnership, or propose any other transaction
pursuant to which it would control any of the assets of the Partnership without
the prior written consent of a majority of the general partners of the General
Partner.
LACK OF TRADING MARKET. There is no established or regular trading market
for the Units, nor is there another reliable standard for determining the fair
market value of a Unit. See "Market Prices of Units."
5
<PAGE>
ALTERNATIVES TO TENDERING UNITS. As alternatives to tendering their Units,
Unitholders could (i) retain their Units and, if the conditions to the Merger,
including the approval of the Merger by holders of a majority of the outstanding
Units, are satisfied and the Merger is consummated, participate in the Merger
(see "The Acquisition Agreement"), (ii) retain their Units until liquidation of
the Partnership if the Merger is not consummated or (iii) seek a private sale of
their Units. Unitholders should note that there can be no assurance that the
Merger will be consummated and, if it is consummated, the value of the Merger
Consideration may be less than the Offer Price if the actual REIT Share Price is
less than $22.25. In addition, Unitholders should note that the prices at which
the REIT Shares trade after the Merger may be less than the REIT Share Price.
Under the Partnership Agreement, a liquidation of the Partnership can be
initiated by Unitholders and would require approval by holders of a majority of
the outstanding Units in the Partnership at a meeting of Unitholders or without
a meeting by written consent. Meetings of Unitholders may be called at any time
by the General Partner or by one or more Unitholders holding 10% or more of the
outstanding Units by delivering written notice to the General Partner.
BACKGROUND AND PURPOSES OF THE TRANSACTION
THE PARTNERSHIP
The Partnership was organized under the laws of the State of Washington on
November 15, 1988 and was capitalized through the public offering of the Units.
The offering was closed in March 1992 with total proceeds raised through the
sale of Units of approximately $30 million. The business of the Partnership is
to acquire, develop and operate self storage centers and office and business
parks. The Partnership has completed the acquisition and development phase of
its business; currently, its main focus is operating the storage centers. The
principal investment objectives of the Partnership are (i) to provide its
Unitholders with regular quarterly cash distributions which, for its taxable
Unitholders, are expected to be partially tax-sheltered, (ii) to obtain
long-term appreciation in the value of its property and (iii) and to preserve
and protect its Unitholders' capital.
The Partnership owns and operates 16 self storage properties and one office
building. As of March 31, 1996, the 17 properties, which are located in seven
states, contained approximately 1,000,000 net rentable square feet and had a
weighted average net rentable square foot occupancy rate of approximately 87%
and a weighted average annual rent per net rentable square foot of $7.92.
The Partnership properties are managed by the Purchaser pursuant to the
Management Services Agreement under which the Purchaser, as compensation for its
management services, receives a monthly fee of 6% of gross revenues of the
Partnership's self storage properties and 5% of gross revenues of the
Partnership's office building, plus $75 per month per facility (except for the
office building) for rendering advertising services and is reimbursed for
certain expenses.
For additional information on Partnership distributions and Partnership
properties, see Schedules VIII and IX, respectively, to this Offer to Purchase.
6
<PAGE>
The following sets forth certain financial information for the Partnership
which is derived from the historical financial statements of the Partnership.
The unaudited financial data for the three months ended March 31, 1995 and 1996
include all adjustments (consisting only of normally recurring accruals) that
the Partnership considers necessary for a fair presentation of operating results
for those interim periods. Results for the unaudited interim periods are not
necessarily indicative of results for the full year. This information should be
read in conjunction with the Financial Statements of the Partnership and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Partnership included as Schedules V and VI, respectively, to
this Offer to Purchase.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental revenue.................................... $ 4,110 $ 6,609 $ 7,225 $ 1,720 $ 1,807
Interest and other income......................... 230 57 36 7 9
Earnings.......................................... 1,427 1,655 1,885 386 532
Earnings per Unit (1)............................. 11.37 13.19 15.02 3.08 4.24
Distributions to Unitholders...................... 1,825 2,124 2,235 559 559
Distributions per Unit (1)........................ 15.31 17.81 18.75 4.69 4.69
OTHER DATA:
Funds from operations (2)......................... $ 2,219 $ 2,441 $ 2,685 $ 655 $ 801
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995 MARCH 31, 1996
--------- --------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................................. $ 36,930 $ 35,636 $ 35,164
Note payable.............................................................. 11,620 10,746 10,384
Partners' equity.......................................................... 24,882 24,414 24,357
</TABLE>
- --------------------------
(1) Earnings per Unit and distributions per Unit are based on earnings and
distributions, respectively, allocated to Unitholders divided by the number
of Units outstanding during the period (approximately 119,215 Units for all
periods shown).
(2) The Partnership defines funds from operations ("FFO") as net income before
extraordinary items (determined in accordance with generally accepted
accounting principles ("GAAP")), plus depreciation and amortization related
to real estate activities, plus or minus certain nonrecurring revenue and
expenses. FFO is used by many financial analysts in evaluating REITs. FFO
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Partnership's financial
performance or cash from operating activities (determined in accordance with
GAAP) or as a measure of liquidity, nor is it indicative of sufficient cash
flow to fund all of the Partnership's needs.
THE PURCHASER
The Purchaser is a fully integrated, self-administered and self-managed REIT
that develops, acquires, owns and manages self storage centers. The Purchaser is
one of the largest operators of self storage centers in the United States. As of
March 31, 1996, the Purchaser owned and operated, directly and through its
subsidiaries and joint ventures, 178 self storage properties, containing
approximately 11.7 million net rentable square feet, which are located in over
20 major metropolitan areas in 19 states and Europe. In addition, the Purchaser
owns two business parks and a commercial building containing approximately
220,000 net rentable square feet located in the Seattle metropolitan area. The
Purchaser also manages, under the "Shurgard" name, 86 self storage centers
containing approximately 4.6 million net rentable square feet, of which 47 are
owned by affiliates (including the properties owned by the Partnership) and 39
are owned by nonaffiliates. For the quarter ended
7
<PAGE>
March 31, 1996, the self storage centers owned by the Purchaser had a weighted
average net rentable square foot occupancy rate of approximately 88% and a
weighted average annual rent per net rentable square foot of $8.84.
The Purchaser began operations as a REIT through the consolidation on March
1, 1994 of 17 publicly held real estate limited partnerships (the
"Consolidation") that were sponsored by Shurgard Incorporated. On March 24,
1995, Shurgard Incorporated merged with and into the Purchaser, and the
Purchaser became self-administered and self-managed.
The Purchaser was incorporated in Delaware on July 23, 1993. The Purchaser's
executive offices are located at 1201 Third Avenue, Suite 2200, Seattle,
Washington 98101, and its telephone number is (206) 624-8100.
The name, business address, current principal occupation or employment,
five-year employment history and citizenship of each executive officer and
director of the Purchaser are set forth in Schedule I to this Offer to Purchase.
The following sets forth selected financial information of the Purchaser
which is derived from the historical consolidated financial statements of the
Purchaser. Selected unaudited financial data for the three months ended March
31, 1995 and 1996 include all adjustments (consisting only of normally recurring
accruals) that the Purchaser considers necessary for a fair presentation of
consolidated operating results for those interim periods. Results for the
interim periods are not necessarily indicative of results for the full year.
This information should be read in conjunction with the Purchaser's consolidated
financial statements and other financial information incorporated by reference
in this Offer to Purchase. See "Incorporation by Reference." Certain pro forma
financial information with respect to the Offer, the Additional Offers, the
Merger and the Additional Mergers is set forth in Schedule VII to this Offer to
Purchase.
<TABLE>
<CAPTION>
PURCHASER (2)
PREDECESSOR (1) ---------------------------------------------
---------------------- THREE MONTHS ENDED
YEAR ENDED JAN. 1 TO YEAR ENDED DEC. 31, MARCH 31,
DEC. 31, MARCH 1, --------------------- ---------------------
1993 1994 1994 1995 1995 1996
---------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue...................... $72,346 $ 12,368 $66,921 $96,771 $21,368 $24,819
Net income......................... 18,284 34,286 17,821 29,572 5,354 7,313
Net income per common share (3).... 34.11 63.97 1.05 1.43 .31 .32
Dividends declared per common share
(3)............................... 59.57 732.05 1.02(4) 2.38(5) .90(6) 0(8)
OTHER DATA:
Funds from operations (7).......... $39,657 $ 5,980 $29,759 $45,788 $ 8,868 $12,196
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................................. $ 494,590 $ 610,394 $ 536,467 $ 617,928
Total borrowings......................................................... 167,137 142,840 181,392 157,260
</TABLE>
- --------------------------
(1) The Predecessor information reflects the combination of the 17 partnerships
included in the Consolidation.
(2) The Purchaser was inactive from January 1 through March 1, 1994.
(3) Predecessor "per share" information is earnings and distributions per
original $1,000 investment. Distributions for the period from January 1,
1994 to March 1, 1994 include the liquidating distributions made in
connection with the Consolidation.
(4) Does not include the dividend of $0.44 per share declared in January 1995
based on financial results for the quarter ended December 31, 1994.
(5) Includes the dividend of $0.44 per share declared in January 1995 based on
financial results for the quarter ended December 31, 1994, the special
dividend of $0.10 declared in November 1995 and the dividend of $0.46 per
share declared in December 1995 based on financial results for the quarter
ended December 31, 1995.
(6) Includes the dividend of $0.44 per share declared in January 1995 based on
financial results for the quarter ended December 31, 1994.
8
<PAGE>
(7) The Purchaser defines FFO as net income before extraordinary items
(determined in accordance with GAAP) plus depreciation and amortization
related to real estate activities, plus or minus certain nonrecurring
revenue and expenses. FFO is used by many financial analysts in evaluating
REITs. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP), as an indication of the Purchaser's
financial performance or cash from operating activities (determined in
accordance with GAAP) as a measure of liquidity, nor is it necessarily
indicative of sufficient cash flow to fund all of the Purchaser's needs.
(8) The dividend relating to the financial results for the quarter ending March
31, 1996 was declared in May 1996.
Except as set forth in this Offer to Purchase, none of the Purchaser or, to
the best knowledge of the Purchaser, any person listed on Schedule I hereto or
any majority-owned subsidiary or associate of the Purchaser or of any person so
listed, beneficially owns or has a right to acquire any equity securities of the
Partnership, nor, except as set forth in this Offer to Purchase, has the
Purchaser or, to the best knowledge of the Purchaser, any of the persons or
entities referred to above, or any of the respective executive officers,
directors or subsidiaries of any of the foregoing, effected any transactions in
the Units during the past 60 days.
Except as described in this Offer to Purchase, neither the Purchaser nor, to
the best knowledge of the Purchaser, any person listed on Schedule I hereto, has
any present or proposed contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any securities of the
Partnership, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. See "Interests of Certain Persons." Except as disclosed herein, there
have been no contacts, negotiations or transactions since January 1, 1993
between the Purchaser or, to the best knowledge of the Purchaser, any person
listed on Schedule I hereto, on the one hand, and the Partnership or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets. Except as
set forth herein, neither the Purchaser nor, to the best knowledge of the
Purchaser, the persons listed on Schedule I hereto have had any business
relationships or have entered into any transactions with the Partnership or the
General Partner or affiliates which are required to be disclosed herein pursuant
to the rules and regulations of the Commission.
BACKGROUND OF THE TRANSACTION
The Partnership was organized in 1988 to serve as an investment vehicle for
investors interested in a professionally managed portfolio of self storage
facilities and office and business parks with cash flow and capital appreciation
potential. The Partnership was presented to its Unitholders as a finite-life
investment, with the Unitholders to receive quarterly cash distributions and
special distributions upon liquidation of the real estate investments. The
Partnership expected to dispose of its properties within a period of five to ten
years after acquisition or development. See "-- The Partnership."
Since the Partnership expected to hold its investments for a number of years
after the Partnership's formation, no efforts to dispose of the properties were
made by the General Partner in the early years of the Partnership's existence.
The General Partner concentrated its initial efforts on making suitable
investments for the Partnership, consistent with the Partnership's investment
policies and restrictions, and, with the assistance of the Purchaser and its
predecessor, on managing the properties efficiently to control operating
expenses while maximizing operating revenues.
In the fall of 1994, the General Partner and the general partners of the
Other Partnerships (collectively, the "General Partners") began considering the
termination of the Partnership and the Other Partnerships (collectively, the
"Partnerships") through an acquisition of the Partnerships by the Purchaser. The
General Partners and the Purchaser recognized that an acquisition might require
the consent of IPSC under the terms of the partnership agreements of the General
Partners. Consequently, on September 22, 1994, a representative of the Purchaser
sent IPSC a letter discussing potential advantages and disadvantages of an
acquisition of the Partnerships by the Purchaser for the
9
<PAGE>
appraised values of the Partnerships, whereby the limited partners of the
Partnerships would receive either cash or REIT Shares in exchange for their
limited partnership interests. The letter presented preliminary analyses of
values of the Partnerships and invited IPSC to contact the Purchaser concerning
how or if IPSC and the Purchaser might wish to proceed. Although representatives
of the Purchaser and the Partnerships had occasional discussions with
representatives of IPSC concerning the business of the Partnerships thereafter,
they did not pursue a potential transaction.
On or about June 22, 1995, representatives of the Purchaser, the General
Partners and IPSC held a meeting in which they discussed the possibility of the
Partnerships merging with the Purchaser and other alternatives, including a
liquidation of the Partnerships, designed to enable the limited partners in the
Partnerships to realize value for their limited partnership interests. The
meeting was inconclusive but the parties agreed to continue to analyze
alternatives for limited partners in the Partnerships.
On July 18, 1995, Charles K. Barbo, on behalf of the Partnerships, sent a
letter to IPSC providing an analysis of alternative means to permit limited
partners of the Partnerships to realize value for their limited partnership
interests, including a merger of the Partnerships with the Purchaser, a
liquidation of the Partnerships and a continuation of the business of the
Partnerships. Mr. Barbo recommended that the General Partners consider, as the
preferred alternative, mergers of the Partnerships with the Purchaser in which
the holders of limited partnership interests in the Partnerships would receive
REIT Shares or cash in the amount of their respective Partnership's net asset
value per unit of limited partnership interest. The net asset values would be
based in substantial part on an independent appraisal of the Partnerships'
properties. The letter emphasized that no decision had been made to proceed with
any transaction.
IPSC subsequently asked the General Partners for an analysis of the impact
on the partners of the General Partners with respect to their interests in the
General Partners of the alternatives discussed in the July 18 letter. The
General Partners provided that analysis to IPSC in a letter dated November 10,
1995. Thereafter, the parties agreed that they would be willing to have further
discussions after the beginning of the new year.
In January and February 1996, the General Partners and IPSC continued to
explore the possibility of a merger involving the Partnerships and the
Purchaser. In late February 1996, the General Partners determined that the
Partnerships should engage an appraiser and an investment advisor to assist in
considering the possibility of pursuing a transaction with the Purchaser.
On February 28, 1996, Everest Storage Investors, LLC ("Everest") commenced a
tender offer for Units of the Partnership (the "Everest Tender Offer"), as well
as units of limited partnership interest in the Other Partnerships. The cash
consideration offered by Everest to the Unitholders was $112 per Unit, which was
32% to 44% below the prices at which the Units were traded during the first
quarter of 1996 on the secondary market and 64% below the Offer Price. The
General Partner advised Unitholders not to accept the Everest Tender Offer.
Through the Everest Tender Offer, Everest acquired a total of 1,582.5 Units in
the Partnership (the "Everest Tendered Units").
On March 8, 1996, the General Partners, on behalf of the Partnerships,
engaged Stanger to provide opinions as to the fairness to the limited partners
of the Partnerships, from a financial point of view, of the consideration that
might be offered to limited partners of the Partnerships in a potential
transaction with the Purchaser and to render appraisals as to the fair market
value of each Partnership's real estate portfolio. Stanger previously conducted
appraisals and provided a fairness opinion and special reports to affiliates of
the General Partners with respect to the Consolidation. See "Appraisal; Opinions
of Financial Advisors."
On March 14, 1996, representatives of the General Partners, IPSC, Stanger
and the Partnerships met to discuss the terms on which the General Partners
would consider an acquisition of the Partnerships by the Purchaser through a
one-step merger of the Partnerships into the Purchaser. The discussion centered
on a transaction in which holders of units of limited partnership interest in
the
10
<PAGE>
Partnerships would receive, at their election, REIT Shares or cash equal to
their respective Partnership's net asset value (based on an independent
appraisal of the real estate assets) per unit of limited partnership interest.
On March 18, 1996, legal counsel for the Partnerships provided the Purchaser
with a draft of an agreement reflecting the terms discussed by the parties.
On March 19, 1996, at a regular meeting of the Board of Directors of the
Purchaser, the Board discussed the possible acquisition of the Partnerships
through a merger. The directors were informed by management of the Purchaser of
the potential conflicts of interest involved in a transaction with the
Partnerships. See "Interests of Certain Persons." The Board confirmed the
appointment of a special committee (the "Special Committee") consisting of two
independent directors, Donald W. Lusk and Wendell J. Smith, and authorized the
Special Committee (i) to review, evaluate and negotiate the terms of any
proposed transactions involving the acquisition of the Partnerships by the
Purchaser, (ii) to make a recommendation to the Board of Directors with respect
to the approval or disapproval of any proposed transaction between the Purchaser
and the Partnerships, and (iii) to select and retain legal counsel and financial
advisors. Thereafter, the Special Committee decided to retain Alex. Brown & Sons
Incorporated ("Alex. Brown") to assist in its evaluation of any transaction with
the Partnerships and also retained legal counsel to assist in its consideration
and negotiation of any transaction with the Partnerships.
On March 25, 1996, the Purchaser and Public Storage, Inc. ("PS") entered
into an agreement whereby PS agreed that it would not acquire any interests in
the Purchaser or any of the Purchaser's affiliates (including the Partnerships),
through a tender offer or otherwise, for a period of two years without the
Purchaser's consent (preventing PS from making a competing tender offer for the
units of limited partnership interest in the Partnerships without the permission
of the Purchaser). Soon thereafter, PS disclosed to the Purchaser that PS had an
agreement with Everest, whereby PS had agreed to purchase the interests owned by
Everest in various public limited partnerships, including the Partnerships,
owning self storage assets. Pursuant to a letter agreement dated April 1, 1996,
the Purchaser consented to PS's acquisition of the Everest Tendered Units as
well as other Units owned by Everest, for a total of 1,602.5 Units
(collectively, the "Everest Units"), on the condition that PS grant to the
Purchaser a right to purchase the Everest Units on terms substantially similar
to those on which PS acquired the Everest Units from Everest. PS acquired the
Everest Units from Everest on May 20, 1996 at a price of $190 per Unit. The
Purchaser exercised its option to acquire the Everest Units from PS at the same
price, plus four days of interest and PS transferred the Everest Units to the
Purchaser effective as of May 20, 1996. The Purchaser simultaneously acquired
1,824.5 limited partnership units in IDS1 and 2,038.3 limited partnership units
in IDS2 pursuant to the terms of the agreement with PS. See "Interests of
Certain Persons."
From late March 1996 through May 1996, representatives of the Purchaser and
the Partnerships discussed the possibility of the Purchaser's acquisition of the
Partnerships. During this time, the parties discussed the possibility of
structuring the acquisition as a cash tender offer followed by a merger of the
Partnerships into the Purchaser in which limited partners of the Partnerships
would receive REIT Shares in exchange for their limited partnership interests.
The parties viewed a two-step transaction (a partial cash tender offer followed
by a stock merger) as being more desirable than a one-step cash-election merger
transaction. Completion of a merger would be subject to a number of conditions
(including the approval of limited partners of each of the Partnerships and
registration of the REIT Shares) that would not be conditions to a cash tender
offer. Thus, the two-step transaction would provide limited partners of the
Partnerships with an opportunity to obtain liquidity for a portion of their
limited partnership interests more quickly than waiting for completion of the
merger. In addition, the Purchaser favored a two-step transaction because it
believed that such structure might enable it to acquire an ownership position in
the Partnerships more quickly than would be the case in a one-step merger.
During the last week of May 1996, the Special Committee proposed to the
Partnerships that the Purchaser acquire the Partnerships for a price equal to
each of their respective net asset values pursuant to a cash tender offer for up
to a designated percentage of outstanding units of limited partnership interests
followed by a merger in which limited partners of the Partnerships
11
<PAGE>
would receive REIT Shares with a value equal to the respective per unit net
asset value of the Partnership. The value attributable to a REIT Share was
proposed to be the average of the closing prices for a REIT Share on the NYSE
during a designated future period (the "Average Price"). The parties discussed
setting the percentage of limited partnership interests that would be sought in
the first step tender offer so that if the tender offer were fully subscribed,
the Partnerships would not terminate for federal income tax purposes due to a
sale or exchange of 50% or more of the total interest in Partnerships' capital
and profits in a 12 month period. See "Certain Federal Income Tax Consequences
- -- No Constructive Termination of the Partnership."
The Special Committee indicated that its proposal on behalf of the Purchaser
would require that (i) if the Acquisition were not completed under certain
circumstances, the Purchaser would receive a fee from the Partnerships (a
"Termination Fee") and reimbursement for all expenses incurred by the Purchaser
in connection with the transaction, and (ii) if the Average Price of a REIT
Share exceeded or was lower than the limits of a price range, then the Average
Price would be fixed at the upper or lower limit of that price range, as
appropriate.
On June 1, 1996, representatives of the Purchaser and the Partnerships
commenced active negotiations of the terms of the Acquisition Agreement.
Thereafter, the terms of the Acquisition Agreement were also discussed with IPSC
and its legal counsel since the General Partners intended to seek the consent of
IPSC to complete a merger. See "The Acquisition Agreement -- Consent of IPSC."
The most significant negotiations concerned the operation of the price range and
the Partnerships' payment of the Termination Fee and reimbursement of the
Purchaser's expenses under certain circumstances. During the negotiations, the
General Partner advised the Special Committee that IPSC objected to the
Termination Fee and to any requirement that the Partnership complete the merger
if the Average Price was lower than the lower limit of the price range. In light
of this position, the Special Committee ultimately withdrew its request for the
Termination Fee, determining that it was advisable and in the best interests of
the Purchaser and its stockholders to proceed with the Transaction on this
basis. The Partnerships and the General Partners agreed to accept the price
range with certain modifications that would allow the General Partners to
withdraw their recommendations of the merger and terminate the Acquisition
Agreement if the Average Price was more than $.75 below the lower limit of the
price range and the Purchaser does not elect to increase the consideration paid
in the merger. IPSC informed the Purchaser that it would reserve the right to
withdraw its consent under these circumstances. The parties also agreed that the
Purchaser would similarly have the right to elect not to proceed with the merger
if the Average Price exceeded the upper limit of the price range
by more than $.75.
On June 13, 1996, representatives of the General Partners, IPSC, their
respective counsel and Stanger held a teleconference to discuss the terms of the
Transaction and the Additional Transactions and to consider the draft
Acquisition Agreement, draft appraisals and the draft fairness opinions and
assumptions made in preparing the fairness opinions.
On June 26, 1996, Stanger delivered the appraisals and revised draft
fairness opinions to the General Partners. On June 26, 1996, representatives of
the General Partners, IPSC and Stanger held a teleconference to discuss the
draft Acquisition Agreement, the appraisals and revised draft fairness opinions.
During that teleconference, Stanger indicated its willingness to render the
fairness opinions in the forms presented to the General Partners. The General
Partners concluded that the terms of the Transaction and the Additional
Transactions were fair to the limited partners of the Partnerships, approved the
execution of the Acquisition Agreement and the Partnerships' participation in
the Transaction and the Additional Transactions and formulated their
recommendations of the Transaction and the Additional Transactions, subject to
Stanger's delivery of the fairness opinions on July 1, 1996.
On June 26, 1996 and June 27, 1996, Alex. Brown presented to the Special
Committee a draft of its opinion that the consideration to be paid in
Transaction and the Additional Transactions is fair to the Purchaser from a
financial point of view, together with related materials, and discussed the
opinion and related materials and the analysis performed and the assumptions
made in preparing the
12
<PAGE>
opinion with the Special Committee and its legal counsel. Subsequent to that
meeting the Special Committee and its legal counsel and Alex. Brown met on June
27, 1996 with the other members of the Purchaser's Board of Directors in a
meeting to discuss the Transaction, the draft of the Alex. Brown fairness
opinion and related materials.
On July 1, 1996, the Special Committee, its legal counsel and Alex. Brown
met with the Board of Directors to discuss further the Transaction and the
Additional Transactions. At that meeting, Alex. Brown delivered its opinion to
the effect that the consideration to be paid in Transactions and the Additional
Transactions is fair from a financial point of view, and the Special Committee
recommended that the Board of Directors of the Purchaser approve, and the Board
of Directors did approve of the Transaction and the Additional Transactions, the
Acquisition Agreement and the consummation by the Purchaser of the transactions
contemplated by the Acquisition Agreement.
On July 1, 1996, Stanger delivered the Stanger Fairness Opinions to the
General Partner.
On July 1, 1996, the Purchaser and the General Partners on behalf of the
Partnership, IDS1 and IDS2, respectively, executed the Acquisition Agreement.
On July 2, 1996, the Purchaser commenced the Offer and the Additional
Offers.
RELATIONSHIPS
The following chart shows the relationships among the Partnership, the
Purchaser, the General Partner and certain of their affiliates. As reflected in
the chart below, (i) Charles K. Barbo, the Chairman of the Board, President and
Chief Executive Officer and a stockholder of the Purchaser, is an individual
general partner of the General Partner and the sole shareholder and director of
the corporate general partner of the General Partner, (ii) Arthur W. Buerk, a
stockholder of the Purchaser, is an individual general partner of the General
Partner and (iii) the Purchaser is a limited partner of the General Partner. See
"Interests of Certain Persons -- General Partner's Interest."
[GRAPH]
- ------------------------------
(1) The Purchaser and an affiliate of IPSC own approximately 1.3% and
approximately .05%, respectively, of the Units.
PURPOSES AND STRUCTURE OF THE TRANSACTION
This Offer is being made and the Merger will be proposed for approval (i) to
enable the Purchaser to acquire the entire equity interest in the Partnership
and (ii) to give Unitholders an opportunity to (a) liquidate their Units for
cash or (b) continue to own an equity interest in a portfolio of properties,
including the Partnership's properties, through an acquisition of REIT Shares.
For information concerning the factors leading to the decision by the Purchaser
to commence the Transaction, see
13
<PAGE>
"-- Background." Following completion of this Offer, the Purchaser intends to
acquire the remaining equity interest in the Partnership that is not then owned
by the Purchaser through the Merger if the conditions to the consummation of the
Merger are satisfied. See "The Acquisition Agreement."
The acquisition of the entire equity interest in the Partnership has been
structured as a cash tender offer for up to 52,000 of the Units followed by a
merger in which the outstanding equity interests in the Partnership will be
exchanged for the Merger Consideration. Pursuant to the Partnership Agreement,
approval of the Merger requires the affirmative vote by holders of a majority of
the outstanding Units. The percentage of Units sought in the tender offer was
set so that if the tender offer were fully subscribed, the Partnership would not
terminate for federal income tax purposes due to a sale or exchange within a
12-month period of 50% or more of the total interest in Partnership capital and
profits. See "Certain Federal Income Tax Consequences -- No Constructive
Termination of the Partnership." The purposes of structuring the transaction as
a cash tender offer followed by a merger were (i) to provide those Unitholders
who desire immediate liquidity with an opportunity to obtain cash in this Offer
and (ii) to enable the Purchaser to purchase Units in this Offer which it
intends to vote in favor of the Merger at the Special Meeting. The parties
viewed a two-step transaction (a partial cash tender offer followed by a stock
merger) as being more desirable than a one-step cash-election merger
transaction. Completion of a merger would be subject to a number of conditions
(including the approval of Unitholders and registration of REIT Shares) that
would not be conditions to a tender offer. See "The Acquisition Agreement --
Conditions to the Merger." Thus, the two-step transaction was designed to
provide Unitholders with an opportunity to obtain liquidity for a portion of
their Units more quickly than waiting for completion of the Merger. The
Purchaser favored a two-step transaction because that structure might enable it
to acquire an ownership position in each of the Partnerships more quickly than
it would be able to do through a one-step merger.
Pursuant to the General Partner Undertaking and the Standstill Agreement
contained in the Acquisition Agreement, the Purchaser has agreed that, upon its
admission as a substitute limited partner with respect to any Units purchased in
this Offer, it will not, except through this Offer and the Merger, directly or
indirectly acquire any additional Units, propose any merger or other business
combination involving the Partnership, or propose any other transaction pursuant
to which it would control any of the assets of the Partnership without the prior
written consent of a majority of the general partners of the General Partner.
After completion or termination of this Offer, subject to the General Partner
Undertaking and the Standstill Agreement and restrictions imposed by law, the
Purchaser reserves the right to purchase or seek to purchase additional Units in
the open market, in privately negotiated transactions, in another tender or
exchange offer or otherwise. In addition, in the event that this Offer is
consummated but the Merger does not occur for any reason, the Purchaser will
evaluate its other alternatives, including, subject to the General Partner
Undertaking and the Standstill Agreement and restrictions imposed by law,
purchasing additional Units in the open market, in privately negotiated
transactions, in another tender or exchange offer or otherwise, or taking no
further action to acquire additional Units. Any additional purchase of Units
could be at a price greater or less than the price to be paid for Units in this
Offer and could be for cash or other consideration. Alternatively, the Purchaser
may sell or otherwise dispose of any or all Units acquired pursuant to this
Offer or otherwise. The transactions may be effected on terms and at prices then
determined by the Purchaser, which may vary from the Offer Price.
The Purchaser regards the acquisition of the Partnership as an attractive
investment opportunity at this time because it believes that the Partnership's
future business prospects are favorable. In addition, the Transaction is being
undertaken within the five to ten year period within which the Partnership
expected to dispose of its properties. See "-- Background of the Transaction."
14
<PAGE>
FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL PARTNER
RECOMMENDATION OF THE GENERAL PARTNER
Based upon its analysis of the Transaction, the General Partner believes
that the Offer Price and the Merger Consideration constitute fair consideration
to Unitholders and that the terms of this Offer and the Merger, when considered
as a whole, are fair to the Unitholders. The General Partner recommends that
those Unitholders who desire immediate liquidity tender their Units pursuant to
this Offer and that all other Unitholders retain their Units and, instead,
participate in the Merger. There can be no assurance that the approval of the
Merger by the holders of a majority of the Units will be received or that the
other conditions to the Merger will be satisfied or waived, and that the Merger
will be consummated. If the Merger is not consummated, those Unitholders who do
not tender their Units in this Offer will continue to have an economic interest
in the Partnership.
FACTORS CONSIDERED BY THE GENERAL PARTNER
A discussion of the factors upon which the General Partner has based its
conclusion that the Transaction is fair is set forth below and should be
reviewed carefully by Unitholders. The General Partner did not find it
practicable and did not attempt to quantify the relative importance of these
factors.
DETERMINATION OF OFFER PRICE. The General Partner believes that the methods
used to determine the Offer Price are fair to Unitholders. The Offer Price was
determined by allocating the Net Asset Value of the Partnership among
Unitholders and the General Partner in accordance with the dissolution
provisions of the Partnership Agreement. See Schedule X ("Calculation of Net
Asset Value").
DETERMINATION OF MERGER CONSIDERATION. The General Partner believes that
the methods used to determine the Merger Consideration are fair to Unitholders.
The number of REIT Shares that would be received per Unit in the Merger is
derived by dividing (i) the Partnership's Net Asset Value that would be
allocated to one Unit if the Partnership's Net Asset Value were distributed in
accordance with the distribution provisions of the Partnership Agreement by (ii)
the average of the per share closing prices of REIT Shares on the NYSE during
the 20 consecutive trading days ending on the fifth trading day prior to the
date the General Partner actually calls for the vote to approve the Merger and
the Acquisition Agreement (the "REIT Share Price").
If the REIT Share Price exceeds $27.75, then for purposes of calculating the
number of REIT Shares to be issued in the Merger, the REIT Share Price will be
deemed to equal $27.75 and, if the REIT Share Price is less than $22.25, then
for purposes of calculating the number of REIT Shares to be issued in the
Merger, the REIT Share Price will be deemed to equal $22.25. If the REIT Share
Price exceeds $28.50, the Purchaser has the right to terminate the Acquisition
Agreement and, if the REIT Share Price is less than $21.50, the General Partner
may withdraw its recommendation in favor of the Merger and terminate the
Acquisition Agreement, subject to the Purchaser's right to pay additional cash
consideration. If the REIT Share Price is between $27.75 and $28.50 and all
other conditions to the Merger are satisfied or waived, the Merger will be
consummated and Unitholders will receive REIT Shares with a value in excess of
the Net Asset Value per Unit. If the REIT Share Price is between $21.50 and
$22.25 and all other conditions to the Merger are satisfied or waived, the
Merger will be consummated and Unitholders will receive REIT Shares with a value
that is less than the Net Asset Value per Unit.
The General Partner believes that the methods for determining the Merger
Consideration are fair because (i) the closing prices of the REIT Shares have
been within $22.25 and $27.50 (the "Share Price Range") for more than a year,
(ii) a fluctuation in average share prices outside of the Share Price Range will
likely be due to market forces that are not directly related to the intrinsic
value of the REIT Shares, (iii) the Share Price Range provides reciprocal
protection for the Partnership and the Purchaser, (iv) the $.75 difference
between the lower end of the Share Price Range and the REIT Share Price at which
the General Partner may withdraw its recommendation and terminate the
Acquisition
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<PAGE>
Agreement is approximately equal to the amount the General Partner estimates
would be the Partnership's cost to negotiate and present a revised merger
proposal to Unitholders if the Merger were not consummated on its currently
contemplated terms and (v) under certain circumstances, Unitholders may receive
REIT Shares with a value in excess of the Net Asset Value per Unit.
REAL ESTATE PORTFOLIO APPRAISAL. The General Partner has relied in part
upon the Appraisal prepared by Stanger, an independent appraiser, to establish
the fair market value of the Partnership's real estate assets, and the Appraised
Value was utilized in determining whether the Offer Price and the Merger
Consideration constitute fair consideration in exchange for the Units. See
"Appraisal; Opinions of Financial Advisors."
STANGER FAIRNESS OPINIONS. The General Partner has relied in part upon the
Stanger Fairness Opinions to support its conclusion that the Offer Price and the
Merger Consideration constitute fair consideration to the Unitholders for the
Units. Subject to the assumptions, qualifications and limitations set forth in
the Stanger Fairness Opinions, Stanger concluded that, as of the date of the
Stanger Fairness Opinions, the Offer Price and the Merger Consideration were
fair to the Unitholders from a financial point of view. The Stanger Fairness
Opinions do not address the fairness of any Offer or Merger terms other than the
Offer Price and the Merger Consideration. The Stanger Fairness Opinion with
respect to the Merger does not address the fairness of the Merger Consideration
if the REIT Share Price is less than $22.25. See "Appraisal; Opinions of
Financial Advisors."
FAIRNESS IN VIEW OF CONFLICTS OF INTEREST. Charles K. Barbo, the Chairman
of the Board, President and Chief Executive Officer and a stockholder of the
Purchaser, is an individual general partner of the General Partner and the sole
shareholder and director of the corporate general partner of the General
Partner. Arthur W. Buerk, a stockholder of the Purchaser, is an individual
general partner of the General Partner, and the Purchaser is a limited partner
of the General Partner. The General Partner will receive 7.5% of the Merger
Consideration in exchange for its interest as the General Partner of the
Partnership. See "Interests of Certain Persons -- General Partner's Interest."
In connection with the merger of Shurgard Incorporated with the Purchaser in
1995, the Purchaser agreed to deliver REIT Shares as additional consideration
for that merger under certain circumstances upon the liquidation of the assets
of certain partnerships sponsored by Shurgard Incorporated, including the
Partnership and the Other Partnerships (the "Contingent Share Agreement"). If
any of the Merger and the Additional Mergers is consummated, certain executive
officers and other members of the Purchaser's management will receive REIT
Shares pursuant to the Contingent Share Agreement. See "Interests of Certain
Persons."
The General Partner did not engage independent representatives of the
Unitholders to negotiate, review and approve the terms of the Transaction and
the terms of the Transaction are not the results of arms' length negotiations.
The General Partner believes that its recommendation results from a
determination that the Transaction is more attractive to Unitholders than any
alternatives considered by the General Partner, and that this determination
results from the General Partner's discharge of its fiduciary duties to the
Unitholders and is not affected by the conflicts of interest described above.
IPSC CONSENT. The General Partner considered the fact that IPSC, a limited
partner of the General Partner which is not affiliated with the Purchaser, has
consented to the Merger based upon its review of the documents, the General
Partner's review of alternatives to the Transaction and the Stanger Fairness
Opinions. IPSC has significant conflicts of interest in the proposed
Transaction. See "Interests of Certain Persons."
POTENTIAL INFLUENCE OF THE PURCHASER OVER THE PARTNERSHIP. In deciding
whether or not to tender their Units pursuant to this Offer, Unitholders should
consider that, as a result of this Offer, the Purchaser may hold the largest, or
one of the largest, equity positions in the Partnership. As a result of this
interest, the Purchaser may be in a position to influence the policies and
affairs of the Partnership. The Purchaser intends to vote the Units it holds and
those it acquires through this Offer in favor of the Merger. While the Purchaser
has agreed that, in the event it is admitted as a substitute limited
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<PAGE>
partner of the Partnership with respect to the Units it acquires through this
Offer, and the Merger is not approved, it will not acquire any additional Units,
propose any merger or other business combination involving the Partnership or
propose any other transaction pursuant to which it would acquire any material
assets of the Partnership without the consent of a majority of the general
partners of the General Partner, the Purchaser may nonetheless be able to
influence significantly the policies and affairs of the Partnership without the
consent of the General Partner. Specifically, the Purchaser may be able to
effectively block actions that may be subject to a vote of a majority of the
Units, such as certain amendments to the Partnership Agreement, dissolution the
Partnership, removal of the General Partner, and approval of the sale of
substantially all of the Partnership's assets. While there is a risk that the
Purchaser will be able to influence significantly Partnership actions, the
General Partner does not believe that the possibility of that influence renders
this Offer unfair to non-tendering Unitholders, inasmuch as the Purchaser is
restricted from acquiring additional Units or Partnership assets without the
consent of a majority of the general partners of the General Partner
(discharging their fiduciary duties on behalf of the Unitholders) and given that
the terms of the Partnership Agreement in effect at the time the Unitholders
(including non-tendering Unitholders) initially invested in the Partnership
permitted certain actions to be taken with the approval of holders of a majority
of the Units.
ALLOCATION OF TRANSACTION EXPENSES. The General Partner believes the
procedures for allocating the expenses of the Transaction and the Additional
Transactions are fair to the Partnership, inasmuch as the Partnership will bear
its Individual Transaction Expenses (as defined in "The Acquisition Agreement")
and its pro rata portion of the Shared Transaction Expenses (as defined in "The
Acquisition Agreement") based on its relative Net Asset Value if Unitholders
approve the Merger, and will bear its Individual Transaction Expenses and only a
percentage of its pro rata portion of the Shared Transaction Expenses equal to
the percentage of Unitholders voting in favor of the Merger if Unitholders do
not approve the Merger and if certain other events have not occurred. While the
Acquisition Agreement provides that the Partnership will pay a pro rata portion
of the Shared Transaction Expenses and the Individual Transaction Expenses that
would otherwise be payable by the Purchaser if the Acquisition Agreement is
terminated for certain reasons, the General Partner believes this is fair
because the circumstances under which such expenses would be paid by the
Partnership are generally situations in which the Partnership has entered into
an alternative transaction, presumably resulting in greater value to
Unitholders, prompted at least in part by this Offer and the proposed Merger.
See "The Acquisition Agreement -- Fees and Expenses."
IMPACT OF MERGER ON EXPECTED DISTRIBUTIONS TO UNITHOLDERS WHO BECOME
STOCKHOLDERS OF THE PURCHASER. The Merger is expected to affect the level of
distributions made to Unitholders who become stockholders of the Purchaser.
Depending upon the REIT Share Price used to determine the number of REIT Shares
to be issued in the Merger, the level of distributions after the Merger to
Unitholders who become stockholders of the Purchaser may be higher or lower than
the level of distributions received with respect to their Units prior to the
Merger. Assuming the current quarterly distribution rates continue to be the
same for the Purchaser ($.47 per REIT Share) and the Partnership ($4.69 per
Unit), based on a REIT Share Price of $22.25 and rounding the number of REIT
Shares to be received to the nearest whole REIT Share, Unitholders would receive
approximately $1.89 (40%) more in quarterly distributions per Unit after the
Merger than before the Merger, and based on a REIT Share Price of $27.75 and
rounding the number of REIT Shares to be received to the nearest whole REIT
Share, Unitholders would receive approximately $.48 (10%) more in quarterly
distributions per Unit after the Merger than before the Merger. The General
Partner believes that any differences between the level of distributions to
Unitholders who become stockholders is justifiable when taking into account cash
distribution policies, principal and interest payments on debt and capital
expenditure levels. These factors may not continue to affect distributions in
precisely the same fashion following the Merger.
IMPACT OF MERGER ON TIMING OF PARTNERSHIP DISTRIBUTIONS. The Merger
Consideration to be received by Unitholders is based primarily on the Net Asset
Value of the Partnership. Recognizing
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<PAGE>
that there may be changes in the Partnership's value between March 31, 1996 (the
date on which the Net Asset Value is based) and the closing of the Merger (the
"Closing") and that it is a condition to the Closing that the Partnership's
Closing Net Asset Value (as defined in "The Acquisition Agreement -- Conduct of
Business Pending the Effective Time") is no less than its Net Asset Value, the
General Partner may delay cash distributions if it deems it advisable to do so.
As soon as practicable following the Closing, pre-Merger Unitholders and the
General Partner will receive a cash distribution in an aggregate amount equal to
the amount, if any, by which the Partnership's Closing Net Asset Value as of the
Closing exceeds its Net Asset Value. If the Partnership does not participate in
the Merger, the proposed Merger may only temporarily delay, but is not otherwise
expected to affect or reduce (except for the Partnership's portion of the
Transaction expenses) the distributions made by the Partnership. The General
Partner does not consider this delay or reduction in distributions due to
payment of Transaction expenses to affect materially the fairness of the
Transaction with respect to Unitholders.
COMPARISON OF CERTAIN BENEFITS AND DETRIMENTS OF ALTERNATIVES TO THE
TRANSACTION. Prior to concluding that the Transaction should be proposed to
Unitholders, the General Partner considered several alternatives, including the
liquidation of the Partnership, continuation of the Partnership, support of the
secondary market for Units and reorganization of the Partnership as a separate
REIT. To determine whether the Transaction or one of its alternatives would be
more attractive to the Unitholders, the General Partner compared the potential
benefits and detriments of the Transaction with the potential benefits and
detriments of the alternatives. Based upon this comparison, the General Partner
has concluded that the Transaction is more attractive than any of its
alternatives. The following is a brief discussion of the benefits and detriments
of, and the General Partner's conclusions regarding, alternatives to the
Transaction that could have been pursued by the General Partner.
LIQUIDATION OF THE PARTNERSHIP. An alternative to the Transaction would
be liquidating the assets of the Partnership, distributing the net liquidation
proceeds to the General Partner and Unitholders in accordance with the
Partnership Agreement, and thereafter dissolving the Partnership. Through such
liquidation, the Unitholders' investment in the Partnership would be concluded.
All Unitholders would be at liberty to use the net liquidation proceeds for
investment, business, personal or other purposes.
In recent years, operating results with respect to the Partnership's
properties have improved, there has been increased sales activity with respect
to self storage facilities and the capitalization rates at which facilities have
been selling have become more favorable to sellers, resulting in higher prices.
The General Partner anticipates that net operating income from the Partnership's
facilities will continue to improve although at a slower rate than in the past.
If performance improvements continue, the value of the properties of the
Partnership would be expected to increase, so long as capitalization rates at
which self storage facilities are sold do not increase and sufficient capital
remains available to finance acquisitions. A complete liquidation of the
Partnership would deprive those Unitholders who do not desire to liquidate their
investment in self storage properties from participating in the potential
benefits of future performance and possible property value improvements. In
addition, liquidation of the Partnership's properties does not have certain of
the other benefits of the Merger, including (i) permitting Unitholders to
liquidate their investment in real estate at a time that is appropriate for
their individual investment strategy, rather than forcing divestiture for all
Unitholders through a liquidation of the Partnership's portfolio and (ii) the
opportunity to participate in acquisition and development opportunities existing
in the real estate market through equity ownership in the Purchaser.
The transaction costs associated with the Merger are expected to be
significantly less than those which would be incurred in a liquidation of the
Partnership's assets. If the Merger is consummated, the Partnership will
effectively dispose of all of its assets and liabilities in a single
transaction, which will minimize the liquidation costs. If the assets of the
Partnership were liquidated over time, not only is it likely that higher
transaction costs would be incurred, but distributions to the Unitholders from
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<PAGE>
the Partnership's cash flow from operations may be reduced since the
Partnership's fixed costs, such as general and administrative expenses, would
not be proportionately reduced with the liquidation of assets.
The General Partner favors the Transaction over liquidation of the
Partnership's assets because this Offer permits those Unitholders desiring
immediate liquidity to obtain cash, while permitting the remaining Unitholders
to participate in the Merger which, if consummated, will enable them to
participate in acquisition and development opportunities existing in the real
estate market through equity ownership in the Purchaser. In addition, the
estimated transaction costs associated with the Transaction are significantly
less than those which would be incurred in a liquidation of the Partnerships'
assets on a single transaction or multiple transaction basis.
CONTINUATION OF THE PARTNERSHIP. A second alternative to the
Transaction would be to continue the Partnership as a separate legal entity,
with its own assets and liabilities. While the disclosure documents used to
offer the Units for sale to the public disclosed the intention of the
Partnership to liquidate its assets within a five to ten year period, the
Partnership has a stated life of approximately 40 years, the Unitholders were
advised that the liquidation of the Partnership would depend upon market
conditions as they might change from time to time, and the Partnership is
operating profitably and does not need to liquidate to satisfy debt obligations
or other current liabilities or to avert defaults, foreclosures or other adverse
business developments.
A number of advantages would be expected to arise from the continued
operation of the Partnership. Unitholders would continue to receive regular
quarterly distributions of net cash flow arising from operations and the sale or
refinancing of the Partnership's assets. The General Partner expects that net
operating income from the properties would continue to improve, although at a
slower rate than in the past, which would support continued improvements in
quarterly distributions. In addition, the decision to continue the Partnership,
if selected, means that there would be no change in the nature of the
Unitholders' investment. This option avoids whatever disadvantages might be
inherent in the Merger.
The primary disadvantage with continuing the Partnership is the failure of
that strategy to enable Unitholders (i) to liquidate immediately their
investment in the Partnership for cash consideration which the General Partner
believes to be fair to Unitholders or (ii) to acquire REIT Shares, enabling
Unitholders to participate in the Purchaser's substantially larger, more
diversified, investment portfolio and to benefit from the Purchaser's ability to
access capital markets and take advantage of acquisition and development
opportunities. If the Partnership is continued, Unitholders may not have an
opportunity for liquidity in the near future. The assets of the Partnership
might, however, be sold at another time in another transaction that could be on
terms more or less favorable to Unitholders. Accordingly, the General Partner
has concluded that continuation of the Partnership is not as attractive an
alternative as the Transaction.
SUPPORT OF SECONDARY MARKET. Another possible alternative which would
create liquidity for Unitholders desiring to dispose of their investments in the
Partnership is the creation or support of the secondary market for the Units
through limited cash tender offers or repurchase programs sponsored by the
Partnership. While the General Partner believed that this alternative might
provide liquidity for some Unitholders, the terms of the Partnership Agreement
and federal tax law prohibit this alternative from being available to all
Unitholders in any 12 month period. The General Partner believed that this
alternative was not sufficiently broad-based to provide an overall solution to
the liquidity problem. While this alternative was considered by the General
Partner, no detailed financial analysis was done that would allow the General
Partner to predict with any degree of certainty the possible impact of this
alternative on the value of the Units.
REORGANIZATION OF THE PARTNERSHIP AS A SEPARATE REIT. The General
Partner considered the advisability of reorganizing the Partnership as a
separate corporation taxed as a REIT, which could provide Unitholders some of
the advantages to be secured through the Merger, such as providing investors in
the reorganized entity with some liquidity through the listing of its equity
securities,
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<PAGE>
avoiding the effects of legislation requiring partnerships to withhold
distributions for state income taxes and simplified federal income tax
reporting. In addition, such reorganization could be effected on a tax-free
basis, unlike the Merger, which will be a taxable event for Unitholders. This
reorganization of the Partnership would, however, result in substantial costs
and expenses, and, due to the size of the Partnership, access to capital markets
and the liquidity of the reorganized entity's securities could be limited. The
General Partner has concluded that the Merger is more attractive than the
reorganization of the Partnership as a separate REIT because a separate REIT
would not provide, or would provide on a more limited basis, the advantages
expected from the Merger, including the elimination of potential conflicts of
interest, simplified administration, self-administration, growth potential,
asset diversification and improved access to capital markets.
COMPARISON OF TRANSACTION CONSIDERATION TO ALTERNATIVES
GENERAL. To assist Unitholders in evaluating the Transaction, the General
Partner has attempted to compare the Offer Price and the Merger Consideration
against: (i) the prices at which the Units have been sold in the illiquid
secondary market; (ii) estimates of the value of the Units on a liquidation
basis assuming that the Partnership's assets were sold at their Appraised Value
or net book value and the net proceeds distributed to the General Partner and
Unitholders in accordance with the Partnership Agreement; and (iii) estimates of
the value of the Units on a going concern basis assuming that the Partnership
was continued as an operating business and its assets sold at the end of 2000.
Due to the uncertainty in establishing these values, the General Partner has, in
instances it deemed appropriate, established a range of estimated values for
each alternative, representing a high and low estimated value for the potential
consideration. The General Partner believes that analyzing the alternatives in
terms of ranges of estimated value, established based upon currently available
market data and, where appropriate, reasonable assumptions made in good faith,
establishes a reasonable framework for comparing alternatives. The results of
this comparative analysis are summarized in the table below.
The estimated values are based upon information available to the General
Partner at the time they were computed, including historical information
regarding the Partnership and current real estate markets, and there can be no
assurance that the same conditions analyzed by the General Partner in arriving
at the estimates of value would exist at the time of consummation of this Offer
or the Merger. In addition, Unitholders should consider that the estimated
values assigned to the alternatives are based on a variety of assumptions that
have been made by the General Partner, which are discussed in more detail below.
The estimated values presented in the following table are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These estimated values are based upon certain assumptions that relate,
among other things, to (i) the REIT Share Price as of the date of the Merger
being within the Share Price Range, (ii) projections as to the Partnership's
future revenues, expenses, cash flow and other significant financial matters,
(iii) the capitalization rates that will be used by prospective buyers when the
Partnership's assets are liquidated, (iv) selling costs, (v) appropriate
discount rates to apply to expected cash flows in computing the present value of
the cash flows and (vi) the manner of sale of the Partnership's properties.
Actual results may vary from those set forth below based on numerous factors,
including interest rate fluctuations, tax law changes,
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supply and demand for self storage facilities, the manner in which the
properties are sold and changes in availability of capital to finance
acquisitions of self storage properties. Each Unit in the following table
represents an original investment of $250.
<TABLE>
<CAPTION>
ESTIMATED LIQUIDATION
MERGER VALUE PER UNIT
CONSIDERATION SECONDARY ESTIMATED GOING ASSUMING PARTNERSHIP
PER UNIT (1) MARKET PRICE CONCERN VALUE ASSETS SOLD AT:
--------------- PER UNIT (2) PER UNIT (3) ------------------------
OFFER PRICE -------------------- -------------------- APPRAISED NET BOOK
PER UNIT HIGH LOW HIGH LOW VALUE (4) VALUE (5)
- ------------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 308 $ 308 $ 200 $ 165 $ 304 $ 283 $ 299 $ 192
</TABLE>
- ------------------------
(1) Assumes the REIT Share Price is within the Share Price Range. The Merger
Consideration is payable in REIT Shares, cash in lieu of any fractional REIT
Shares and, in certain circumstances, additional cash consideration. See
"The Acquisition Agreement -- The Merger."
(2) The secondary market prices are those reported to Stanger for the first
calendar quarter of 1996. See "Market Prices of Units."
(3) The going concern value estimates are based upon a number of assumptions
regarding the future net operating income and cash distributions of the
Partnership and assume a disposition of the Partnership's assets at the end
of 2000. See "-- Going Concern Value."
(4) Estimated Liquidation Value at Appraised Value is based primarily upon the
Appraisal and adjustments for non-real estate assets and liabilities and
estimated selling costs. See "-- Liquidation Value."
(5) Estimated Liquidation Value at Net Book Value is computed as of March 31,
1996 less selling costs. See "-- Liquidation Value."
SECONDARY MARKET PRICES OF UNITS. The data in the table above on secondary
market activity shows the highest and lowest secondary market prices for the
Units in the first calendar quarter of 1996 as reported to Stanger by certain
secondary market firms involved in sales of the Units. See "Market Prices of
Units."
Limited partnerships are designed as illiquid, long-term investments. No
market for the Units was ever expected to develop and the secondary market
transactions for the Units have been limited and sporadic. It is not known to
what extent the transactions in the secondary market are between willing buyers
and willing sellers, each having access to relevant information regarding the
financial affairs of the Partnership, the expected value of the Partnership's
assets, and the Partnership's prospects for the future. Many transactions in the
secondary market are believed to be distressed sales where sellers are highly
motivated to dispose of the Units and willing to accept substantial discounts
from what might otherwise by regarded as the fair value of the interest being
sold to facilitate the sales. Secondary market prices generally do not reflect
the current market value of the Partnership's assets, nor are they indicative of
total return since prior cash distributions and tax benefits received by the
original investor probably are not reflected in the price. Nonetheless,
notwithstanding these qualifications, the secondary market prices, to the extent
that the reported data are reliable, are indicative of the prices at which the
Units trade in the illiquid secondary markets.
GOING CONCERN VALUE. The General Partner has estimated the going concern
value of the Partnership by analyzing the Partnership's projected cash flows
assuming that the Partnership was operated as an on-going business through the
end of 2000 and its assets, net of existing liabilities, sold at that time based
upon a capitalization of projected property cash flows in 2001. Each Unitholder
would be entitled to receive his or her pro rata share of the quarterly
distributions from the Partnership's cash available for distribution and the
special distribution of the net liquidation proceeds in accordance with the
Partnership Agreement. This analysis is consistent with the expectation that the
Partnership would be a finite-life investment. The assumption of property
dispositions in 2000 is consistent with the anticipated disposition timeframe
for the Partnership.
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The General Partner has presented two estimates of the going concern value
of the Partnership on a per Unit basis, which estimates are based on the
five-year property cash flows beginning in 1996 used by Stanger in preparing the
Appraisal, adjusted for general and administrative expenses (which are assumed
to increase at the rate of 3.5% per year) and debt service payments (principal
and interest). The going concern value was established by computing the present
value of the projected distributions with respect to the Units, discounted at
the rate of 13.5% per annum under the conservative scenario and at the rate of
12.5% per annum under the more favorable scenario. Under the conservative
scenario, the Partnership's assets are sold at the end of 2000 for an all-cash
purchase price sufficient to yield the buyer a 10.5% return based on projected
property cash flows for 2001. Under the more favorable scenario, it is assumed
that the Partnership's assets are sold at the end of 2000 for an all-cash
purchase price sufficient to yield the buyer a 10% return based upon projected
property cash flows in 2001.
The going concern analysis assumes all of the Partnership's properties are
sold in a single transaction at the end of 2000 with selling expense equal to 4%
of then-current real estate value. If, instead, the assets were liquidated over
time, even at prices equal to those projected, distributions to the Unitholders
out of the Partnership's cash flow from operations might be reduced because the
Partnership's relatively fixed costs, such as general and administrative
expenses, would not be proportionately reduced with the liquidation of assets.
Accordingly, the General Partner believes the assumption that all the properties
are sold in a single transaction results in the most favorable valuation for
Unitholders.
LIQUIDATION VALUE. Since one of the alternatives available to the General
Partner is to proceed with a liquidation of the Partnership, and the
corresponding distribution of the net liquidation proceeds to the General
Partner and Unitholders, the General Partner has estimated the liquidation value
of the Units (i) assuming that the Partnership's real estate portfolio is sold
at its Appraised Value and that non-real estate assets and liabilities are sold
at their book values except for amortizable assets and (ii) assuming that all of
the Partnership's assets are sold at their book value, net of liabilities. Both
alternatives assume that the Partnership incurs selling costs of approximately
4% of the real estate assets' value and the net liquidation proceeds are
distributed among the General Partner and Unitholders in accordance with the
Partnership Agreement.
The liquidation analysis assumes that the Partnership's portfolio is sold in
a single transaction at its Appraised Value or net book value. If the assets
were liquidated over time, even at prices equal to those projected,
distributions to the Unitholders out of the Partnership's cash flow from
operations might be reduced because the Partnership's relatively fixed costs,
such as general and administrative expenses, are not proportionately reduced
with the liquidation of assets. Accordingly, the General Partner believes the
assumption that all of the properties are sold in a single transaction results
in the most favorable valuation for Unitholders.
Of the two columns provided for liquidation values in the table above, the
General Partner believes that liquidation at Appraised Value is more reflective
of the amount that would actually be distributed to the Unitholders if the
Partnership were to proceed with a liquidation of its assets. The Appraisal sets
forth, subject to the specified assumptions, limitations and qualifications,
Stanger's professional opinion as to the market value of the Partnership's real
estate portfolio. While the price at which the assets would sell if actually
liquidated could differ materially from the Appraised Value, the Appraisal is
intended to estimate the prices at which the real estate assets would sell if
disposed of in an arm's-length transaction between a willing buyer and a willing
seller, each having access to relevant information regarding the historical
revenues and expenses of the properties. The Appraisal assumes that the
Partnership's assets are disposed of in an orderly manner and are not sold in
forced or distressed sales where sellers might be expected to dispose of their
interests at substantial discounts to their actual fair market value.
In contrast, the net book value represents the value of the Partnership's
equity as of March 31, 1996, computed in accordance with GAAP, less selling
costs equal to 4% of the book value of the
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Partnership's real estate assets. The net book value computations are not
adjusted for, or intended to be, estimates of the fair market value of the real
estate assets. Nonetheless, since book value is a commonly used accounting
principle, and shows the values at which the assets are carried on the
Partnership's books, it does establish a basis for comparing the value of the
Units to other commonly used measures of value.
THE SPECIAL COMMITTEE
The Special Committee of the Board of Directors of the Purchaser has
reviewed the terms of the Transaction and believes that the Transaction is fair
to Unitholders. In determining the fairness of the Transaction to the
Unitholders, the Special Committee considered a number of factors, including the
following, and did not assign relative weights to them in reaching its
conclusion.
RECOMMENDATION OF THE GENERAL PARTNER. The Special Committee considered the
fact that the General Partner, in discharging its fiduciary duties to the
Unitholders, (i) carefully reviewed the terms of the Transaction, (ii) concluded
that the Transaction is fair to the Unitholders and (iii) recommends that the
Unitholders who desire immediate liquidity tender their Units pursuant to this
Offer and that all other Unitholders retain their Units and, instead,
participate in the Merger. See
"-- Recommendation of the General Partner."
CONSENT OF IPSC. The Special Committee considered the fact that IPSC, a
limited partner of the General Partner which is not affiliated with the
Purchaser, consented to the Merger. The Special Committee noted that pursuant to
the GP Agreement, the consent of IPSC may be required to consummate the Merger.
APPRAISAL. The Special Committee considered the Appraisal delivered to the
General Partner by Stanger and the fact that the Net Asset Value is based in
large part on the Appraisal. A copy of the Appraisal, which sets forth a
discussion of the specific assumptions, limitations and qualifications of the
analysis undertaken, is attached as Schedule II of this Offer to Purchase and
should be read in its entirety by each Unitholder. See "Appraisal; Opinions of
Financial Advisors."
FAIRNESS OPINIONS. The Special Committee considered the Stanger Fairness
Opinions delivered to the General Partner by Stanger that the Offer Price and
the Merger Consideration are fair to the Unitholders from a financial point of
view. Copies of the Stanger Fairness Opinions, which set forth the assumptions
made, matters considered and limitations of the review undertaken, are attached
as Schedule III to this Offer to Purchase and should be read in their entirety
by each Unitholder. See "Appraisal; Opinions of Financial Advisors."
PREMIUM OVER RECENT MARKET PRICES. The Special Committee considered the
fact that the Offer Price and the Merger Consideration (assuming the REIT Share
Price remains within the Share Price Range) represents a premium of
approximately 54% over the highest sales price in the secondary market of a Unit
known to the General Partner since January 1, 1992. See "Market Prices of
Units."
APPRAISAL; OPINIONS OF FINANCIAL ADVISORS
REAL ESTATE PORTFOLIO APPRAISAL BY STANGER
Stanger was engaged by the Partnership to appraise the real estate portfolio
of the Partnership and has delivered a written summary of its analysis, based
upon the review, analysis, scope and limitations described therein, as to the
fair market value of the Partnership's portfolio as of December 31, 1995. The
Partnership selected Stanger to provide the Appraisal because of its experience
and reputation in connection with partnerships and real estate assets. In
addition, the General Partner desired to take advantage of the cost efficiencies
associated with having the same party provide the Appraisal as provided the
Stanger Fairness Opinions. The Appraisal, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth as Schedule II to this Offer to Purchase and
should be read in its entirety. Certain of the material assumptions,
qualifications and limitations to the Appraisal are described below.
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EXPERIENCE OF STANGER. Since its founding in 1978, Stanger has provided
information, research, investment banking and consulting services to clients
throughout the United States, including major member firms of the NYSE and
insurance companies and over 70 companies engaged in the management and
operation of partnerships and real estate investment trusts. The investment
banking activities of Stanger include financial advisory services, asset and
securities valuations, industry and company research and analysis, litigation
support and expert witness services, and due diligence investigations in
connection with both publicly registered and privately placed securities
transactions.
Stanger, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers,
acquisitions and reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically owned through partnerships, such
as oil and gas reserves, real estate, cable television systems and equipment
leasing assets.
SUMMARY OF METHODOLOGY. At the request of the Partnership, Stanger
evaluated the Partnership's portfolio of real estate on a limited scope basis
utilizing the income approach and the sales comparison approach to valuation.
Appraisers typically use up to three approaches in valuing real property: (i)
the cost approach, (ii) the income approach and (iii) the sales comparison
approach. The type and age of a property, market conditions and the quantity and
quality of data affect the applicability of each approach in a specific
appraisal situation. The value estimated by the cost approach incorporates
separate estimates of the value of the unimproved site and the value of
improvements, less observed physical wear and tear and functional and/or
economic obsolesence. The income approach estimates a property's capacity to
produce income through an analysis of the rental market, operating expenses and
net income. Net income may then be processed into a value through either direct
capitalization or discounted cash flow analysis, or a combination of these two
methods. The sales comparison approach involves a comparative analysis of the
subject property with other similar properties that have sold recently or that
are currently offered for sale in the market. Stanger considered the cost
approach to be less reliable than the income approach or the sales comparison
approach given the primary criteria used by buyers of the type of property
appraised in the Appraisal.
While the Appraisal was prepared for the Partnership's entire real estate
portfolio, Stanger analyzed the individual properties in the real estate
portfolio of the Partnership by (i) reviewing each property's historical
operating statements, (ii) reviewing and relying on specific information
regarding prospective changes in rents and expenses for each property provided
by the Partnership, (iii) developing information from a variety of sources about
market conditions for each individual property and (iv) considering the
projected cash flow for each property. Representatives of Stanger performed site
inspections on all properties in the Partnership during March 1996. In the
course of these site visits, Stanger inspected the physical facilities, obtained
current rental and occupancy information, gathered information on competing
properties and the local market, visited primary competing properties and
interviewed each local property manager or assistant manager concerning
performance of the subject property and other factors.
In conducting the Appraisal, Stanger also interviewed and relied upon
Partnership and property management personnel to obtain information relating to
the condition of each property, including any deferred maintenance, capital
budgets, status of on-going or newly planned property additions,
reconfigurations, improvements and other factors affecting the physical
condition of the property improvements.
Stanger also interviewed district or regional property management personnel
responsible for the properties, who are employees of the Purchaser, and the
Partnership's management personnel, to discuss competitive conditions, area
economic and development trends affecting the properties, historical and
budgeted operating revenues and expenses and occupancies. Stanger also reviewed
historical operating statements and 1996 operating budgets for the subject
properties, and reviewed surveys of local self storage markets conducted by
local management personnel.
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To define the occupancy, rental rate and expense escalators to be used in
developing property operating projections, Stanger reviewed the acquisition
criteria and projection parameters in use in the marketplace by major self
storage investors, owners and operators. In addition, Stanger reviewed other
published information concerning acquisition criteria in use by property
investors at or around December 31, 1995. Further, Stanger interviewed various
sources in local markets to identify recent sales of self storage properties and
derive certain valuation indicators. Sources for data concerning such
transactions included local appraisers, property owners, real estate brokers,
tax assessors and real estate research firms.
INCOME APPROACH. Stanger then determined the value of the Partnership's
portfolio using the income approach. During the course of the site inspections,
Stanger identified competing properties and obtained data on local market rental
rates and occupancy. Stanger reviewed historical and budgeted gross income and
income from ancillary sources for each property in the portfolio and conducted
discussions with the property management personnel concerning property and
market trends and competitive conditions and other pertinent information. After
assessing the above factors, Stanger estimated each property's effective gross
income based upon unit configuration, market rental rates, market occupancy
rates and estimates of ancillary income. Expenses were estimated based on
historical and budgeted operating expenses, discussions with management and
certain industry expense guidelines. Estimated expenses were then deducted from
income to arrive at each property's estimated net operating income. Expenses
relating solely to investor reporting and accounting were excluded.
Stanger then employed both direct capitalization and discounted cash flow
analysis to define the overall value of the portfolio. The direct capitalization
rate used by Stanger was based on current acquisition criteria among self
storage investors and reflected in specific sales transactions. Where
appropriate, the capitalization rate used for an individual property was
adjusted to reflect valuation factors unique to the property, such as overall
quality, recent buildouts and other unique valuation factors. Where deferred
maintenance or extraordinary capital expenditures were required, Stanger
adjusted the capitalized value accordingly. Stanger applied capitalization rates
ranging from 9.25% to 10.25% to the projected net operating income from the
Partnership's properties which were considered to be at stabilized occupancy
during the 12 months ending December 31, 1996.
In applying discounted cash flow analysis, projections of cash flows from
each property (assuming no indebtedness thereon) were developed for a ten year
period ending December 31, 2005. Income and expense escalators used in
developing the projections were based on projection parameters currently in use
by property investors, market factors, historical and budgeted financial results
for each property and inflation rates. Income escalators generally ranged from
3% to 3.5%. In highly competitive markets or where a property's operations were
below stabilized levels, income escalators were adjusted as Stanger deemed
appropriate or until stabilized operations were achieved. Effective expense
escalators generally ranged from 2.7% to 3.5%.
Stanger then capitalized, at terminal capitalization rates ranging from
10.25% to 10.75% (11.0% for the office property) the estimated net operating
income of each property for the 12 months ending December 31, 2006, to determine
the property's residual value. The residual value was discounted after deducting
appropriate sales expenses to a present value using the same discount rate
applied to the stream of annual cash flows. The discount rates utilized, ranging
from 12.25% to 12.5%, were based on current acquisition criteria among self
storage facility investors, commercial/industrial property investors' target
rates for return and the historical spread in rates of return between real
estate and other investments. Stanger then correlated the values resulting from
each method (direct capitalization and discounted cash flow) to arrive at a
final income approach valuation.
SALES COMPARISON APPROACH. Stanger compiled transaction data involving
properties similar in type to the Partnership's properties by interviewing
sources in local markets to identify recent sales of self storage or
office/storage properties, reviewing publicly available information on
acquisitions of self storage properties, reviewing information provided by
management, and contacting industry
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sources. Using this data, Stanger performed a comparable sales analysis based
upon price per square foot. A probable range of value per square foot was
estimated for each property based on the relationship between observed sales
prices per square foot and net operating income per square foot. Price per
square foot as estimated by this analysis was multiplied by the rentable square
footage of each property to derive an estimated range of value. The valuation
included consideration of the value of excess land parcels currently held for
resale.
Stanger reconciled the estimated values resulting from the sales comparison
approach and the income approach for each property, and the resulting values
were summed to determine the estimated value of the Partnership's entire
portfolio. Stanger adjusted the value conclusion for excess land held for resale
and to reflect any deferred maintenance items associated with the properties.
The income approach was given primary consideration by Stanger because
properties such as those owned by the Partnership are typically purchased and
sold based upon their income characteristics. Stanger gave the sales comparison
approach secondary consideration.
CONCLUSIONS AS TO VALUE. Based on the valuation methodologies described
above, Stanger assigned a value of $50,890,000 to the portfolio of real property
assets of the Partnership.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF PORTFOLIO APPRAISAL. Stanger
utilized certain assumptions to determine the Appraised Value of the portfolio
under the income approach and the sales comparison approach. See Schedule II for
a discussion of the specific assumptions, limitations and qualifications of the
Appraisal.
The Appraisal reflects Stanger's valuation of the real estate portfolio of
the Partnership as of December 31, 1995, in the context of the information
available on such date as well as operating information available as of March
31, 1996. Events occurring after December 31, 1995, and before the Closing could
affect the properties or assumptions used in preparing the Appraisal. Stanger
has no obligation to update the Appraisal on the basis of subsequent events. In
connection with preparing the Appraisal, Stanger was not engaged to, and
consequently did not, prepare any written report or compendium of its analysis
for internal or external use beyond the analysis set forth in Schedule II.
Stanger will not deliver any additional written summary of the analysis.
COMPENSATION AND MATERIAL RELATIONSHIPS. The Partnership paid Stanger a fee
of approximately $34,000 to prepare the Appraisal. IDS1 and IDS2 also engaged
Stanger to appraise their portfolios and paid Stanger a fee of approximately
$35,000 and approximately $23,000, respectively. In connection with the
preparation of the portfolio appraisals for the Partnership and the Other
Partnerships, Stanger is entitled to reimbursement for reasonable travel and
out-of-pocket expenses incurred in making site visits and preparing the
valuations and the Stanger Fairness Opinions, subject to a maximum of $35,000
(allocated among the Partnership and the Other Partnerships based upon relative
net asset values), and is entitled to indemnification against certain
liabilities, including certain liabilities under federal securities laws. The
fees for the Appraisal were negotiated between the Partnership and Stanger and
payment thereof is not dependent upon completion of the Offer or the Merger or
the value reported. As noted in "-- Opinions of the Partnership's Financial
Advisor" below, certain predecessor entities of the Purchaser have engaged
Stanger to render other appraisal, consulting or related services prior to the
present engagement.
OPINIONS OF THE PARTNERSHIP'S FINANCIAL ADVISOR
Stanger was also engaged by the Partnership to deliver written summaries of
its determination as to the fairness of the consideration, from a financial
point of view, to be received by the Unitholders in the Offer and the Merger.
The full text of the Stanger Fairness Opinions, which contain a description of
the assumptions made, matters considered and limitations on the review and
analysis, is set forth in Schedule III to this Offer to Purchase and should be
read in its entirety. Certain of the material assumptions and limitations to the
Stanger Fairness Opinions are described below. The summary set forth below does
not purport to be a complete description of the analyses used by Stanger in
rendering the Stanger Fairness Opinions. Arriving at a fairness opinion is a
complex analytical process not necessarily susceptible to partial analysis or
amenable to summary description.
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Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Stanger Fairness
Opinions. The Partnership has agreed to indemnify Stanger against certain
liabilities arising out of Stanger's engagement to prepare and deliver the
Stanger Fairness Opinions.
SUMMARY OF MATERIALS CONSIDERED. In the course of Stanger's analysis to
render its opinions regarding this Offer and the Merger, Stanger: (i) reviewed
drafts of this Offer to Purchase, the Proxy Statement/Prospectus (as defined in
"The Acquisition Agreement") and the Acquisition Agreement in substantially the
forms intended to be finalized and filed with the Commission; (ii) reviewed the
Partnership's and the Purchaser's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1993, 1994 and 1995, and the Partnership's and the
Purchaser's Quarterly Reports on Form 10-Q for the quarter ended March 31, 1996;
(iii) reviewed the Purchaser's pro forma financial statements and pro forma
schedules prepared by the Partnership's management and the Purchaser's
management; (iv) performed appraisals of the properties owned by the Partnership
as of December 31, 1995; (v) reviewed information regarding purchases and sales
of self storage properties by the Purchaser or any affiliated entities during
the prior year and other information available relating to acquisition criteria
for self storage properties; (vi) reviewed internal financial analyses and
forecasts prepared by the Partnership (based in part on the Appraisal) of the
current net liquidation value of the Partnership's assets and projections of
cash flow from operations, distributions, and going concern values for the
Partnership; (vii) conducted discussions with senior management of the
Partnership and the Purchaser regarding the conditions in self storage property
markets, conditions in the market for sales or acquisitions of properties
similar to those owned by the Partnership, current and projected operations and
performance, financial condition and future prospects of the properties and the
Partnership; (viii) reviewed historical market prices, trading volume and
dividends for the REIT Shares; and (ix) conducted such other studies, analyses,
inquiries and investigations as Stanger deemed appropriate.
SUMMARY OF ANALYSIS. The following is a summary of certain financial and
comparative analyses reviewed by Stanger in connection with and in support of
its fairness opinions. The summary of the opinions and analysis of Stanger set
forth in this Offer to Purchase is qualified in its entirety by reference to the
full text of such opinions.
APPRAISAL. In preparing its opinions, Stanger performed an independent
appraisal of the Partnership's portfolio of properties. During the course of the
Appraisal, Stanger performed site inspections of each property owned by the
Partnership, conducted inquiries into local market conditions affecting each
property, reviewed historical and budgeted operating statements for each
property, conducted interviews with Partnership and property management
personnel, reviewed the acquisition criteria in use in the marketplace by major
self storage property investors and owners and other real estate investors,
reviewed information concerning transactions involving self storage properties,
and estimated the market value of the portfolio utilizing the income and sales
comparison approaches to value. See "-- Real Estate Portfolio Appraisal by
Stanger." Stanger observed that the Offer Price equals the pro rata interest per
Unit in the Appraised Value as adjusted by the General Partner for non-real
estate assets and liabilities of the Partnership, estimated Transaction costs to
be borne by the Partnership, and the Unitholders' share of the resulting Net
Asset Value according to the provisions of the Partnership Agreement.
REVIEW OF LIQUIDATION ANALYSIS. Stanger reviewed an analysis prepared by
the management of the Partnership of the estimated liquidation value of the
Partnership utilizing estimates prepared by the Partnership of expenses
associated with such a liquidation and the appraised fair market value of the
properties as determined by the Appraisal.
The liquidation analysis assumed that each of the properties in the
portfolio was sold concurrently to an independent third party buyer at a price
equal to the appraised value of the portfolio. Costs of such property sales to
independent third parties were estimated by the Partnership to total
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approximately 4% of real estate asset value and are comprised of transaction
costs, taxes, commissions and legal and other closing costs. Such amounts were
based on prevailing transfer tax rates in the locale of each property and on
estimates of the Partnership based on its knowledge and experience in similar
real estate transactions. The liquidation analysis also assumed that non-real
estate assets and liabilities except amortizable assets were sold at book value,
and net proceeds were distributed among the General Partner and Unitholders in
accordance with the Partnership Agreement.
Stanger observed that the Offer Price and Merger Consideration exceeded the
estimated liquidation value per Unit by approximately $9.
REVIEW OF GOING CONCERN ANALYSIS. Stanger reviewed financial analyses and
projections prepared by the management of the Partnership concerning estimated
cash flows and distributions from continued operation of the Partnership as an
independent stand-alone entity, and estimated sale proceeds from the liquidation
of the portfolio of properties owned by the Partnership in the year 2000. The
analysis incorporated estimates of cash flow from operating the properties,
payments on existing debt, entity level general and administrative costs, and
cash distributions to Unitholders from operations and sale of the properties
owned by the Partnership during a five year projection period. The analysis and
projections assumed, among other things, that (i) operating cash flow for the
properties would grow at a compound annual rate of approximately 4.0% over the
five year projection period; (ii) general and administrative expenses would
increase at an average rate of 3.5% per annum over the projection period; (iii)
the properties would be sold in a single transaction at the end of the
projection period at a price based on property cash flows for 2001 capitalized
at a rate of 10.0% to 10.5%; (iv) selling costs equal to 4% of real estate asset
value would be incurred; (v) cash flows were discounted at a rate of 12.5% to
13.5%; and (vi) the net proceeds of the sale plus other remaining non-real
estate assets less liabilities of the Partnership would be distributed according
to the provisions of the Partnership Agreement.
Stanger observed that the estimated going concern values resulting from the
above analyses ranged from $304 to $283 per Unit compared with the Offer Price
of $308 per Unit.
REVIEW OF TENDER OFFER AND SECONDARY MARKET PRICES. Stanger observed that
Units of the Partnership have been purchased in recent months both through
transactions on the informal secondary market for partnership securities and
through a tender offer.
Stanger observed that Units in the Partnership have been the subject of one
prior tender offer. According to information provided by the Partnership, on
February 28, 1996, Everest commenced a tender offer for up to 4.9% of the Units.
Stanger observed that the price offered in this tender offer was $112 per Unit
compared with the Offer Price of $308 per Unit. Stanger also observed that on
May 20, 1996, PS sold 1,602.5 Units to the Purchaser for $190 per Unit (plus
four days' accrued interest) compared with the Offer Price of $308 per Unit.
Stanger also observed that, based on prices reported to Stanger by various
firms active in the informal secondary market for partnership interests, the
highest selling price reported for Units in the informal secondary market since
January 1, 1995 was $200 per Unit compared with the Offer Price of $308 per
Unit.
CONCLUSIONS. Stanger concluded that, based upon the foregoing and upon its
analysis and the assumptions, qualifications and limitations stated below, and
as of the date of the Stanger Fairness Opinions, the Offer Price and Merger
Consideration are fair to the Unitholders from a financial point of view.
ASSUMPTIONS. In rendering the Stanger Fairness Opinions, Stanger relied,
without independent verification, on the accuracy and completeness of all
financial and other information contained in this Offer to Purchase or that was
otherwise publicly available or furnished or otherwise communicated to Stanger.
Stanger has not made an independent evaluation or appraisal of the
determinations of the non-real estate assets and liabilities of the Partnership.
Stanger relied upon the balance sheet value determinations for the Partnership
and the adjustments made by the General Partner to the real
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estate portfolio appraisals to arrive at the Net Asset Value. Stanger also
relied upon the assurance of the Purchaser, the Partnership and the General
Partner that the calculations made to determine allocations within the
Partnership between the General Partner and Unitholders are consistent with the
provisions of the Partnership Agreement, that any financial projections or pro
forma statements, projections, budgets, value estimates or adjustments provided
to Stanger were reasonably prepared or adjusted on bases consistent with actual
historical experience and reflect the best currently available estimates and
good faith judgments, that no material changes have occurred in the
Partnership's values subsequent to March 31, 1996, or in the real estate
portfolio values subsequent to December 31, 1995, which are not reflected in the
Partnership's Net Asset Value, and that the Partnership and the General Partner
are not aware of any information or facts regarding the Partnership that would
cause the information supplied to Stanger to be incomplete or misleading.
LIMITATIONS AND QUALIFICATIONS OF FAIRNESS OPINIONS. Stanger was not asked
to and therefore did not: (i) select the method of determining the consideration
offered in this Offer or the Merger; (ii) make any recommendations to the
Unitholders with respect to whether to tender their Units or approve or reject
the Merger; (iii) express any opinion as to the fairness of the Merger
Consideration if the actual REIT Share Price is less than $22.25; or (iv)
express any opinion as to the business decision to effect this Offer or the
Merger, alternatives to this Offer or the Merger, tax factors resulting from
this Offer or the Merger, the impact of this Offer on the non-tendering
Unitholders of the Partnership, the allocation of expenses relating to this
Offer and the Merger between the Partnership and the Purchaser or among the
Partnership and the Other Partnerships, or on any other terms of this Offer or
the Merger other than the Offer Price and the Merger Consideration. Stanger's
opinions are based on business, economic, real estate and securities markets,
and other conditions as of the date of its analysis.
In connection with preparing the fairness opinions, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the analysis set forth in Schedule
III to this Offer to Purchase. Stanger will not deliver any additional written
summary of the analysis.
COMPENSATION AND MATERIAL RELATIONSHIPS. Stanger has been paid a fee of
$178,000 by the Partnership for preparing the Stanger Fairness Opinions relating
to this Offer and the Merger. IDS1 and IDS2 also engaged Stanger to prepare
fairness opinions relating to the Additional Offers and the Additional Mergers
and paid Stanger a fee of $180,000 and $122,000, respectively, for those
opinions. In connection with its preparation of the fairness opinions and the
real estate portfolio appraisals for the Partnership and the Other Partnerships,
Stanger will be reimbursed for all reasonable out-of-pocket expenses, including
legal fees, up to a maximum of $35,000, allocated among the Partnership and the
Other Partnerships (based on their relative net asset values) and indemnified
against certain liabilities, including certain liabilities under the federal
securities laws. The fee for the Stanger Fairness Opinions was negotiated
between the Partnership and Stanger. Payment of its fee to Stanger is not
dependent upon completion of this Offer or the Merger. Predecessor entities to
the Purchaser retained Stanger to perform appraisals and to deliver a fairness
opinion and special reports in connection with the Consolidation. Stanger was
paid approximately $1,025,000 and was reimbursed for certain expenses in
connection with those services. In addition, the Purchaser has paid certain
nominal amounts to Stanger for subscriptions to Stanger-prepared national
publications. Stanger has also been compensated for preparing the Appraisal. See
"-- Real Estate Portfolio Appraisal by Stanger -- Compensation and Material
Relationships."
OPINION OF THE PURCHASER'S FINANCIAL ADVISOR
In March 1996, the Purchaser retained Alex. Brown to act as financial
advisor to the Special Committee in connection with the Transaction and the
Additional Transactions, including rendering its opinion to the Board of
Directors of the Purchaser as to the fairness to the Purchaser, from a
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financial point of view, of the consideration payable to the limited partners
and general partners of the Partnerships. The Purchaser and Alex. Brown
subsequently executed a formal engagement letter on June 20, 1996.
At the July 1, 1996 meeting of the Special Committee, representatives of
Alex. Brown rendered to the Board of Directors of the Purchaser its opinion
that, as of that date, and subject to the assumptions made, matters considered
and limitations set forth in such opinion and summarized below, the
consideration payable by the Purchaser in the Transaction and the Additional
Transactions was fair, from a financial point of view, to the Purchaser. No
limitations were imposed by the Special Committee upon Alex. Brown with respect
to the investigations made or procedures followed by it in rendering its
opinion.
THE FULL TEXT OF ALEX. BROWN'S WRITTEN OPINION DATED JULY 1, 1996 (THE
"ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
SCHEDULE IV TO THIS OFFER TO PURCHASE AND IS INCORPORATED HEREIN BY REFERENCE.
THE ALEX. BROWN OPINION ADDRESSES ONLY THE FAIRNESS TO THE PURCHASER OF THE
CONSIDERATION PAYABLE BY THE PURCHASER IN THE TRANSACTION AND THE ADDITIONAL
TRANSACTIONS. THE ALEX. BROWN OPINION DOES NOT ADDRESS THE FAIRNESS OF THE
TRANSACTION AND THE ADDITIONAL TRANSACTIONS TO THE LIMITED PARTNERS OR GENERAL
PARTNERS OF THE PARTNERSHIPS. THE DISCUSSION OF THE ALEX. BROWN OPINION IN THIS
OFFER TO PURCHASE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE ALEX. BROWN OPINION.
In connection with rendering the Alex. Brown Opinion, Alex. Brown reviewed
certain publicly available financial information and certain internal analyses
and other information concerning the Purchaser and the Partnerships furnished to
it by the Purchaser. Alex. Brown also held discussions with the members of the
senior management of the Purchaser regarding the businesses and prospects of the
Purchaser and the Partnerships and the joint prospects of a combined entity. In
addition, Alex. Brown (i) reviewed the reported prices and trading activity for
REIT Shares and the equity units of each of the Partnerships, (ii) compared
certain financial and stock market information for the Purchaser with similar
information for certain comparable companies whose securities are publicly
traded, (iii) reviewed the financial terms of certain recent real estate
transactions deemed comparable in whole or in part, (iv) reviewed the terms of
the Acquisition Agreement and certain related documents and (v) performed such
other studies and analyses and considered such other factors as it deemed
appropriate.
In conducting its review and arriving at the Alex. Brown Opinion, Alex.
Brown assumed and relied upon, without independent verification, the accuracy,
completeness and fairness of the information furnished to or otherwise reviewed
by or discussed with it. With respect to the financial projections of the
Partnerships and the Purchaser and other information relating to the prospects
of the Partnerships and the Purchaser provided to Alex. Brown by each entity,
Alex. Brown assumed that such projections and other information were reasonably
prepared and reflected the best currently available judgments and estimates of
the respective managements of the Partnerships and the Purchaser as to the
likely future financial performances of their respective entities and of the
combined entity. Alex. Brown expressed no view as to such projections or the
assumptions on which they were based. Alex. Brown did not make an independent
evaluation or appraisal of the assets of the Partnerships. However, Alex. Brown
reviewed the Appraisal with respect to the real estate assets, although it was
not permitted to rely upon the Appraisal for purposes of the Alex. Brown
Opinion. Alex. Brown assumed that the Appraisal was prepared on a reasonable
basis. The Alex. Brown Opinion is based on market, economic and other conditions
as they existed and could be evaluated as of the date thereof.
The following is a summary of the material analyses performed and material
factors considered by Alex. Brown in connection with rendering the Alex. Brown
Opinion.
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HISTORICAL FINANCIAL POSITION. Alex. Brown reviewed and analyzed for
informational purposes the historical and current financial condition of the
Purchaser and the Partnerships which included: (i) an assessment of the
Partnerships' recent financial statements; (ii) an analysis of the Purchaser's
and the Partnerships' revenue, growth and operating performance trends; and
(iii) an assessment of the Partnerships' leverage, market share and access to
markets.
HISTORICAL STOCK PRICE PERFORMANCE. Alex. Brown reviewed and analyzed the
daily closing per share market prices, trading volume, and 20 day moving average
stock price for the REIT Shares, from June 25, 1995 to June 25, 1996. This
information was presented to give the Special Committee background trading
information over the period indicated. Alex. Brown also reviewed and analyzed
information regarding the market prices and trading volume of the Partnerships'
units, on a quarterly basis from September 1995 to April 1996.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. This analysis examines
a company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies, in each case as a
multiple of its funds from operations, defined as per share net income,
excluding extraordinary gains or losses, plus depreciation from real estate
assets ("Funds From Operations"), estimated for 1996 and 1997. Alex. Brown
compared certain financial information relating to the Purchaser and the
Partnerships to certain corresponding information with respect to a group of
four publicly traded REITs engaged primarily in the acquisition, operation and
management of storage center properties, namely the following companies: Storage
USA, Inc., Storage Trust Realty, Sovran Self Storage, Inc. and PS (collectively,
the "Selected Companies"). Such financial information included, among other
things, (i) common equity market prices, (ii) per share estimated 1996 and 1997
Funds From Operations and (iii) ratios of common equity market prices per share
("Equity Values") to estimated Funds From Operations. In the case of the
Selected Companies, the financial information used was based on the latest
reported quarterly period as derived from publicly available information and on
estimated Funds from Operations for calendar years 1996 and 1997 as reported by
REALTY STOCK REVIEW. Alex. Brown obtained reference ranges of multiples of
Equity Value to estimated calendar year 1996 Funds From Operations of 9.9x to
12.5x, with a mean of 11.0x, and Equity Value to estimated calendar year 1997
Funds From Operations of 8.8x to 11.3x, with a mean of 10.1x, in each case for
the Selected Companies. Applying such reference multiple ranges to the estimated
calendar year 1996 and 1997 Funds From Operations for each of the Partnerships,
Alex. Brown determined reference valuation ranges from the Partnerships (on a
combined basis) of $105.3 million to $132.0 million, with a mean of $116.6
million, based upon estimated calendar year 1996 Funds From Operations, and
$108.8 million to $136.3 million, with a mean of $120.4 million, based upon
estimated calendar year 1997 Funds From Operations. As a result of the foregoing
procedures, Alex. Brown noted that the consideration of approximately $106.6
million in the aggregate to be paid by the Purchaser in the Transaction and the
Other Transactions was at the lower end of, or below, the ranges of the values
obtained with respect to the Selected Companies.
ANALYSIS OF SELECTED REAL ESTATE ACQUISITIONS. Alex. Brown reviewed the
financial terms, to the extent publicly available, of 15 proposed, pending or
completed real estate transactions in the storage center industry (the "Selected
Transactions"), and calculated for each of the Selected Transactions, the
Transaction and the Additional Transactions the capitalization rate, defined as
net operating income (minus capital expenditures) divided by the purchase price
for the properties. The Selected Transactions consisted of (i) the Purchaser's
bid to acquire four National Self Storage properties, (ii) the Purchaser's
September 1, 1994 acquisition of Colonial Self-Storage, (iii) Storage USA Inc.'s
September 12, 1995 acquisition of 13 storage center properties, (iv) Storage
USA, Inc.'s April 13, 1995 acquisition of 25 storage center properties, (v)
Storage USA, Inc.'s April 13, 1995 acquisition of 16 storage center properties,
(vi) Storage Trust Realty's acquisition of Balcor/Colonial Storage Income Fund
- -- 86, (vii) Storage Trust Realty's October 6, 1995 acquisition of 14 storage
center properties, (viii) Sovran Self Storage, Inc.'s June 30, 1995 acquisition
of 12 storage center properties, (ix) U-Haul International, Inc.'s bid for
Balcor/Colonial Storage Income Fund -- 86, (x) PS's June 14, 1996 acquisition of
Prudential-Bache/Watson & Taylor, Ltd.-1, (xi) PS's June 14, 1996 acquisition of
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Prudential-Bache/Watson & Taylor, Ltd.-3, (xiii) PS's June 14, 1996 acquisition
of Prudential-Bache/ Watson & Taylor, Ltd.-4, (xiv) PS's pending acquisition of
Storage Properties, Inc. and (xv) PS's February 29, 1996 acquisition of Southern
Self Storage. Alex. Brown noted that the capitalization rate based on the last
reported annual net operating income prior to the transaction (year ended
December 31, 1995 in the case of the Partnerships) was 8.7% for the Partnerships
(on a combined basis), which was at the lower end of the range of 8.5% to 10.3%,
with a mean of 9.4%, determined for the Selected Transactions. Alex. Brown also
noted that the capitalization rate based on the projected net operating income
for the year in which the acquisition took place was 9.6% for the Partnerships
(on a combined basis), falling in the middle of the range of 9.0% to 10.5%, with
a mean of 9.7% determined for the Selected Transactions. All multiples for the
Selected Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the two year period during which the Selected
Transactions occurred.
DISCOUNTED CASH FLOW ANALYSIS. Alex. Brown obtained reference values for
each of the Partnerships by means of a discounted cash flow analysis, which
values a business based on the current value of the future cash flow that it is
projected to generate. To establish a current value under this approach, future
cash flow must be estimated and an appropriate discount rate determined. Alex.
Brown used projections and other information provided by the managements of the
Partnerships to estimate free cash flows, defined as total revenues minus
property operating and maintenance expenses, property management expenses, real
estate taxes and capital expenditures ("Free Cash Flows"), for the years ended
1996 through 2006, inclusive, with respect to the assets of the Partnerships,
using discount rates ranging from 11.0% to 13.0% and terminal value
capitalization rates applied to projected 2006 Free Cash Flow ranging from 9.0%
to 11.5%. Alex. Brown arrived at such discount rates based on its judgement of
the weighted average cost of capital of the Purchaser and arrived at such
terminal values based on its review of the Selected Transactions. This analysis
indicated a range of values for the Partnerships' real estate of $106,459,161 to
$133,081,669 on a Free Cash Flow basis, as compared to the imputed value of the
Partnerships' real estate of $121,780,000 under the terms of the Transaction and
the Additional Transactions.
Alex. Brown also applied a discounted cash flow analysis to the
Partnerships' projected Funds From Operations, and funds available for
distribution, defined as Funds From Operations less capital expenditures, tenant
improvements and commissions ("Funds Available for Distribution"), using
discount rates ranging from 11.0% to 13.0% and terminal value capitalization
rates applied to Funds From Operations and Funds Available for Distribution, as
the case may be, projected for the year 2006, ranging from 9.0% to 11.5%. Alex.
Brown noted that this analysis indicated a range of values for the Partnerships
of $102,002,516 to $127,549,435 based upon estimated Funds From Operations and
$98,397,791 to $123,189,094 based upon estimated Funds Available for
Distribution. Based upon the Appraisal and certain balance sheet adjustments
provided by management, the Partnerships' indicated Net Asset Value, which is
also nominally the amount of consideration to be paid by the Purchaser in the
Transaction and the Additional Transactions, is $106,578,185, which falls at the
lower end of the reference ranges of imputed values derived from the analysis.
PRO FORMA COMBINED EARNINGS ANALYSIS. Alex. Brown analyzed the Transaction
and the Additional Transactions with respect to the resulting dilution/accretion
to the Purchaser's estimated Funds From Operations for the years ending 1996 and
1997 (assuming different levels of cash and stock comprising the consideration
paid), after taking into account any potential cost savings and other synergies
but not taking into account nonrecurring costs relating to the Transaction and
the Additional Transactions. Alex. Brown noted that after taking into account
potential cost savings and other synergies for the years ending 1996 and 1997,
respectively, and before nonrecurring costs relating thereto the Transaction and
the Additional Transactions would be slightly accretive to the Purchaser's
estimated Funds From Operations for such years.
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REAL ESTATE MARKET AND ECONOMIC FACTORS. In rendering its opinion, Alex.
Brown considered, among other factors, the condition of the U.S. stock markets,
particularly in the real estate sector, and the current level of economic
activity.
ANALYSIS OF OFFERS ABSENT CONSUMMATION OF MERGERS. Alex. Brown also
examined the financial effects to the Purchaser of consummating one or more of
the Offer or the Additional Offers without also consummating the related Merger
or Additional Merger. Alex. Brown observed that while a failure to consummate
the Merger or an Additional Merger would result in the assets of the relevant
partnership not being owned entirely by the Purchaser and certain of the
anticipated combination synergies not being realized by the Purchaser, the cash
purchase price offered by the Purchaser in each of the Offer and the Additional
Offers generally would result in accretion to the Purchaser's estimated Funds
From Operations on a per Unit basis, excluding nonrecurring transaction costs,
regardless of how many Units were actually purchased.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to the Purchaser or the Partnerships or any of the
Transaction and the Additional Transactions. Accordingly, such analyses must
take into account differences in the financial and operating characteristics of
the Selected Companies and the companies in the Selected Transactions and other
factors that would affect the public trading value and acquisition value of the
Selected Companies and the Selected Transactions, respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in rendering the Alex. Brown Opinion, it is not a
comprehensive description of all analyses and factors considered by Alex. Brown.
The preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant method of financial
analysis and the application of these methods to the particular circumstances
and, therefore, the process of preparing such an opinion is not readily
susceptible to summary description. Alex. Brown believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and the factors
considered by it, could create an incomplete view of the evaluation process
underlying the Alex. Brown Opinion. The analyses performed by Alex. Brown are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business actually
may be sold. Furthermore, no opinion is being expressed as to the prices at
which REIT Shares may trade at any future time.
Pursuant to a letter agreement dated June 20, 1996 between the Purchaser and
Alex. Brown, the fees payable to Alex. Brown for rendering the Alex. Brown
Opinion are $400,000. In addition, the Purchaser has agreed to reimburse Alex.
Brown for its reasonable out-of-pocket expenses incurred in connection with
rendering financial advisory services, including fees and disbursements of its
legal counsel. The Purchaser has agreed to indemnify Alex. Brown and its
directors, officers, agents, employees and controlling persons for certain
costs, expenses, losses, claims, damages and liabilities related to or arising
out of its rendering of services under its engagement as financial advisor.
The Special Committee retained Alex. Brown to act as its advisor based upon
Alex. Brown having acted as managing underwriter of a past offering of REIT
Shares and as financial advisor to a special committee of the Board of Directors
of the Purchaser regarding its merger with Shurgard Incorporated and based upon
Alex. Brown's qualifications, reputation, experience and expertise. Alex. Brown
is an internationally recognized investment banking firm and, as a customary
part of its investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and for other purposes. Alex. Brown
may actively trade the equity securities of the Purchaser for its own account
and for the account of its customers and, accordingly, may at any time hold a
long or short position in such
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securities. Alex. Brown maintains a market in the REIT Shares and regularly
publishes research reports regarding the REIT industry and the businesses and
securities of the Purchaser and other publicly traded companies in the REIT
industry.
THE ACQUISITION AGREEMENT
The following is a summary of certain provisions of the Acquisition
Agreement, a copy of which is filed as an exhibit to the Schedule 14D-1 and the
Schedule 13E-3 and is incorporated herein by reference. This summary does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Acquisition Agreement. For purposes of this section, the Partnership
is sometimes referred to as "IDS3," the Partnerships are referred to
individually as a "Partnership," the Merger and the Additional Mergers are
collectively referred to as the "Merger" and the total consideration to be paid
to the limited partners and the general partner of each Partnership is referred
to as the "Merger Consideration" with respect to that Partnership.
THE TENDER OFFER
The Acquisition Agreement provides that the Purchaser will use its
reasonable best efforts to consummate this Offer and the Additional Offers as
soon as legally permissible and, subject to the terms and conditions this Offer
and the Additional Offers, to accept for payment and pay for all Units tendered
promptly following the expiration of this Offer and the Additional Offers. The
Purchaser may not change the form of the consideration, reduce the amount of
consideration offered per Unit or amend any other material term of this Offer or
either of the Additional Offers in a manner adverse to the interests of the
limited partners of any of the Partnerships without the prior written consent of
the general partner of the applicable Partnership.
THE MERGER
Subject to the terms and conditions of the Acquisition Agreement, at the
effective time of the Merger (the "Effective Time") each Partnership as to which
the conditions to closing have been satisfied or waived (each, a "Participating
Partnership"), will be merged with and into the Purchaser, the separate
existence of the Participating Partnerships will cease, and the Purchaser will
continue as the surviving entity of the Merger.
At the Effective Time, for each of the Participating Partnerships, each Unit
(other than Units owned by the Purchaser) and the GP Interest will be converted
into the right to receive (i) that number of REIT Shares calculated by dividing
(a) the Net Asset Value of the applicable Partnership that would be allocated to
one Unit or the GP Interest, as the case may be, if the Net Asset Value were
distributed in a dissolution of the Partnership in accordance with its
partnership agreement (a "Dissolution") by (b) the REIT Share Price and (ii)
cash in lieu of a fractional REIT Share and Additional Consideration (as defined
below), if any, that would be allocated to one Unit or the GP Interest, as the
case may be, if such cash payments were distributed in a Dissolution. All Units
owned by the Purchaser will be cancelled upon consummation of the Merger. Net
Asset Value for purposes of determining the Merger Consideration for each
Partnership was calculated in the same manner as Net Asset Value for purposes of
determining the Offer Price. See "Summary -- Determination of the Offer Price."
Under the Acquisition Agreement, "REIT Share Price" is equal to the average
of the per share closing prices on the NYSE of REIT Shares during the 20
consecutive trading days ending on the fifth trading day prior to the date the
general partner of the applicable Partnership actually calls for the vote to
approve the Merger. If the REIT Share Price, however, is less than $22.25, then
for purposes of calculating the number of REIT Shares to be issued in the
Merger, the REIT Share Price will be deemed to equal $22.25, and if the REIT
Share Price is greater than $27.75, then for purposes of calculating the number
of REIT Shares to be issued in the Merger, the REIT Share Price will be deemed
to equal $27.75.
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In the event the REIT Share Price exceeds $28.50 for a particular
Partnership, the Purchaser has the right to terminate the Acquisition Agreement
as to that Partnership. In the event the REIT Share Price is less than $21.50
for a particular Partnership, the general partner of that Partnership may
withdraw its recommendation in favor of the applicable Merger and terminate the
Acquisition Agreement as to that Partnership; provided, however, that prior to
withdrawing its recommendation or terminating the Acquisition Agreement as to
that Partnership, the general partner must adjourn the special meeting for such
period or periods of time as the Purchaser may reasonably request and the
general partner may not withdraw its recommendation if the Purchaser agrees to
pay "Additional Consideration." "Additional Consideration" means, with respect
to each Partnership, that amount of cash equal to the difference between the
REIT Share Price calculated without regard to the Share Price Range and $21.50,
multiplied by the number of REIT Shares issuable pursuant to the applicable
Merger.
The Acquisition Agreement provides that in the event the payment of the
Merger Consideration pursuant to the Acquisition Agreement would result in the
issuance by the Purchaser of more than 20% of the REIT Shares the Purchaser may
elect to pay cash in lieu of REIT Shares in excess of such amount. The Purchaser
currently does not expect that the number of REIT Shares issued pursuant to the
Acquisition Agreement will exceed 20% of the REIT Shares.
REPRESENTATIONS AND WARRANTIES
In the Acquisition Agreement, the Purchaser has made various representations
and warranties to each Partnership, including representations and warranties
relating to (i) the due organization of the Purchaser and its authority to enter
into the Acquisition Agreement, (ii) the absence of the need (except as
specified) for third-party or governmental consents to the Merger, (iii) the
Merger's nonviolation of laws and material agreements, (iv) the Purchaser's
capitalization, (v) the due authorization of the REIT Shares to be issued in the
Merger, (vi) the accuracy of publicly filed documents, (vii) financial
statements, (viii) full disclosure and (ix) the absence of material litigation.
In addition, each Partnership has made various representations and
warranties to the Purchaser, including (i) the due organization of the
Partnership, (ii) its authority to enter into the Acquisition Agreement, (iii)
the absence of the need (except as specified) for third-party or governmental
consents to its Merger and its Merger's nonviolation of laws and material
agreements, (iv) the accuracy of publicly filed documents, (v) financial
statements, (vi) full disclosure, (vii) the absence of defaults of material
agreements, (viii) the absence of material litigation, (ix) title to assets and
properties and absence of environmental liabilities, and (x) payment of taxes.
CONDUCT OF BUSINESS PENDING THE EFFECTIVE TIME
Each Partnership has agreed that, prior to the Effective Time or the earlier
termination of the Acquisition Agreement, it will carry on its business in the
ordinary course in substantially the same manner as previously conducted and
will use its reasonable efforts to preserve intact its present business
organization and goodwill, maintain permits, licenses and authorizations and
preserve its relationship with third parties. In addition, each Partnership has
agreed to use its best efforts to manage its business, including, but not
limited to, suspending cash distributions to its partners if the General Partner
deems it advisable to do so, so that the Partnership's Closing Net Asset Value
(as defined below) will not be less than the Partnership's Net Asset Value. To
the extent the Partnership's Closing Net Asset Value exceeds its Net Asset
Value, a cash distribution in the amount of such excess will be made to the
Partnership's pre-Merger partners in accordance with the terms of the
Partnership Agreement as soon as practicable following the Closing.
"Closing Net Asset Value" means, with respect to each of the Partnerships,
(i) the sum of (a) the Appraised Value, (b) the cost, incurred to date of
Closing, of unit conversions and buildouts, if any, that were not reflected in
the Appraised Value, and (c) the book values of the non-real estate assets,
except for amortizable assets, of the Partnership as of the date of Closing,
less (ii) the sum of (x) such Partnership's liabilities as of the date of
Closing, (y) the estimated cost remaining to be incurred, if
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any, as of the date of Closing to complete the buildouts and unit conversions
that were included in the Appraised Value, and (z) such Partnership's Individual
Transaction Expenses and allocated portion of Shared Transaction Expenses.
S-4 REGISTRATION STATEMENT AND PROXY STATEMENT
The Acquisition Agreement provides that the Purchaser and the Partnerships
will promptly prepare and file with the Commission a preliminary Proxy
Statement/Prospectus, together with a form of proxy, with respect to the special
meetings of the limited partners of the Partnerships at which they will be asked
to vote upon and approve the Acquisition Agreement, and as promptly as
practicable thereafter, subject to compliance with the rules and regulation of
the Commission, will prepare and file a definitive Proxy Statement/Prospectus
and form of proxy with respect to such meeting, and shall use all reasonable
efforts to have the Proxy Statement/Prospectus cleared by the Commission as
promptly as practicable, and promptly thereafter shall mail the Proxy
Statement/Prospectus to the limited partners. The Purchaser will, as promptly as
practicable, prepare and file with the Commission a Registration Statement on
Form S-4 (the "S-4 Registration Statement") containing the Proxy
Statement/Prospectus, in connection with the registration under the Securities
Act of the REIT Shares to be issued in the Merger.
MEETING OF LIMITED PARTNERS OF THE PARTNERSHIP; RECOMMENDATION OF GENERAL
PARTNERS
Promptly after the consummation of this Offer and the Additional Offers and
the declaration of effectiveness by the Commission of the S-4 Registration
Statement, each Partnership will take all action necessary, in accordance with
the WULPA and its partnership agreement, to convene a special meeting of its
limited partners to consider and vote upon the Acquisition Agreement and the
Merger. The Proxy Statement/Prospectus will contain the recommendation of the
general partners of the Partnerships that the Unitholders vote to adopt and
approve the Acquisition Agreement. The Purchaser intends to vote any Units owned
by it in favor of the Merger at the special meetings of limited partners.
IPSC CONSENT
Pursuant to the GP Agreement, the general partners of the General Partner
may not have authority to approve the Merger without the consent of IPSC, a
limited partner of the General Partner which is not affiliated with the
Purchaser. IPSC reviewed the Acquisition Agreement and the forms of this Offer
to Purchase, the registration statement relating to the Merger, including the
preliminary Proxy Statement/Prospectus, the draft Appraisal and the forms of the
Stanger Fairness Opinions, and retained independent legal counsel. IPSC did not
conduct any due diligence review of the information contained in this Offer to
Purchase and has not participated in the management or control of the
Partnership. Based on its review of documents, the General Partner's review of
alternatives to the Transaction and the Stanger Fairness Opinions, IPSC
consented to the Merger. IPSC has significant conflicts of interest in the
Transaction and the Additional Transactions because an affiliate of IPSC plans
to tender its Units in this Offer and to tender its units of IDS1 and IDS2 in
the Additional Offers and, as a result, will receive $18,480 for its tender of
Units, $79,156 for its tender of units of IDS1 and $136,752 for its tender of
units of IDS2. In addition, if the Mergers are consummated, IPSC would receive
(based upon an assumed REIT Share Price of $25.00) approximately 52,600, 32,050
and 21,500 REIT Shares with respect to its limited partner interests in the
General Partner, the general partner of IDS1 and the general partner of IDS2,
respectively. See "Interests of Certain Persons."
AMENDMENTS TO THE PARTNERSHIP AGREEMENTS
The partnership agreements of the Partnership and IDS2 currently prohibit
the sale of any property by those Partnerships to their general partners or
affiliates of their general partners. Approval of the Acquisition Agreement and
the transactions contemplated thereby by the limited partners of the Partnership
and IDS2 will also constitute approval of the necessary amendments to their
respective partnership agreements to permit consummation of the Merger.
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STANDSTILL AGREEMENT
The Purchaser has agreed that, upon its admission as a substitute limited
partner with respect to the Units it purchases in this Offer and the Additional
Offers, it will not, directly or indirectly, without the prior written consent
of a majority of the general partners of the general partner of the applicable
Partnership (i) acquire any additional Units of the Partnership, (ii) propose
any merger or other business combination involving the Partnership or (iii)
propose any other transaction pursuant to which it would control or acquire any
of the assets of the Partnership. This provision is referred to herein as the
"Standstill Agreement."
NO SOLICITATION OF TRANSACTIONS
Until the termination of the Acquisition Agreement, no Partnership will, nor
will it permit its partners (including any general or limited partner of its
general partner), agents or other representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) to,
directly or indirectly, initiate, solicit or encourage, or, except as required
by law, including fiduciary duties required by law, engage in discussions or
negotiations with or provide any information to any entity or group (other than
the Purchaser or an affiliate of the Purchaser) concerning any acquisition
proposal, tender offer, exchange offer, merger, consolidation, sale of a
substantial amount of assets, or sale of securities or equity interests, or in
connection with a liquidation, dissolution or similar transaction involving such
Partnership. Subject to fiduciary duty requirements of their general partners,
the Partnerships have agreed to notify the Purchaser immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, the Partnerships, and have agreed to keep the Purchaser informed of the
status and terms of any such proposals and any such negotiations or discussions.
INDEMNIFICATION
From and after the Effective Time, the Purchaser will indemnify and hold
harmless the general partner of each of the Participating Partnerships and its
general and limited partners to the same extent that such persons would have
been entitled to indemnification by the Partnership under its partnership
agreement.
CONDITIONS PRECEDENT TO THE MERGER
The consummation of a Merger as to any Partnership is not conditioned upon
the consummation of a Merger as to any other Partnership. In the event that the
conditions to Closing have been satisfied or waived with respect to one or two
Partnerships, the Merger may be effected with respect to such Partnerships, and
in the event the conditions to Closing subsequently are satisfied or waived with
respect to any additional Partnerships, the Merger may be effected as to such
Partnerships.
CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of each
party to effect the Merger are subject to the fulfillment on or before the date
of Closing of the following conditions: (i) the Acquisition Agreement shall have
been approved by the requisite vote of the limited partners of the Partnerships;
(ii) no injunctions relating to the Merger or any of the parties thereto that
would have a material adverse effect on the Purchaser or on the business or
properties of the Partnership, taken as a whole or individually, or that would
prevent consummation of the Merger, will have been issued or remain outstanding;
(iii) the S-4 Registration Statement will have been declared effective by the
Commission under the Securities Act and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued; and (iv)
the REIT Shares will have been authorized for listing on the NYSE upon official
notice of issuance.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. In addition to the
foregoing conditions, the obligation of the Purchaser to effect the Merger as to
each Partnership is further subject to fulfillment or waiver before the date of
Closing of the following conditions: (i) receipt of a fairness opinion by the
Purchaser from Alex. Brown as to the fairness to the Purchaser, from a financial
point of view, of the Offer Price and the Merger Consideration; (ii) receipt of
a certificate from the General Partner as of the date of Closing certifying that
the Closing Net Asset Value of each Partnership is not less than the
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Net Asset Value of the Partnership; (iii) there will have been no material
adverse change in the Partnership's ability to consummate the Merger, or in the
Partnership's business, operations, properties, assets or condition, financial
or otherwise, since the date of the Acquisition Agreement; (iv) the
representations and warranties of the Partnerships will be true in all material
respects as of the date of Closing; (v) all necessary consents and approvals
from third parties shall have been obtained; and (vi) the Purchaser shall have
received an opinion from counsel to the Partnerships.
CONDITIONS TO THE OBLIGATIONS OF THE PARTNERSHIPS. The obligation of each
of the Partnerships to effect the Merger is subject to the fulfillment or waiver
in writing by the applicable Partnership on or before the date of Closing of the
following conditions: (i) the Partnership will have received an opinion from
Stanger as to the fairness to the limited partners of the Partnership, from a
financial point of view, of the Offer Price and the Merger Consideration; (ii)
there has not been any material adverse change in the Purchaser's ability to pay
the Merger Consideration, or in the Purchaser's business, operations,
properties, assets or condition, financial or otherwise, since the date of the
Acquisition Agreement; (iii) the representations and warranties of the Purchaser
contained in the Acquisition Agreement will be true in all material respects as
of the date of the Acquisition Agreement and on the Effective Date; (iv) the
Purchaser will have performed or complied with in all material respects all
obligations, agreements and covenants contained in the Acquisition Agreement to
be performed and complied with by it on or prior to the Effective Date; (v) all
necessary consents and approvals from third parties shall have been obtained;
and (vi) the Partnership shall have received an opinion from counsel to the
Purchaser.
TERMINATION
With respect to any Partnership, the Acquisition Agreement may be
terminated, and the Merger may be abandoned, at any time before the date of
Closing, notwithstanding approval of the Merger by the limited partners of the
applicable Partnership:
(a) by the mutual written consent of the Board of Directors of the
Purchaser and the general partner of the Partnership;
(b) by either the Purchaser or the Partnership if the Merger has not
been consummated by March 31, 1997;
(c) by either the Purchaser or the Partnership if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling,
or taken any other action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger between the Purchaser and the
Partnership;
(d) by either the Purchaser or the Partnership if the requisite vote of
the limited partners of the Partnership shall have not been obtained by
March 31, 1997;
(e) by the Purchaser if (i) the general partner of the Partnership
withdraws or changes its approval of the Acquisition Agreement in a manner
adverse to the Purchaser or has resolved to do so; or (ii) the general
partner of the Partnership recommends to the limited partners certain
alternative transactions; or (iii) any person (other than the Purchaser or
an affiliate of the Purchaser) will have acquired voting rights to, or the
right to acquire voting rights to, or any group will have been formed which
has voting rights to, or the right to acquire voting rights to, 20% or more
of the outstanding Units of such Partnership; or (iv) if the REIT Share
Price, without taking into account the application of the Share Price Range,
exceeds $28.50;
(f) by the Purchaser or the Partnership if (i) any representation or
warranty of the Partnership or the Purchaser, respectively, set forth in the
Acquisition Agreement shall be materially untrue when made or shall become
materially untrue or (ii) upon a breach of any covenant or agreement on the
part of the Partnership or the Purchaser, respectively, set forth in the
Acquisition Agreement, such that certain conditions to the Merger would not
be satisfied (either (i) or (ii) above being a "Terminating Breach");
provided, however, that if such Terminating Breach is
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curable prior to March 31, 1997 by the Purchaser or the Partnership, as the
case may be, through the exercise of its reasonable best efforts and for so
long as the Purchaser or the Partnership, as the case may be, continues to
exercise such reasonable best efforts, neither the Partnership nor the
Purchaser, respectively, may terminate the Acquisition Agreement;
(g) by the Partnership or the Purchaser, if the Partnership enters into
a definitive agreement accepting an alternative transaction; or
(h) by the Partnership if the REIT Share Price, without taking into
account the application of the Share Price Range, is less than $21.50 and
the Purchaser has not agreed to pay the Additional Consideration.
FEES AND EXPENSES
Substantial expenses have been or will be incurred by the Purchaser and the
Partnerships in connection with the Transaction. Those expenses, excluding the
Individual Transaction Expenses (as defined below), will be shared by the
Purchaser and the Partnerships (the "Shared Transaction Expenses"). The
"Individual Transaction Expenses" include legal fees and expenses, fees and
expenses of investment bankers and other financial advisors, the costs of the
Partnerships' respective real estate portfolio appraisals and transfer fees
payable by the Purchaser for the Units acquired through this Offer and the
Additional Offers. Individual Transaction Expenses incurred by the Purchaser
will be paid by the Purchaser and Individual Transaction Expenses incurred by a
Partnership will be paid by the Partnership. The Purchaser will pay 50% of the
Shared Transaction Expenses and 50% of the Shared Transaction Expenses will be
allocated (the "Allocated Transaction Expenses") among the Partnerships pro rata
based upon their relative Net Asset Value and will be paid by the Partnership to
which the expenses have been allocated if the Transaction is consummated. A
Partnership's Allocated Transaction Expenses and Individual Transaction Expenses
will be deducted from the assets of the Partnership when computing the Closing
Net Asset Value and an estimate of such expenses was deducted from the assets of
the Partnership in computing the Net Asset Value. Since each Partnership will be
entitled to make a cash distribution to its pre-Merger partners in an amount
that will reduce the Closing Net Asset Value to an amount equal to the Net Asset
Value, the Partnership's Allocated Transaction Expenses and Individual
Transaction Expenses will reduce the amount otherwise available for distribution
to the partners in the Partnership.
Except as described below, in the event the limited partners of a
Partnership fail to approve the Merger of the Partnership, the Partnership will
be required to pay, in addition to its Individual Transaction Expenses, only
that percentage of its Allocated Transaction Expenses equal to the percentage of
the Units voted in favor of the Merger; the balance of the Allocated Transaction
Expenses will be paid by the Purchaser.
The Partnership and IDS2 will be obligated under the Acquisition Agreement
to pay a pro rata portion (based upon the Partnership's relative Net Asset
Value) of the Shared Transaction Expenses and Individual Transaction Expenses
otherwise payable by the Purchaser if (i) the Partnership had provided
information to or entered into discussions with another party regarding the
acquisition of the Partnership, and prior to the date of the special meeting the
general partner of the Partnership does not reaffirm its approval of the Merger,
and the Unitholders fail to approve the Merger by the requisite vote, (ii) the
Purchaser terminates the Acquisition Agreement because the general partner of
the Partnership withdraws its approval of the Merger, recommends an alternative
transaction, or third parties obtain voting rights to 20% or more of the Units,
or (iii) if the Partnership enters into an alternative transaction and the
Partnership or the Purchaser terminates the Acquisition Agreement. Because the
provisions of the IDS1 Partnership Agreement preclude IDS1 from reimbursing the
Purchaser for expenses if the Merger is not consummated, IDS1 will pay only its
Individual Transaction Expenses plus its pro rata portion of the Shared
Transaction Expenses if the Merger is not consummated for the reasons described
above.
The parties estimate that they will incur approximately $1,685,000 in
aggregate Shared Transaction Expenses, of which 50% will be paid by the
Purchaser and 18.8%, 12.6% and 18.6% will be paid by
39
<PAGE>
IDS1, IDS2 and IDS3, respectively, assuming the Merger is consummated with each
Partnership. In addition, the Purchaser estimates that it will incur and pay
approximately $1,410,000 in Individual Transaction Expenses and IDS1, IDS2 and
IDS3 estimate that they will incur and pay approximately $623,000, $418,000 and
$617,000, respectively, in Individual Transaction Expenses. See "The Offer" --
Section 10 ("Fees and Expenses.")
EFFECT OF TERMINATION
If the Acquisition Agreement is terminated, there will be no liability or
obligation on the part of any party thereto or its respective affiliates,
partners, officers, directors or stockholders except (i) with respect to payment
of fees and expenses described above, (ii) with respect to the Standstill
Agreement and (iii) to the extent that such termination results from the willful
breach of a party thereto of any of its representations, warranties, covenants
or agreements made in or pursuant to the Acquisition Agreement.
AMENDMENT
Neither the Acquisition Agreement nor any provision thereof may be waived,
modified, amended, discharged or terminated except in writing signed by the
party against which the enforcement of such waiver, modification, amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
DISSENTERS' RIGHTS
Units held by limited partners who properly exercise dissenters' rights with
respect thereto in connection with the Merger in accordance with Section
25.10.900 et seq. of the WULPA will not be converted into the right to receive
the Merger Consideration, but the unitholder will instead be entitled to receive
payment of the fair value of the Units in accordance with the provisions of the
WULPA unless and until the holder fails to perfect or has effectively withdrawn
or lost his or her rights to receive fair value under the WULPA.
GENERAL PARTNER UNDERTAKING
Concurrent with the execution of the Acquisition Agreement, the General
Partner entered into the General Partner Undertaking pursuant to which it agreed
to make the recommendations to limited partners contained in this Offer to
Purchase, and agreed not to withdraw such recommendations except in accordance
with the exercise of its fiduciary duties and as otherwise required by law. The
Purchaser acknowledged that the General Partner is entitled to withdraw or
change its recommendation in the event that the REIT Share Price calculated
without regard to the Share Price Range is less than $21.50 and the Purchaser
does not elect to pay the Additional Consideration.
TITLE INSURANCE
At the time the Partnership acquired its properties, it received title
insurance policies. As the successor to the Partnership in the Merger, the
Purchaser will be the beneficiary under the Partnership's title policies. The
title insurance policies generally provide coverage up to the amount of the
original purchase price of the properties. In many cases this amount is less
than the current value of the properties.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase under GAAP.
EFFECTS OF THE TRANSACTION ON NON-TENDERING UNITHOLDERS
EFFECTS OF THE OFFER IF THE MERGER IS NOT CONSUMMATED
CONTROL OF THE PARTNERSHIP. After this Offer, the Purchaser could be in a
position to influence the policies and affairs of the Partnership. See "Fairness
of the Transaction; Position of the General Partner -- Factors Considered by the
General Partner -- Potential Influence of the Purchaser Over the Partnership."
40
<PAGE>
TRADING MARKET. There is no established trading market for the Units, and,
therefore, a reduction in the number of Unitholders as a result of this Offer
should not materially further restrict the Unitholders' ability to find
purchasers for their Units. See "Market Prices of Units."
PARTNERSHIP STATUS. The Purchaser believes that its purchase of Units in
this Offer should not adversely affect the Partnership's classification as a
partnership for federal income tax purposes or the characterization of the
Partnership's income or loss as "passive" income or loss. There is a risk,
however, that this Offer may cause the Partnership to be treated as a publicly
traded partnership, thereby causing income and loss allocated to the Unitholders
to be treated as "portfolio" income or loss. See "Certain Federal Income Tax
Consequences."
PARTNERSHIP BUSINESS. This Offer will not materially affect the operation
of the properties owned by the Partnership since such properties will continue
to be managed by the Purchaser.
EFFECTS OF THE TRANSACTION IF THE MERGER IS CONSUMMATED
PARTNERSHIP BUSINESS. As a result of the Merger, all assets and liabilities
of the Partnership would be deemed to be transferred to and assumed by the
Purchaser. See "The Acquisition Agreement."
UNITHOLDERS PARTICIPATING IN THE MERGER. Unitholders who participate in the
Merger will exchange their Units for REIT Shares, which represent an equity
interest in the Purchaser, and, in certain circumstances, Additional
Consideration. The Merger will be a taxable event for Unitholders in which no
special distribution of cash will be made to the Unitholders for the payment of
tax. The value of the REIT Shares depends, in part, on the Purchaser's continued
qualification as a REIT. See "Certain Federal Income Tax Consequences." For a
description of the business of the Purchaser, see "Background and Purposes of
the Transaction -- The Purchaser." Certain other information about the
Purchaser, including information concerning the Purchaser's operating results
and financial condition and descriptions of the Purchaser's Common Stock and
Preferred Share Purchase Rights, has been incorporated by reference into this
Offer to Purchase and is available to Unitholders upon request. See
"Incorporation of Certain Documents by Reference."
UNITHOLDERS EXERCISING DISSENTERS' RIGHTS. Unitholders who properly
exercise dissenters' rights available under the WULPA with respect to their
Units in connection with the Merger will not receive the Merger Consideration,
but will instead be entitled to receive payment of the fair value of the Units
in accordance with the provisions of the WULPA. Unitholders exercising
dissenters' rights will recognize taxable income or loss equal to the difference
between the amount of cash received by the Unitholders and the adjusted tax
basis in their Units. See "Certain Federal Income Tax Consequences."
MARKET PRICES OF UNITS
VOLUME OF SALES
The Units are not listed on any national securities exchange or quoted in
the over the counter market, and there is no established public trading market
for the Units. Secondary sales activity for the Units has been limited and
sporadic. The General Partner monitors transfers of the Units (i) because the
admission of the transferee as a substitute Unitholder requires the consent of
the General Partner under the Partnership Agreement and (ii) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. While the General Partner receives some
information regarding the prices at which secondary sale transactions in the
Units have been effectuated, it does not receive or maintain comprehensive
information regarding the activities of all broker/dealers and others known to
facilitate secondary sales of the Units. It should be noted that some
transactions may not be reflected on the records of the Partnership.
41
<PAGE>
The General Partner estimates, based solely on the transfer records of the
Partnership, that the number of Units transferred in secondary market
transactions (i.e., excluding transactions believed to be between related
parties, family members or the same beneficial owner) was as follows:
<TABLE>
<CAPTION>
NO. OF UNITS % OF TOTAL UNITS NO. OF
PERIOD TRANSFERRED OUTSTANDING TRANSACTIONS
- ------------------------------------------------- ------------- ----------------- -----------------
<S> <C> <C> <C>
1992............................................. -- --% --
1993............................................. 84 .070% 4
1994............................................. 372 .312 10
1995............................................. 555 .466 16
Three months ended March 31, 1996................ 54 .045 3
</TABLE>
SECONDARY MARKET INFORMATION
Set forth in the following table is certain information regarding sale
transactions in Units of the Partnership, which was obtained by the Purchaser
and the Partnership from Stanger. Stanger summarizes secondary market prices for
the Units based on actual transactions during the reporting periods listed on
the table below. The transactions reflected in the table represent only some of
the sale transactions in the Units. The following secondary market firms provide
price data to Stanger: 2nd Market Capital Services; American Partnership
Services; Bigelow Management, Inc.; Chicago Partnership Board; Cuyler &
Associates; DCC Securities Corp.; Empire Securities; EquityLine Properties;
Equity Resources Group; Fox & Henry, Inc.; Frain Asset Management;
MacKenzie-Patterson Securities; Murillo & Company; Nationwide Partnership
Marketplace; New York Partnership Exchange; Pacific Partnership Group;
Partnership Service Network; Raymond James & Associates; Secondary Income Funds;
Securities Planners, Inc.; SunPoint Securities, Inc.; and The Partnership
Marketing Company.
The information from Stanger set forth below is also reported in The Stanger
Report, a monthly trade publication. The following legend accompanies the
secondary market information included in The Stanger Report: "Limited
partnerships are designed as illiquid, long-term investments. Secondary-market
prices generally do not reflect the current value of partnership assets, nor are
they indicative of total return since prior cash distributions and tax benefits
received by the original investor are not reflected in the price. Transaction
prices are not verified by Robert A. Stanger & Company."
Because no assurances can be given that the prices reflected in the table
below represent the true value of the Units, such information should not be
relied upon as indicative of the ability of the
42
<PAGE>
Unitholders to sell their Units in secondary sale transactions or as to the
prices at which such Units may be sold. Therefore, the information presented
should not necessarily be relied upon by a Unitholder in determining whether to
tender Units.
<TABLE>
<CAPTION>
TRANSACTION PRICE(1)
-------------------- NUMBER OF
REPORTING PERIOD LOW HIGH UNITS
- -------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1992
Quarter 1 (2)................................................................. -- -- --
Quarter 2 (2)................................................................. -- -- --
Quarter 3 (2)................................................................. -- -- --
Quarter 4..................................................................... $ 131.00 $ 131.00 20
1993
Quarter 1 (2)................................................................. -- -- --
Quarter 2..................................................................... $ 129.00 $ 167.00 53
Quarter 3 (2)................................................................. -- -- --
Quarter 4..................................................................... $ 120.00 $ 157.90 284
1994
Quarter 1..................................................................... $ 166.00 $ 166.00 60
Quarter 2..................................................................... $ 182.00 $ 182.00 60
Quarter 3..................................................................... $ 166.25 $ 175.00 80
Quarter 4..................................................................... $ 160.00 $ 194.25 140
1995
Quarter 1..................................................................... $ 171.86 $ 174.44 34
Quarter 2..................................................................... $ 175.00 $ 175.00 20
Quarter 3..................................................................... $ 165.00 $ 177.00 253
Quarter 4..................................................................... $ 175.00 $ 187.50 54
1996
Quarter 1..................................................................... $ 165.00 $ 200.00 294
</TABLE>
- ------------------------
(1) The Transaction Price is given on a per Unit basis. The General Partner does
not know whether the transaction prices shown are before or after
commissions. However, the secondary-market firms providing information to
Stanger are instructed that, if they act as "principals," the reported price
per Unit should include any mark-ups and if they act as "agents," the
reported price per Unit should include any commissions, unless the firm acts
as a retail broker. The firms are further instructed not to include
commissions paid by retail buyers or sellers to their retail brokers.
(2) No trade was reported to Stanger during this quarter.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the General Partner with respect to the
Transaction, Unitholders should be aware that certain partners of the General
Partner have interests referred to herein that present them with actual or
potential conflicts of interest in connection with the Transaction.
OVERLAPS BETWEEN AFFILIATES OF THE GENERAL PARTNER AND DIRECTORS AND OFFICERS OF
THE PURCHASER
Charles K. Barbo, the Chairman of the Board, President and Chief Executive
Officer of the Purchaser, is an individual general partner of the General
Partner and the sole shareholder and director of Shurgard General Partner, Inc.
("SGPI"), the corporate general partner of the General Partner. As such, he is
able to control decisions made by the general partners of the General Partner.
In addition, several executive officers of the Purchaser serve as officers of
SGPI. Specifically, Harrell L. Beck, Senior Vice President, Chief Financial
Officer and Treasurer of the Purchaser, serves as
43
<PAGE>
Treasurer of SGPI; Kristin H. Stred, Senior Vice President, General Counsel and
Secretary of the Purchaser, serves as Secretary of SGPI; and Michael Rowe, Chief
Operating Officer of the Purchaser, serves as Vice President of SGPI.
OWNERSHIP OF UNITS BY THE PARTNERS OF THE GENERAL PARTNER
The Purchaser, which is a limited partner of the General Partner,
beneficially owns 1,602.5 of the outstanding Units (approximately 1.3%). An
affiliate of IPSC, also a limited partner of the General Partner, beneficially
owns 60 of the outstanding Units (less than 1%), 308 units of IDS1 and 616 units
of IDS2. Due to the IPSC affiliate's internal policy regarding investment in
equity securities, the IPSC affiliate intends to tender its Units in this Offer
and to tender its units of IDS1 and IDS2 in the Additional Offers. The IPSC
affiliate will receive $18,480 for its tender of Units, $79,156 for its tender
of units of IDS1 and $136,752 for its tender of units of IDS2. The Purchaser and
the IPSC affiliate participate in Partnership distributions on the same terms as
other Unitholders in respect of Units owned by them. No other partner of the
General Partner beneficially owns any Units.
GENERAL PARTNER'S INTEREST
Pursuant to the Partnership Agreement, the General Partner is entitled to a
percentage of the Partnership's cash distributions based upon the amount of
distributions made to the Unitholders. Initially, the General Partner receives
5% of all Partnership distributions until such time as the Unitholders have
received a cumulative amount of Partnership distributions equal to their
collective capital contributions plus a cumulative noncompounded return of 9%
per annum on their adjusted capital contributions (such cumulative amount being
referred to as the "Unitholders' Preference"). Once the Unitholders have
received distributions equal to their Unitholders' Preference, the General
Partner receives 20% of all further cash distributions. As of the date of this
Offer, the Unitholders have not received Partnership cash distributions equal to
the Unitholders' Preference. Accordingly, the General Partner has been limited
to receiving 5% of Partnership cash distributions resulting in the receipt of
such distributions by the General Partner of $96,077, $111,764 and $117,648 for
the years
ended December 31, 1993, 1994 and 1995, respectively, and $29,412 for the three
months ended March 31, 1996. The Purchaser (or its predecessor) and IPSC each
received 40% of these amounts. Messrs. Barbo and Buerk each received 9.9%, and
SGPI received .2%, of these amounts in accordance with the GP Agreement.
The General Partner's percentage interest in the Merger Consideration will
be based upon the above distribution principles. As of the date of this Offer,
95% of Net Asset Value (the percentage of Net Asset Value initially allocable to
the Unitholders) is expected to exceed an amount equal to the Partnership's
undistributed Unitholders' Preference. Accordingly, the Unitholders will be
treated as receiving their Unitholders' Preference and the General Partner will
be entitled to share in 20% of some part, but not all, of the Merger
Consideration. See Schedule X ("Calculation of Net Asset Value") for additional
information regarding the portion of the Net Asset Value allocated to the
General Partner and upon which the Merger Consideration to be received by the
General Partner will be based.
IPSC'S INTEREST
An affiliate of IPSC owns Units in the Partnership and the Other
Partnerships as indicated in "-- Ownership of Units by the Partners of the
General Partner" above. For its limited partner interest in the General Partner
and in the general partners of IDS1 and IDS2, if the Mergers are consummated,
IPSC would receive (based upon an assumed REIT Share Price of $25.00)
approximately 52,600, 32,050, and 21,500 REIT Shares, respectively.
PROPERTY MANAGEMENT SERVICES
The Partnership's properties are managed by the Purchaser pursuant to a
Management Services Agreement under which the Purchaser, as compensation for its
management services, receives a monthly fee of 6% of gross revenues of the
Partnership's self storage properties and 5% of gross revenues of the
Partnership's office building, plus $75 per month per facility (except the
Partnership's office building) for rendering advertising services. For the years
ended December 31, 1993, 1994 and 1995, the Purchaser (or the predecessor under
the Management Services Agreement) received
44
<PAGE>
$256,850, $407,784 and $447,716, respectively, and $111,693 for the three months
ended March 31, 1996, from the Partnership in payment of such property
management and advertising fees. In addition, the Purchaser is reimbursed at
cost by the Partnership for certain expenses it incurs as property manager.
PURCHASE OF PROPERTY FROM DIRECTOR
Greenlaw Grupe was elected as a director of the Purchaser in May 1996. In
1993 and 1994, the Partnership purchased six self storage facilities and one
office building from Greenlaw Grupe or entities in which he owned an interest. A
portion of the purchase price for the properties was paid at closing, and the
balance was paid over time based upon the properties' performance from closing
through 1996. The Partnership made total purchase price payments of $10,690,000,
$6,507,000, $862,000 and $1,641,000 in 1993, 1994, 1995 and 1996, respectively.
PAYMENTS FOR ADMINISTRATIVE SERVICES
In connection with the Consolidation, the Purchaser paid an affiliate of
IPSC a quarterly fee of $12,000 for each quarter commencing July 1, 1994 and
ending June 30, 1996 for expenses in connection with certain administrative
services. In addition, the Purchaser will reimburse the IPSC affiliate for its
expenses incurred for similar services provided in connection with the
Transaction and the Additional Transactions. The IPSC affiliate estimates that
such expenses will not exceed $50,000.
OWNERSHIP OF PURCHASER COMMON STOCK BY AFFILIATES OF GENERAL PARTNER
Charles K. Barbo and Arthur W. Buerk, each an individual general partner of
the General Partner, are stockholders of the Purchaser. As of March 1, 1996,
Messrs. Barbo and Buerk beneficially owned approximately 3% and 2%,
respectively, of the Purchaser's outstanding Common Stock.
CONTINGENT SHARE AGREEMENT
Pursuant to the Contingent Share Agreement, Charles K. Barbo, Arthur W.
Buerk and certain executive officers of the Purchaser will receive REIT Shares
if any of the Mergers are consummated. Assuming the REIT Share Price is $25.00
and that the Merger and the Additional Mergers are consummated, Mr. Barbo, Mr.
Buerk and the executive officers will receive approximately 19,025, 11,575 and
4,450 REIT Shares, respectively, as a result of such Contingent Share Agreement.
SOURCE AND AMOUNT OF FUNDS
The Purchaser estimates that the funds required to purchase all Units
validly tendered pursuant to this Offer up to the maximum number of Units it may
acquire pursuant to this Offer will be approximately $16.0 million and that the
funds required to purchase all validly tendered limited partnership units in the
Other Partnerships up to the maximum number of units it may acquire in the
Additional Offers will be approximately $27.6 million. The Purchaser also
estimates that the other costs and expenses allocable to the Purchaser of the
Transaction and the Additional Transactions and will be approximately $2.3
million. The Purchaser expects to obtain approximately $46 million required to
finance the Transaction and the Additional Transactions from the borrowing of
funds pursuant to two revolving credit facilities (the "Credit Facilities")
under which it is authorized to borrow up to $100 million, on the terms and
conditions provided in (i) the Loan Agreement among the Purchaser, Seattle-First
National Bank, Key Bank of Washington and West One Bank dated August 19, 1994
(the "First Loan Agreement") and (ii) the Revolving Loan Agreement among the
Purchaser, SSC Acquisitions Inc. and Nomura Asset Capital Corp. dated as of
December 23, 1994 (the "Second Loan Agreement," and, together with the First
Loan Agreement, the "Loan Agreements"). Neither the Transaction nor the
Additional Transactions are subject to any financing contingency and neither the
Purchaser nor any subsidiary or affiliate of the Purchaser must secure
additional financing in connection with the Transaction or the Additional
Transactions.
The First Loan Agreement provides for financing of up to $50 million,
secured by certain real estate assets, bearing interest at a rate per annum of
either the lender's prime or LIBOR plus 175 basis points and matures on August
18, 1996. The Purchaser is currently engaged in negotiations to refinance its
obligations under the First Loan Agreement. The Second Loan Agreement provides
for financing of $50 million, secured by certain real estate assets, bearing
interest at a rate per annum of
45
<PAGE>
either LIBOR plus 175 basis points or the prime rate of Citibank, N.A. minus 50
basis points, requires a draw fee of 25 basis points of the amount drawn, and
matures on December 30, 1996. The amount available under each of the Credit
Facilities is a function of the quarterly income performance of the properties
securing the respective Credit Facility and the quarterly debt service payments
for such Credit Facility.
Copies of the Loan Agreements have been filed with the Commission by the
Purchaser as exhibits to the Schedule 13E-3 and the Schedule 14D-1. The
foregoing summary of the Credit Facilities is qualified in its entirety by
reference to the Loan Agreements.
ESTIMATED TAXABLE GAIN OR LOSS
To assist a Unitholder in estimating the federal income tax consequences of
this Offer and the Merger with respect solely to the Partnership, the following
table, prepared by the General Partner, sets forth the estimated gain or loss
that may be recognized by a Unitholder either participating in this Offer or the
Merger. These estimates assume that the fair market value of the REIT Shares and
amount of cash paid as Additional Consideration or in lieu of fractional REIT
Shares in the Merger will equal the amount of cash paid per Unit in this Offer.
The Merger Consideration and the Offer Price may not be the same and,
accordingly, the resulting taxable gain or loss for these transactions may be
different. In addition to the effect that the value of the REIT Shares will have
on the amount of gain or loss, other factors will also affect the actual amount
and timing of gain or loss recognized by each Unitholder, including the adjusted
tax basis of the Partnership's assets as of the date of Closing of the Merger
and the adjusted tax basis of the Unitholder's Units when they are sold. These
estimates assume that the Unitholder acquired his or her Units in the original
offering and not through the secondary market. In connection with this Offer, a
purchaser of Units on the secondary market will recognize a different amount of
gain or loss depending upon the difference between his or her adjusted basis in
the Units and the amount estimated below. In connection with the Merger,
however, a purchaser of Units on the secondary market may recognize additional
gain to the extent that the fair market value of the REIT Shares and amount of
cash received as Additional Consideration or in lieu of fractional REIT Shares
exceeds such Unitholder's adjusted tax basis in his or her Units (adjusted to
reflect his or her allocable share of Partnership gain or loss recognized in the
Merger).
<TABLE>
<CAPTION>
CONSIDERATION TAX BASIS PER ESTIMATED TAXABLE GAIN
PER UNIT (1) UNIT (2) PER UNIT (3)
- ---------------- -------------------- ----------------------
<S> <C> <C>
$308 $236 $72
</TABLE>
- ------------------------
(1) With respect to this Offer, the "Consideration Per Unit" is equal to the net
cash price per Unit paid by the Purchaser. With respect to the Merger, the
"Consideration Per Unit" is computed by dividing that portion of the Net
Asset Value allocable to the Unitholders by the number of outstanding Units
in the Partnership and assumes that the REIT Share Price is within the Share
Price Range.
(2) "Tax Basis Per Unit" is computed by dividing the adjusted tax basis of the
Partnership's assets net of the Partnership's liabilities as of December 31,
1995 that is allocable to the Unitholders by the number of outstanding Units
in the Partnership. The adjusted tax basis per Unit will differ from the
above amounts depending upon the timing of this Offer and the Merger.
(3) "Estimated Taxable Gain Per Unit" is computed by subtracting the tax basis
per Unit from the Offer Price or the Merger Consideration per Unit.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain federal income tax
consequences to Unitholders as a result of the sale of the Units to the
Purchaser pursuant to this Offer, as well as a summary of certain federal income
tax consequences associated with the Merger. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder, rulings and the pronouncements, and decisions now in effect, all of
which are subject to change.
46
<PAGE>
The following discussion is limited to the material income tax aspects of
this Offer or the Merger for a holder of Units who (except as mentioned under
"--Information Return and Filing Requirements Relating to Withholding") is a
citizen or resident of the United States and who holds the Units as a "capital
asset" (generally, property held for the investment) within the meaning of Code
Section 1221. The summary does not discuss all aspects of federal income
taxation that may be relevant to a person disposing of Units in this Offer or
participating in the Merger in light of such person's personal investment
circumstances or to certain types of persons subject to special treatment under
the federal income tax laws (for example, trusts, life insurance companies,
financial institutions, S corporations, foreign corporations or partnerships,
and, except to the limited extent described below, tax-exempt organizations and
persons who are not citizens of the United States) and does not discuss any
aspects of state, local or foreign tax laws.
RECOGNITION OF GAIN OR LOSS
A Unitholder selling his or her Units pursuant to the Offer will recognize
taxable gain or loss equal to the difference between the amount realized by the
Unitholder from such sale and the Unitholder's adjusted tax basis for such
Units. The amount realized by a Unitholder on a sale of his or her Units equals
the amount of cash received in this Offer plus the Unitholder's share of the
Partnership's liabilities as determined pursuant to Code Section 752. The
Unitholder's adjusted tax basis of his or her Units used for purposes of
calculating such gain or loss will be adjusted to reflect the Unitholder's
allocable share of Partnership taxable income or loss for the fiscal period
ending on the effective date of the purchase as provided in the Partnership
Agreement. Pursuant to the Partnership Agreement, assignments of Units will be
recognized and effective on and as of the first day of the first calendar
quarter following the closing date of this Offer. Prior to this effective date,
pursuant to the Partnership Agreement, the tendering Unitholder will continue to
be allocated his or her share of Partnership taxable income and loss, including,
without limitation, any gain or loss realized by the Partnership attributable to
the Merger if the Merger closes prior to the effective date of the transfer of
Units pursuant to this Offer. Any income, gain, loss or deduction allocated to a
tendering Unitholder for periods after the closing date will, however, increase
the Unitholder's adjusted tax basis in his or her tendered Units thereby
offsetting and reducing the gain or increasing the loss recognized by the
Unitholder tendering his or her Units pursuant to this Offer. If the
Unitholder's adjusted tax basis in his or her Units is less than such
Unitholder's allocable share of Partnership liabilities (e.g., as a result of a
Unitholder being allocated Partnership net losses (in excess of Partnership net
income) and receiving Partnership distributions in excess of the cost basis of
his or her Units), the Unitholder's gain would exceed the cash proceeds realized
upon the sale of Units. Assuming that the Partnership assets are held by the
Partnership for trade or business purposes and not for sale to customers in the
ordinary course of a trade or business, a tax-exempt Unitholder that does not
hold an interest in the Partnership either as a dealer under Code Section
512(b)(5)(B) or as "debt-financed property" within the meaning of Code Section
514, and is not an organization described in Code Section 501(c)(7) (social
clubs), 501(c)(9) (voluntary employee beneficiary associations), 501(c)(17)
(supplemental unemployment benefit trusts) or 501(c)(20) (qualified group legal
services plans) should not recognize unrelated business taxable income in
tendering its Units. The four classes of exempt organizations noted in the
previous sentence may recognize a material amount of gain or loss by tendering
their Units.
CHARACTERIZATION OF GAIN OR LOSS
Generally, gain or loss recognized by a Unitholder on the sale of a Unit
held for more than 12 months will be taxable as long-term capital gain or loss.
However, a Unitholder will recognize ordinary income or loss in an amount equal
to the difference between (i) the portion of the amount realized by the
Unitholder that is attributable to his or her share of the Partnership's
"unrealized receivables" and "substantially appreciated inventory items"
(including depreciation recapture), as such terms are defined in Code Section
751, and (ii) the portion of the Unitholder's tax basis in his or her Units that
is attributable to such Section 751 property of the Partnership. The Partnership
believes that an insignificant portion of its property is subject to
depreciation recapture and that substantially all of the gain or loss on the
sale of the Units should be treated as capital gain or loss, although there can
be no assurance that other assets of the Partnership will not be considered
Section 751 property.
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TAX BASIS IN UNITS
The Internal Revenue Service (the "IRS") has ruled that a partner has one
tax basis for his or her entire interest in a partnership even if the partner
bought partnership interests in different transactions. Upon a sale of a portion
of such aggregate interest (e.g., in a partial tender of Units caused by the
tender of more Units than offered to be purchased pursuant to this Offer), a
Unitholder would be required to allocate his or her aggregate tax basis between
the Units sold and the Units retained by some equitable apportionment method,
such as the relative fair market value of such Units on the date of sale.
TAXATION OF CAPITAL GAINS/CAPITAL LOSSES AND ORDINARY INCOME
As described above, any gain or loss recognized on the sale of the Units
should be characterized as capital gain or loss (except to the extent of any
gain or loss associated with Section 751 property). The maximum long-term
capital gains tax rate for individual Unitholders (or individuals owning their
Units through pass-through entities such as partnerships, limited partnerships,
or limited liability companies) is currently 28%. The maximum ordinary income
tax rate for such individual Unitholders, however, is 39.6%. Corporate
Unitholders do not currently have a capital gain preferred rate. Accordingly,
the maximum corporate rate for both capital gains and ordinary income tax is
35%. Legislative changes to the tax rates for both individual and corporate
taxpayers have recently been proposed to Congress and there is currently no
certainty with respect to the tax rates that may be applied to this Offer.
Unitholders are encouraged to consult their tax advisers to discuss the status
of any proposed tax legislation and the effect that such legislation may have on
this Offer.
Capital losses generally are deductible only to the extent of capital gains
plus, in the case of noncorporate Unitholders, up to $3,000 of ordinary income
($1,500 in the case of married individuals filing separate returns). Losses in
excess of these amounts may be carried forward by noncorporate Unitholders
indefinitely. In general, corporate Unitholders may carry back unutilized
capital losses for three years and carry over such losses for five years.
EFFECT OF PASSIVE LOSS RULES
Upon the sale by a Unitholder of all of his or her Units pursuant to this
Offer, any net losses of the Partnership that were suspended under the passive
loss rules of the Code may be used to offset income and gain on such sale. If a
Unitholder's suspended passive losses exceed the gain on the sale of Units, such
loss may be applied against any passive income or gain of the Partnership for
the current year and thereafter may be applied against any other passive
activity income of such Unitholder in the current year. Finally, any excess
suspended losses from prior years will be available to offset income and gain
from any other sources. If the Unitholder does not sell all of his or her Units
in this Offer, however, suspended passive losses remain suspended to the extent
such losses exceed the gain recognized on the partial tender and any allocable
income from the Partnership for the year of tender.
PUBLICLY TRADED PARTNERSHIP CHARACTERIZATION
A partnership will be characterized as a publicly traded partnership if its
interests are readily tradable on a secondary market or the substantial
equivalent thereof. If a partnership is characterized as a publicly traded
partnership, it will be taxed as a corporation unless at least 90% of the
partnership's gross income is attributable to passive sources, including real
estate rentals. If a publicly traded partnership satisfies this passive income
requirement, however, allocations of partnership income and loss would be taxed
as "portfolio" income or loss for passive income and loss purposes. A secondary
market is generally indicated by the existence of a person standing ready to
make a market in the partnership interest. A substantial equivalent of a
secondary market exists if there is not an identifiable market maker but either
(a) the holder of an interest has a readily available, regular and ongoing
opportunity to sell or exchange such interests through a public means of
obtaining or providing information of offers to buy, sell or exchange interests
or (b) buyers and sellers have the opportunity to buy, sell or exchange
interests in a timeframe and with a regularity and continuity that the existence
of a market maker would provide. When determining whether a secondary market
exists, however, the
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IRS provides safe harbors that permit partnerships to disregard certain private,
incidental or occasional transfers. Although failing to meet a safe harbor does
not presume the existence of a secondary market, if a partnership satisfies a
safe harbor it will not be considered to be publicly traded. As of the date of
this Offer, there is no established or regular trading market for the Units, nor
is there a reliable standard for determining the value of the Units. Although
several secondary market firms maintain price data with respect to the Units,
prior trading of Units has been monitored and limited by the General Partner to
comply with the IRS safe harbors. See "Market Prices of Units." Furthermore,
although this Offer does not come within one of these specified safe harbors, it
does not, in and of itself, create an ongoing secondary market or substantial
equivalent thereof on which Units may be traded. The General Partner therefore
believes that the Units have not been and are not being readily traded, pursuant
to this Offer or otherwise, on a secondary market or a substantial equivalent
thereof. Accordingly, the Partnership should not be characterized as a publicly
traded partnership. Because the determination of whether this Offer constitutes
the creation of a secondary market or its substantial equivalent is based upon a
variety of factors, there can be no certainty with respect to this issue. If the
Partnership were characterized as a publicly traded partnership, the Partnership
will continue to be taxed as a partnership because more than 90% of its gross
income is attributable to real estate rentals. Nonetheless, if so characterized,
allocations of Partnership income or loss to Unitholders would be treated as
"portfolio" income or loss for passive income or loss purposes. Accordingly, a
Unitholder would be unable to shelter his or her share of Partnership income
with losses from other passive activities and such Unitholder's share of
Partnership losses could not be used to shelter passive income from other
passive activities.
INFORMATION RETURN AND FILING REQUIREMENTS RELATING TO WITHHOLDING
No reporting requirements apply with respect to a sale of Units by an
individual who is a U.S. citizen and who effects such sale through a broker,
dealer, commercial bank, trust company or other nominee. A Unitholder who sells
Units pursuant to this Offer other than through a broker, dealer, commercial
bank, trust company or other nominee or who is not a U.S. citizen is, however,
required to notify the Partnership in writing of such sale. Completion of the
Letter of Transmittal will constitute such notice for Unitholders who tender
their Units in this Offer. In turn, the Partnership is required to notify the
IRS of such sale and to furnish the transferor with certain information.
The tender of Units pursuant to this Offer constitutes a sale of a U.S. real
property interest under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, any foreign Unitholder selling his or her Units in
this Offer will be subject to U.S. taxation at regular U.S. rates on the gain on
the sale of such Units. A foreign Unitholder should consult his or her own tax
advisors as to the treatment of this Offer and the Merger under the laws
applicable to him or her. Furthermore, the Purchaser is required to deduct and
withhold 10% from the amount paid to any tendering Unitholder who fails to
provide a nonforeign affidavit to the Purchaser. The amount withheld will be
advanced to the IRS and may be applied against the income tax otherwise owed by
the foreign Unitholder on the sale of his or her Units.
NO CONSTRUCTIVE TERMINATION OF THE PARTNERSHIP
Under Code Section 708(b)(1)(B), the Partnership will be considered to have
been terminated if within a 12-month period there is a sale or exchange of 50%
or more of the total interest in Partnership capital and profits. Because this
Offer is limited to less than 45% of the Units of the Partnership, the
Partnership believes that any sales of Units pursuant to this Offer, when
combined with other sales and exchanges of Units during the past 12 months,
should not result in the termination of the Partnership.
TAX CONSEQUENCES OF THE MERGER
If a Unitholder does not tender his or her Units pursuant to this Offer, the
Unitholder will need to consider the tax consequences of the Merger when
deciding whether to approve the Merger. Accordingly, the tax consequences of the
Merger should be considered by Unitholders prior to determining whether to
tender their Units. The Merger involves numerous federal income tax consequences
to the
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Unitholders. Although a complete analysis of the federal tax consequences
associated with the Merger is beyond the scope of this Offer to Purchase, set
forth below is a summary of the material tax consequences associated with the
Merger.
MERGER AS A TAXABLE EVENT. All Unitholders participating in the Merger who
are subject to income tax will be involved in a taxable transaction resulting in
the recognition of either taxable income or loss and no special cash
distribution will be made for the payment of any tax. Solely for federal income
tax purposes, the Merger will be treated as if the Partnership transferred its
assets to the Purchaser in exchange for the Merger Consideration and immediately
thereafter distributed the Merger Consideration among the General Partner and
Unitholders in liquidation of the Partnership. Accordingly, the Merger will
result in the recognition of gain or loss to the Partnership based on the
difference between (i) the sum of the fair market value of REIT Shares and the
amount of any cash paid by the Purchaser as Additional Consideration or in lieu
of fractional REIT Shares and the amount of liabilities of the Partnership
assumed or pertaining to properties deemed acquired by the Purchaser in the
Merger and (ii) the Partnership's adjusted tax basis in its assets exchanged
therefor. Each Unitholder (except certain tax-exempt Unitholders) generally will
recognize his or her allocable share of such gain or loss in accordance with the
terms of the Partnership Agreement. Any gain or loss realized from the Merger
generally will be treated as arising from the sale of assets used in a trade or
business and will be characterized as capital gain or loss or ordinary income or
loss depending on the amount of the Unitholder's other gains or losses
attributable to any sales of assets used in a trade or business. Furthermore,
such Unitholder will recognize gain on the deemed distribution of the REIT
Shares or cash to the Unitholder to the extent of the excess of the fair market
value of the REIT Shares and the amount of cash received by the Unitholder in
the Merger over such Unitholder's adjusted tax basis in his or her Units (as
adjusted after taking into account such Unitholder's allocable share of gain or
loss recognized by the Partnership in the Merger). Any gain recognized on the
deemed distribution of the REIT Shares or cash will be treated substantially as
capital gain. Gain or loss recognized by the Unitholders should be treated as
passive income or loss. It is uncertain, however, whether the Unitholders
receiving REIT Shares will be treated as having disposed of their entire
interest in the Partnership's activity for purposes of "freeing up" suspended
passive losses from such activity, and, thus, Unitholders may not be permitted
to deduct suspended Partnership losses in connection with the Merger.
QUALIFICATION OF PURCHASER AS A REIT. Unitholders participating in the
Merger will own REIT Shares. The Purchaser has made an election to be taxed as a
REIT under Code Sections 856 through 860, commencing with its taxable year ended
December 31, 1994. The Purchaser believes that, commencing with its taxable year
ended December 31, 1994, it has been organized and has operated in such a manner
as to qualify for taxation as a REIT under the Code. The Purchaser intends to
continue to operate in such a manner, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Purchaser's control may affect its ability
to qualify as a REIT. If the Purchaser qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on its net
income that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (at the corporate and stockholder
levels) of income that generally results from investment in a regular
corporation. The Purchaser, however, will be subject to various federal income
and excise taxes generally designed to enforce compliance with the REIT
qualification tests. For any taxable year that the Purchaser fails to qualify as
a REIT, it will be taxed as a corporation. Consequently, because it would not be
entitled to a deduction for dividends paid to its stockholders in calculating
its taxable income, assets of the Purchaser and distributions to the
stockholders would be substantially reduced or perhaps eliminated to the extent
necessary to pay any resulting tax liability of the Purchaser.
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TAX TREATMENT OF REIT DISTRIBUTIONS. As long as the Purchaser qualifies as
a REIT, distributions made to the Purchaser's taxable stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and will not be
eligible for the dividends received deduction for corporations. Distributions
that are designated as capital gain dividends will be taxed as long-term capital
gain (to the extent they do not exceed the Purchaser's actual net capital gain
for the taxable year) without regard to the period for which the stockholder has
held its shares. However, corporate stockholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a
stockholder's shares they will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less)
assuming the shares are a capital asset in the hands of the stockholder. Unlike
partnerships, taxable losses generated by a REIT do not pass through to its
stockholders.
CHARACTERIZATION OF REIT DISTRIBUTIONS. Distributions paid to stockholders
will constitute portfolio income (i.e., income from dividends that is not
derived in the ordinary course of a trade or business) for purposes of Code
Section 469 and not passive activity income. The IRS has ruled that amounts
distributed as dividends by a qualified REIT do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity.
DISPOSITION OF REIT SHARES. Gain or loss recognized by a stockholder who is
not a dealer in securities on the sale of shares that have been held for more
than one year will generally be taxable as long-term capital gain or loss.
Furthermore, if a stockholder sells shares that were held for six months or less
(after applying certain holding period rules) and with respect to which a
capital gain distribution was received, any loss on the sale up to the amount of
the capital gain distribution will be treated as long-term capital loss.
Finally, income from the sale of shares will not constitute UBTI unless such
tax-exempt stockholder has held such shares as "debt-financed property" within
the meaning of Code Section 514 or is a dealer under Code Section 512(b)(5)(B).
UNITHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
SPECIFIC TAX CONSEQUENCES TO THEM RESULTING FROM THE TRANSACTION, INCLUDING THE
CONSEQUENCES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND ANY POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
THE OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of
this Offer, the Purchaser will accept for payment and purchase up to 52,000
Units which are validly tendered prior to the Expiration Date (as defined in the
following sentence) and not properly withdrawn in accordance with "The Offer" --
Section 5 ("Withdrawal Rights"). The term "Expiration Date" means 11:59 p.m.,
New York City time, on Wednesday, July 31, 1996, unless and until the Purchaser,
in its sole discretion, has extended the period of time for which this Offer is
open, in which event the term "Expiration Date" means the latest time and date
at which this Offer, as so extended by the Purchaser, expires. See "The Offer"
- -- Section 6 ("Extension of the Offer Period; Termination and Amendment") for a
description of the Purchaser's rights to extend the period of time during which
this Offer is open and to terminate this Offer.
If more than 52,000 Units are validly tendered prior to the Expiration Date
and not withdrawn, Units so tendered and not withdrawn will be accepted for
payment on a pro rata basis according to the number of Units validly tendered
and not withdrawn in accordance with "The Offer" -- Section 5 ("Withdrawal
Rights") by the Expiration Date. If proration would result in a Unitholder
owning fewer Units than the "minimum subscription requirement", the Purchaser
will not accept any Units tendered by such Unitholder in this Offer. The minimum
subscription requirement is 10 Units, except
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that the minimum subscription requirement is 4 Units for tax-exempt Unitholders.
For Minnesota Unitholders, the minimum subscription requirement is 8 for IRAs
and 10 for all other Minnesota tax-exempt Unitholders.
In the event that proration is required, because of the difficulty of
determining the precise number of Units validly tendered and not withdrawn, the
Purchaser does not expect to announce the final results of proration or to pay
for any Units until at least five NYSE trading days after the Expiration Date.
Preliminary results of proration will be announced by press release as soon as
practicable after the Expiration Date. Unitholders may obtain such preliminary
information from the Information Agent and may be able to obtain such
information from their brokers.
Unitholders may tender all or any portion of their Units, provided that,
after giving effect to partial tenders, a Unitholder will own at least the
number of Units constituting the applicable "minimum subscription requirement."
The Partnership will provide the Purchaser with the Partnership's Unitholder
list, a nonobjecting beneficial owners list, if any, and security position
listings for the purpose of disseminating this Offer to Unitholders. This Offer
to Purchase and the related Letter of Transmittal will be mailed by the
Purchaser to record holders of Units and will be furnished to beneficial owners,
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Partnership's Unitholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Units.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT OF PURCHASE PRICE. Upon the terms
and subject to the conditions of this Offer (including, if this Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will accept for payment, and will pay for, up to
52,000 Units validly tendered prior to the Expiration Date and not properly
withdrawn promptly after the later to occur of (i) the Expiration Date and (ii)
the satisfaction or waiver of the conditions to this Offer set forth in "The
Offer" -- Section 7 ("Certain Conditions of the Offer").
For purposes of this Offer, the Purchaser shall be deemed to have accepted
for payment (and thereby purchased) all Units properly tendered to the Purchaser
and not withdrawn if, as and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance of those Units for payment pursuant
to this Offer. Payment for Units accepted for payment pursuant to this Offer
will be made through the Depositary, which will act as agent for the tendering
Unitholders for the purpose of receiving payment from the Purchaser and
transmitting payments to tendering Unitholders.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE
UNITS TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY DELAY IN MAKING PAYMENT.
UPON THE DEPOSIT OF FUNDS WITH THE DEPOSITARY FOR THE PURPOSE OF MAKING PAYMENTS
TO TENDERING UNITHOLDERS, THE PURCHASER'S OBLIGATION TO MAKE PAYMENTS SHALL BE
SATISFIED AND TENDERING UNITHOLDERS MUST THEREAFTER LOOK SOLELY TO THE
DEPOSITARY FOR PAYMENT OF AMOUNTS OWED TO THEM BY REASON OF THE ACCEPTANCE FOR
PAYMENT OF UNITS PURSUANT TO THIS OFFER.
If any tendered Units are not accepted for payment pursuant to the terms and
conditions of this Offer, the Letter of Transmittal with respect to Units not
purchased will be destroyed by the Depositary. If, for any reason whatsoever,
acceptance for payment of, or payment for, any Units tendered pursuant to this
Offer is delayed or the Purchaser is unable to accept for payment, purchase or
pay for Units tendered pursuant to this Offer, then, without prejudice to the
Purchaser's rights under this Offer (but subject to compliance with Rule
14e-1(c) under the Exchange Act), the Depositary may, nevertheless, on behalf of
the Purchaser, retain tendered Units, subject to any limitations of applicable
law, and such Units may not be withdrawn except to the extent that the tendering
Unitholders are entitled to withdrawal rights as described in this Offer.
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If, on or prior to the Expiration Date, the Purchaser increases the
consideration offered to Unitholders pursuant to this Offer, the increased
consideration will be paid to all Unitholders that are accepted for payment
pursuant to this Offer.
The Purchaser reserves the right to transfer or assign, in whole or in part,
to one or more affiliates or direct or indirect subsidiaries of the Purchaser,
the right to purchase Units tendered pursuant to this Offer, but no transfer or
assignment will relieve the Purchaser of its obligations under this Offer or
prejudice the rights of tendering Unitholders to receive payment for Units
validly tendered and accepted for payment pursuant to this Offer.
3. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING UNITS. In order for a
Unitholder to validly tender Units pursuant to this Offer, the Letter of
Transmittal, properly completed and duly executed, together with any other
documents required by the Letter of Transmittal, must be received by the
Depositary at its address set forth on the back cover of this Offer to Purchase
on or prior to the Expiration Date, which is 11:59 p.m., New York City Time, on
July 31, 1996 (unless extended).
The signature(s) on the Letter of Transmittal must be guaranteed by an
eligible guarantor institution (a bank, stockbroker, savings and loan
association or credit union with membership in an approved signature guarantee
Medallion program).
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED.
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE DEPOSITARY.
EXCEPT AS OTHERWISE PROVIDED IN THE LETTER OF TRANSMITTAL, THE DELIVERIES
REFERRED TO ABOVE WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY.
By executing the Letter of Transmittal as set forth above, a tendering
Unitholder irrevocably appoints designees of the Purchaser as the Unitholder's
attorneys-in-fact and proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
Unitholder's rights with respect to the Units tendered by the Unitholder and
accepted for payment by the Purchaser. All powers of attorney and proxies shall
be considered coupled with an interest in the tendered Units. The appointment
will be effective when, and only to the extent that, the Purchaser accepts the
Units for payment. Upon acceptance for payment, all prior powers of attorney and
proxies given by such Unitholder with respect to the Units will be revoked
without further action, and no subsequent proxies nor any subsequent written
consent executed by the Unitholder with respect thereto may be given (and, if
given or executed, will not be deemed to be effective). The designees of the
Purchaser will, with respect to the Units for which the appointment is
effective, be empowered to exercise all voting and other rights of the
Unitholder as they in their sole discretion may deem proper at any meeting of
the Partnership's Unitholders, by written consent in lieu of any such meeting or
otherwise.
A tender of Units pursuant to any of the procedures described above will
constitute a tendering Unitholder's acceptance of the terms and conditions of
this Offer and a binding agreement between the tendering Unitholder and the
Purchaser upon the terms and subject to the conditions of this Offer.
UNDER THE BACKUP WITHHOLDING PROVISIONS OF THE FEDERAL INCOME TAX LAWS,
UNLESS AN EXCEPTION APPLIES UNDER APPLICABLE LAWS AND REGULATIONS, THE
DEPOSITARY WILL BE REQUIRED TO WITHHOLD 31% OF THE AMOUNT OF ANY PAYMENTS MADE
TO UNITHOLDERS PURSUANT TO THIS OFFER. TO PREVENT FEDERAL INCOME TAX BACKUP
WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE OF UNITS PURCHASED
PURSUANT TO THIS OFFER, A UNITHOLDER MUST PROVIDE THE DEPOSITARY WITH THE
UNITHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT THE
UNITHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING
THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 8 OF THE
LETTER OF TRANSMITTAL. See "Certain Federal Income Tax Consequences."
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4. DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS. All
questions as to the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Units will be determined by the
Purchaser in its sole discretion, which determination shall be final and
binding. The Purchaser reserves the absolute right to reject any and all tenders
determined by it not to be in proper form or the acceptance for payment of which
may, in the opinion of its counsel, be unlawful. The Purchaser also reserves the
absolute right to waive any condition of this Offer, or any defect or
irregularity in the tender of any Units of any Unitholder, whether or not
similar defects or irregularities are waived in the case of other Unitholders.
No tender of Units will be deemed to have been validly made until all defects
and irregularities have been cured or waived. None of the Purchaser, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. The Purchaser's
interpretation of the terms and conditions of this Offer (including the Letter
of Transmittal and the instructions thereto) will be final and binding.
5. WITHDRAWAL RIGHTS. Tenders of Units made pursuant to this Offer are
irrevocable, except that the Units may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Purchaser
pursuant to this Offer, may also be withdrawn at any time after August 31, 1996.
If the Purchaser extends this Offer, is delayed in its acceptance for payment of
Units or is unable to accept Units for payment pursuant to this Offer for any
reason, then, without prejudice to the Purchaser's rights under this Offer, the
Depositary may nevertheless, on behalf of the Purchaser, retain tendered Units,
and the Units may not be withdrawn except to the extent that tendering
Unitholders are entitled to withdrawal rights as described in this Section 5,
subject to Rule 14e-1(c) under the Exchange Act. Any such delay will be
accompanied by an extension of this Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at its address set forth
on the back cover page of this Offer to Purchase. Any such notice of withdrawal
must specify the name(s) of the person(s) who tendered the Units to be
withdrawn, the number of Units to be withdrawn and the name(s) of the registered
holder(s) of such Units, if different from that of the person(s) who tendered
such Units. The signature(s) on the notice of withdrawal must be guaranteed by
an eligible guarantor institution (a bank, stockbroker, savings and loan
association or credit union with membership in an approved signature guarantee
Medallion program).
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of this Offer. However, withdrawn Units may be
re-tendered at any time prior to the Expiration Date by following the procedures
described in "The Offer" -- Section 3 ("Procedure for Accepting the Offer and
Tendering Units").
6. EXTENSION OF THE OFFER PERIOD; TERMINATION AND AMENDMENT. The Purchaser
expressly reserves the right (but will not be obligated), in its sole
discretion, at any time or from time to time, to extend the period of time
during which this Offer is open by giving oral or written notice of such
extension to the Depositary and by making a public announcement of such
extension. During any such extension, all Units previously tendered and not
accepted for payment or withdrawn will remain subject to this Offer and may be
accepted for payment by the Purchaser at the conclusion of this Offer, except to
the extent such Units may be withdrawn as set forth in "The Offer" -- Section 5
("Withdrawal Rights"). There can be no assurance that the Purchaser will
exercise its right to extend this Offer. In addition, this Offer may be
extended, amended or terminated upon the occurrence of any event described in
"The Offer" -- Section 7 ("Certain Conditions of the Offer").
54
<PAGE>
If the Purchaser decides, in its sole discretion, to decrease the number of
Units being sought or to increase the consideration offered in this Offer to
Unitholders and, at the time that notice of such decrease or increase is first
published, sent or given to Unitholders in the manner specified below, this
Offer is scheduled to expire at any time earlier than the expiration of a period
ending on the tenth business day following, and including, the date that such
notice is first so published, sent or given, then this Offer will be extended
until the expiration of such period of ten business days.
The Purchaser also expressly reserves the right (i) to terminate this Offer
and not accept for payment or pay for any Units not theretofore accepted for
payment or paid for or to delay the acceptance for payment of, or payment for,
any Units validly tendered and not withdrawn, upon the occurrence of any of the
conditions specified in "The Offer" -- Section 7 ("Certain Conditions of the
Offer"), by giving oral or written notice of such termination or delay to the
Depositary and (ii) at any time, or from time to time, to amend this Offer in
any respect. Any extension, delay in payment, termination or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of Rule
14d-4(c) and Rule 14d-6(d) under the Exchange Act. Without limiting the
obligations of the Purchaser under such rules or the manner in which the
Purchaser may choose to make any public announcement, the Purchaser currently
intends to make announcements by issuing a release to the Dow Jones New Service
and making any appropriate filing with the Commission.
If the Purchaser extends this Offer or if the Purchaser is delayed in its
acceptance for payment of, or payment for, Units or is unable to accept for
payment or pay for Units pursuant to this Offer for any reason, then, without
prejudice to the Purchaser's rights pursuant to this Offer (including without
limitation, as set forth in "The Offer" -- Section 6 ("Extension of the Offer
Period; Termination and Amendment") and Section 7 ("Certain Conditions of the
Offer"), the Depositary may nevertheless, on behalf of the Purchaser, retain
tendered Units subject to withdrawal rights as described in "The Offer" --
Section 5 ("Withdrawal Rights"). The ability of the Purchaser to delay payment
for Units which it has accepted for payment is limited by Rule 14e-1(c) under
the Exchange Act, which requires any person making a tender offer to pay the
consideration offered or return the tendered securities promptly after the
termination or withdrawal of a tender offer.
7. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions
of this Offer and subject to the applicable rules of the Securities and Exchange
Commission, the Purchaser will not be required to accept for payment, or
purchase any Units tendered and may postpone the acceptance for purchase of
Units tendered and may terminate or amend this Offer if prior to the time of
purchase of any such Units any of the following shall occur or the Purchaser
shall have learned of the occurrence of any such events:
(a) There shall be threatened, instituted or pending any action or
proceeding before any domestic or foreign court or governmental agency or other
regulatory or administrative agency or commission (i) challenging the
acquisition by the Purchaser of the Units, seeking to restrain or prohibit the
making or consummation of this Offer, seeking to obtain any material damages or
otherwise directly or indirectly relating to the transactions contemplated by
this Offer, (ii) seeking to prohibit or restrict the Purchaser's ownership or
operation of any material portion of the Purchaser's business or assets, or to
compel the Purchaser to dispose of or hold separate all or any material portion
of its business or assets as a result of this Offer, (iii) seeking to make the
purchase of, or payment for, some or all of the Units illegal or invalid, (iv)
resulting in a delay in the ability of the Purchaser to accept for payment or
pay for some or all of the Units, (v) seeking to impose material limitations on
the ability of the Purchaser effectively to acquire or hold or to exercise full
rights of ownership of the Units, including, without limitation, the right to
vote the Units purchased by the Purchaser on all matters properly presented to
the Unitholders of the Partnership, (vi) which could materially and adversely
affect the
55
<PAGE>
treatment of this Offer for federal income tax purposes, (vii) which otherwise
is reasonably likely to materially adversely affect the Partnership or value of
the Units or (viii) which imposes any material condition unacceptable to the
Purchaser;
(b) Any statute, rule, regulation or order shall be enacted, promulgated,
entered or deemed applicable to this Offer, any legislation shall be pending, or
any other action shall have been taken, proposed or threatened, by any domestic
government or governmental authority or by any court, domestic or foreign, which
is likely, directly or indirectly, to result in any of the consequences referred
to in paragraph (a) above; or
(c) There shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the NYSE, (ii) the declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) the commencement of a war, armed hostilities or other
international or national calamity materially affecting the United States, (iv)
any limitation by any governmental authority or any other event which is
reasonably likely to affect the extension of credit by banks or other lending
institutions in the United States, (v) any material decline in security prices
on the NYSE or (vi) in the case of any of the foregoing existing at the time of
this Offer, any material worsening thereof;
which, in the sole judgment of the Purchaser, acting in good faith, with respect
to each and every matter referred to above, and regardless of the circumstances
(including any action or inaction by the Purchaser) giving rise to any such
condition makes it inadvisable to proceed with this Offer or with such
acceptance for purchase.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to any
such conditions (including any action or inaction by the Purchaser) or may be
waived by the Purchaser in whole or in part. The failure by the Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
8. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. Except as described in
this Section 8, the Purchaser is not aware of any license or other regulatory
permit which appears to be material to the business of the Partnership and its
subsidiaries taken as a whole and which is likely to be adversely affected by
the Purchaser's acquisition of Units pursuant to this Offer or of any approval
or other action by any domestic or foreign governmental or administrative agency
that would be required prior to the acquisition of Units by the Purchaser
pursuant to this Offer. Should any approval or other action be required, the
Purchaser presently intends to seek such approval or take such action (except as
described below under "State Takeover Laws"). The Purchaser does not presently
intend to delay the purchase of Units tendered pursuant to this Offer pending
the outcome of any such action or receipt of such approval (subject to the
Purchaser's right to decline to purchase Units if any of the conditions in "The
Offer" -- Section 7 ("Certain Conditions of the Offer") shall have occurred).
There can be no assurance that any such approval or action, if needed, would be
obtained, or, if obtained, that it will be obtained without substantial
conditions. The Purchaser's obligations under this Offer are subject to certain
conditions, among them conditions which might not be satisfied if there were a
failure to obtain regulatory approval and such failure were material. See "The
Offer" -- Section 7 ("Certain Conditions of the Offer").
STATE TAKEOVER LAWS. The Partnership conducts business in a number of
states throughout the United States, some of which have enacted takeover laws.
The Purchaser does not know whether any of these laws will, by their terms,
apply to this Offer. Should any person seek to apply any state takeover law, the
Purchaser will take such action as then appears desirable, which may include
challenging the validity or applicability of any such statute in appropriate
court proceedings. In the event it is asserted that one or more state takeover
laws is applicable to this Offer, and an appropriate court does not determine
that it is inapplicable or invalid as applied to this Offer, the Purchaser might
be required to file certain information with, or receive approvals from, the
relevant state authorities.
56
<PAGE>
In addition, if enjoined, the Purchaser might be unable to accept for payment
any Units tendered pursuant to this Offer, or be delayed in continuing or
consummating this Offer. In such case, the Purchaser may not be obligated to
accept for payment any Units tendered. See "The Offer" -- Section 7 ("Certain
Conditions of the Offer").
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1986,
as amended (the "HSR Act") and the rules that have been promulgated thereunder
by the Federal Trade Commission (the "FTC"), certain acquisition transactions
may not be consummated unless information has been furnished to the Antitrust
Division of the Department of Justice and the FTC and waiting period
requirements have been satisfied. The Purchaser believes that this Offer is not
subject to the HSR Act and that this Offer will not violate the antitrust laws.
However, there can be no assurance that a challenge to this Offer on antitrust
grounds will not be made, or if such a challenge is made, what the result will
be. See "The Offer" -- Section 7 ("Certain Conditions of the Offer") for certain
conditions of this Offer, including conditions with respect to litigation and
certain governmental actions.
MARGIN REQUIREMENTS. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations generally are not applicable to this Offer.
9. DISSENTERS' RIGHTS AND INVESTOR LISTS. Neither the Partnership
Agreement nor Washington law provides any right for Unitholders to have their
respective Units appraised or redeemed in connection with or as a result of this
Offer. Each Unitholder has the opportunity to make an individual decision on
whether or not to tender in this Offer. Under the Partnership Agreement, any
Unitholder is entitled to inspect the books and records of the Partnership at
reasonable times and upon two business days' notice to the General Partner. Any
Unitholder, upon paying the cost of duplicating and mailing, is entitled to a
copy of the list of names and addresses of Unitholders of the Partnership,
including the number of Units held by each of them.
10. FEES AND EXPENSES. Except as set forth below, the Purchaser will not
pay any fees or commissions to any broker, dealer or other person for soliciting
tenders of Units pursuant to this Offer. The Purchaser will reimburse brokers,
dealers, commercial banks and trust companies for customary handling and mailing
expenses incurred in forwarding this Offer to Purchase to their customers.
57
<PAGE>
The costs and fees listed below are estimates of the aggregate costs
expected to be incurred by the Purchaser, the Partnership and the Other
Partnerships as a result of the Transaction and the Additional Transactions. The
"Shared Transaction Costs" listed below will be shared by the Purchaser, the
Partnership, and the Other Partnerships in accordance with the Acquisition
Agreement. The "Individual Transaction Costs" listed below will be borne by the
entity that incurred the expense. See "The Acquisition Agreement."
<TABLE>
<S> <C>
Shared Transaction Costs:
Printing and Mailing................................................. $ 500,000
Accounting Fees...................................................... 255,000
Real Estate Transaction Costs........................................ 165,000
Information Agent/Inspector of Elections............................. 425,000
Other................................................................ 340,000
----------
1,685,000
Individual Transaction Costs:
Legal Fees........................................................... $1,811,000
Investment Banking Fees.............................................. 955,000
Partnership Transfer Fees for Tendered Units......................... 210,000
Appraisal Fee........................................................ 92,000
----------
3,068,000
----------
Total Transaction Costs................................................ $4,753,000
----------
----------
</TABLE>
If the Merger and the Additional Mergers are consummated, of the Individual
Transaction Costs, approximately $617,000 will be borne by the Partnership,
approximately $623,000 will be borne by IDS1, approximately $418,000 will be
borne by IDS2 and approximately $1,410,000 will be borne by the Purchaser. If
the Merger and the Additional Mergers are consummated, the Purchaser expects to
incur total costs of approximately $2.3 million and the Partnership expects to
incur total costs of approximately $930,000. The remaining costs and fees will
be incurred by the Other Partnerships.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and Gemisys Corporation to act as Depositary in connection with this
Offer. The Information Agent may contact holders of Units by mail, telephone,
telex, telegraph and personal interview and may request brokers, dealers and
other nominee Unitholders to forward materials relating to this Offer to
beneficial owners of the Units. The Information Agent and the Depositary each
will receive reasonable and customary compensation for their services in
connection with this Offer, will be reimbursed for their reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection with this Offer, including certain liabilities under the
federal securities laws.
11. MISCELLANEOUS. This Offer is being made to all Unitholders. The
Purchaser is not aware of any state where the making of this Offer is prohibited
by administrative or judicial action pursuant to a state statute. If the
Purchaser becomes aware of any state where the making of this Offer is so
prohibited, the Purchaser will make a good faith effort to comply with any such
statute or seek to have such statute declared inapplicable to this Offer. If,
after such good faith effort, the Purchaser cannot comply with any applicable
statute, this Offer will not be made to (nor will tenders be accepted from or on
behalf of) the Unitholders in such state.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained in this Offer, and, if
given or made, such information or representation must not be relied upon as
having been authorized. In those jurisdictions where securities, blue sky or
other laws require this Offer to be made by a licensed broker or dealer, this
Offer shall be deemed to be made on behalf of the Purchaser by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
SHURGARD STORAGE CENTERS, INC.
58
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF SHURGARD STORAGE CENTERS, INC.
The following table sets forth the name, business address, principal
occupation or employment at the present time and during the last five years, and
the name, principal business and address of any corporation or other
organization in which such occupation or employment is or was conducted, of the
directors and executive officers of the Purchaser, all of whom are citizens of
the United States. Except as otherwise noted, the address of each such
corporation or organization listed and the business address of each person
listed is the address of the Purchaser, 1201 Third Avenue, Suite 2200, Seattle,
Washington 98101. Except as otherwise noted, the principal business of each
corporation or organization listed is real estate investment and each person
listed has had the principal occupation or employment listed for more than the
past five years.
<TABLE>
<CAPTION>
COMPANY/ADDRESS/
NAME DESCRIPTION OF BUSINESS OFFICE AND DATE OF ELECTION
- -------------------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
Charles K. Barbo Shurgard Storage Centers, Inc. Director (1995-present);
Chairman of the Board, President and Chief
Executive Officer (1995-present)
Shurgard General Partner, Inc. Chairman of the Board;
President (1992-present)
Shurgard Incorporated Chairman of the Board and Chief Executive
Officer (1972-1995)
Harrell L. Beck Shurgard Storage Centers, Inc. Director (1993-present);
President (1993-1995);
Chief Financial Officer,
Treasurer (1993-present);
Senior Vice President (1995-present)
Shurgard General Partner, Inc. Treasurer (1992-present)
Shurgard Incorporated Chief Financial Officer (1990-1995)
Michael Rowe Shurgard Storage Centers, Inc. Executive Vice President
(1993-present);
Chief Operating Officer
(March 19, 1996-present)
Shurgard General Partner, Inc. Vice President (1994-present);
Treasurer (1991-1992)
Shurgard Incorporated Director of Storage Operations (1987-1993)
Kristin H. Stred Shurgard Storage Centers, Inc. Secretary (1993-present);
Senior Vice President (1995-present)
Shurgard General Partner, Inc. Secretary (1993-present)
Shurgard Incorporated Secretary and General Counsel (1992-1995)
The Boeing Company Attorney (1991-1992)
(aerospace and defense)
</TABLE>
Schedule I - Page 1
<PAGE>
<TABLE>
<CAPTION>
COMPANY/ADDRESS/
NAME DESCRIPTION OF BUSINESS OFFICE AND DATE OF ELECTION
- -------------------- --------------------------------------------- ---------------------------------------------
David K. Grant Shurgard Storage Centers, Inc. Executive Vice President
(1993-present);
Director of European Operations (May 14,
1996-present)
<S> <C> <C>
Shurgard Incorporated Director of Real Estate Investments
(1985-1995)
Donald W. Lusk Shurgard Storage Centers, Inc. Director (1994-present)
Lusk Consulting Group President
P.O. Box 3235
Redmond, WA 98087
(general management consulting)
Wendell J. Smith Shurgard Storage Centers, Inc. Director (1994-present)
W.J.S. & Associates Founder
1301 Gary Way
Carmichael, CA 95608
(advisory and consulting services)
Howard Johnson Shurgard Storage Centers, Inc. Director (1996-present)
Howard Johnson & Company Chairman, President and Chief Executive
375 Park Avenue Officer
New York, NY 10152
(independent consulting)
Greenlaw Grupe Shurgard Storage Centers, Inc. Director (1996-present)
The Grupe Company Chairman and Chief Executive Officer
3255 W. March Lane, 4th Floor
Stockton, CA 95219
</TABLE>
Schedule I - Page 2
<PAGE>
SCHEDULE II
SUMMARY PORTFOLIO APPRAISAL REPORT
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
Schedule II - Page 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Letter of Transmittal...................................................................................... 3
Identification of Subject Portfolio........................................................................ 5
Property Ownership and History............................................................................. 5
Purpose of Appraisal....................................................................................... 5
Function of Appraisal...................................................................................... 5
Scope of Appraisal......................................................................................... 5
Date of Valuation.......................................................................................... 6
Value Definition........................................................................................... 6
Valuation Methodology...................................................................................... 6
Site Inspections and Data Gathering...................................................................... 7
Income and Expense Analysis.............................................................................. 8
Income Approach Analysis................................................................................. 9
Sales Comparison Analysis................................................................................ 9
Reconciliation........................................................................................... 10
Portfolio Value Conclusion................................................................................. 10
Portfolio Summary.......................................................................................... 11
Assumptions and Limiting Conditions........................................................................ 12
</TABLE>
Schedule II - Page 2
<PAGE>
- --------------------------------------------------------------------------------
1129 Broad Street
Shrewsbury, NJ 07702-4314
ROBERT A. STANGER & CO., INC.
(908) 389-3600
FAX: (908) 389-1751
FINANCIAL AND MANAGEMENT CONSULTANTS
(908) 544-0779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 26, 1996
IDS/Shurgard Income Growth Partners L.P. III
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Gentlemen:
IDS/Shurgard Income Growth Partners L.P. III (the "Partnership") has engaged
Robert A. Stanger & Co., Inc. ("Stanger") to estimate the market value of the
portfolio of self-storage facilities (the "Portfolio") owned by the Partnership.
Such appraisals reflect the estimated market value of the fee simple interests
or, where appropriate, leased fee interests in the Portfolio as of December 31,
1995, assuming the Portfolio to be free and clear of any existing debt or other
encumbrances (the "Portfolio Valuation").
This summary appraisal report is prepared in accordance with an agreement
between Robert A. Stanger & Co., Inc. and the Partnership dated March 8, 1996.
In accordance with the agreement, Stanger has been engaged to perform the
appraisal on a limited scope basis in conformity with the departure provisions
of the Uniform Standards of Professional Appraisal Practice and the standards of
the Appraisal Institute as they relate to limited scope appraisal reports. We
have relied upon the Income Approach and Sales Comparison Approach to value and
have been engaged to deliver to the Partnership a summary appraisal report that
is not designed to meet the requirements of Title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
The Portfolio Valuation is based in part upon information supplied to us by
the Partnership and the property manager, including, but not limited to:
descriptions of the subject properties (the "Properties"), unit mix, operating
statements of the Properties, property tax bills, expense details, occupancy
reports, rent rolls and other supporting data. We have also received information
from interviews of property and Partnership management personnel. We have relied
upon such information and have assumed that the information provided is accurate
and complete. We have not attempted to independently verify such information.
We are advised by the Partnership that the purpose of the appraisal is to
estimate the value of the fee interests in the Portfolio under market conditions
as of the appraisal date, and that the Portfolio Valuation will be used solely
in connection with a proposed tender offer for Partnership interests and merger
of the Partnership with Shurgard Storage Centers, Inc. ("SSCI"). Stanger
understands that the Portfolio Valuation will be reviewed and utilized by the
Partnership in connection with the above transactions, and Stanger agrees to the
use of the Portfolio Valuation for this purpose subject to the terms and
conditions of the agreements related thereto. For these purposes, this summary
appraisal report was prepared stating our opinion as to the aggregate fair
market value of the Partnership's interests in the Portfolio as of December 31,
1995. Portions of this report may be summarized and referenced in a proxy
statement or other offering materials relating to the transactions, subject to
prior review by Stanger. However, the attached summary appraisal report should
be reviewed in its entirety and is subject to the assumptions and limiting
conditions contained herein. Background information and analysis upon which
value conclusions are based has been retained in our files.
Schedule II - Page 3
<PAGE>
Our review was undertaken solely for the purpose of providing an opinion of
market value, and we make no representation as to the adequacy of such review
for any other purpose. Our opinion is expressed with respect to the total market
value of the Portfolio. Neither Stanger nor the undersigned have any present or
contemplated future financial or ownership interest in the Properties, the
Partnership or SSCI.
The Portfolio Valuation has been prepared on a limited scope basis in
conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice of the Appraisal Institute, in accordance with
an agreement between Robert A. Stanger & Co., Inc. and the Partnership dated
March 8, 1996. Pursuant to that agreement, Stanger has relied upon the Income
Approach and Sales Comparison Approach to value and did not employ the Cost
Approach.
The appraisal is only an estimate of the market value of the fee simple
interests or, where appropriate, leasehold interests in the Portfolio as of the
date of valuation and should not be relied upon as being the equivalent of the
price that would necessarily be received in the event of a sale or other
disposition of the Portfolio. Changes in corporate financing rates or changes in
real estate property markets may result in higher or lower values of real
property. The use of other valuation methodologies might produce a higher or
lower value. Our opinion is subject to the assumptions and limiting conditions
set forth herein. We have used methods and assumptions deemed appropriate in our
professional judgment; however, future events may demonstrate that the
assumptions were incorrect or that other, different methods or assumptions may
have been more appropriate.
This summary appraisal report provides our value conclusion with respect to
the Portfolio, definitions of value, discussions of the valuation methodology
employed, assumptions, and limiting conditions. The attached exhibits are an
integral part of this report.
Based upon the review described herein, it is our opinion that the market
value of the fee simple interests or, where appropriate, the leased fee
interests in the Portfolio of Properties owned by IDS/ Shurgard Income Growth
Partners L.P. III as of December 31, 1995 is:
FIFTY MILLION, EIGHT HUNDRED AND NINETY THOUSAND DOLLARS
$50,890,000
------------------------
Sincerely,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
Schedule II - Page 4
<PAGE>
IDENTIFICATION OF SUBJECT PORTFOLIO
The subject of this summary appraisal report is the portfolio of real
properties (the "Portfolio") in which IDS/Shurgard Income Growth Partners L.P.
III own interests. The Portfolio is comprised of sixteen self-storage properties
and one office property, aggregating approximately 1,004,000 square feet,
located in seven states. (A summary description of the Portfolio is provided
elsewhere in this report.)
PROPERTY OWNERSHIP AND HISTORY
All the properties in the Portfolio are owned by IDS/Shurgard Income Growth
Partners L.P. III and were purchased by the Partnership between 1991 and 1994.
Information concerning properties purchased within the past three years has been
reviewed and retained in our files.
PURPOSE OF APPRAISAL
The purpose of the appraisal is to estimate the market value of the fee
simple interests or, where appropriate, leased fee interests in the Portfolio
under market conditions as of December 31, 1995.
FUNCTION OF APPRAISAL
The function of the appraisal is to provide a current estimate of market
value of the fee simple interests or, where appropriate, leased fee interests in
the Portfolio for use solely by the Partnership in connection with a proposed
tender offer for interests in the Partnership and merger of the Partnership with
Shurgard Storage Centers, Inc. No representation is made as to the adequacy of
this appraisal for any other purpose.
SCOPE OF APPRAISAL
The Portfolio Valuation has been prepared on a limited scope basis in
conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice of the Appraisal Institute, in accordance with
an agreement between Robert A. Stanger & Co., Inc. and the Partnership dated
March 8, 1996. Pursuant to that agreement, Stanger has relied upon the Income
Approach and Sales Comparison Approach to value and did not employ the Cost
Approach (as described below).
In estimating the value of a property, appraisers typically consider three
approaches to value: the Cost Approach, the Sales Comparison Approach and the
Income Approach. The type and age of a property, market conditions and the
quantity and quality of data affect the applicability of each approach in a
specific appraisal situation. The value estimated by the Cost Approach
incorporates separate estimates of the value of the unimproved site under its
highest and best use and the value of the improvements, less observed accrued
depreciation resulting from physical wear and tear and functional and/or
economic obsolescence. The Market Data or Sales Comparison Approach involves a
comparative analysis of the subject property with other similar properties that
have sold recently or that are currently offered for sale in the market. The
Income Approach involves an economic analysis of the property based on its
potential to provide future net annual income.
Pursuant to the terms of our engagement, the Portfolio Valuation was
performed using the Income Approach and Sales Comparison Approach. Since a
primary buyer group for the type of property appraised herein is investors, the
Income Approach and Sales Comparison Approach were deemed appropriate valuation
methodologies. Further, given the primary criteria used by buyers of the type of
property appraised herein, the Cost Approach was considered less reliable than
either of the Income Approach or Sales Comparison Approach.
Changes in corporate financing rates generally or in real estate property
markets may result in higher or lower values of real property. The use of other
valuation methodologies might produce a higher or lower value. Our opinion is
subject to the assumptions and limiting conditions set forth herein.
Schedule II - Page 5
<PAGE>
DEPARTURES -- UNIFORM STANDARDS OF PROFESSIONAL PRACTICE -- With respect to
the limited appraisal, the departure provisions of the Uniform Standards of
Professional Appraisal Practice permit departures from the specific guidelines
of Standard 1. In this report the following departures were taken:
<TABLE>
<S> <C>
Standard Rule Details relating to comparable sales and rental data and
1-4 (b) reconciliations of value for each property are not specifically
described or set forth in this report but have been retained in our
files.
</TABLE>
DATE OF VALUATION
The date of valuation for the Portfolio is December 31, 1995.
VALUE DEFINITION
Market value, as used in this report and defined by the Appraisal Institute,
is the most probable price as of a specified date, in cash, in terms equivalent
to cash, or in other precisely revealed terms, for which the specified property
rights should sell after reasonable exposure in a competitive market under all
conditions requisite to a fair sale, with the buyer and seller each acting
prudently, knowledgeably and for self-interest, and assuming that neither is
under undue duress.
Implicit in this definition is the consummation of a sale as of a specified
date and the passing of title from seller to buyer under conditions whereby:
(a) buyer and seller are typically motivated;
(b) both parties are well informed or well advised, and each acts in a
manner he considers in his own best interest;
(c) a reasonable time is allowed for exposure in the open market;
(d) payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(e) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale.
(Source: THE APPRAISAL OF REAL ESTATE, Tenth Edition.)
The property rights appraised in this report consist of fee simple interests
or, where appropriate, leased fee interests. Due to the generally short-term,
month to month tenancies in self-storage facilities, a fee simple interest was
deemed appropriate for such facilities. Fee simple interest is defined as
absolute ownership unencumbered by any other interest or estate subject only to
the limitations of eminent domain, escheat, police power and taxation.
Leased fee interest is defined as an ownership interest held by a landlord
with the right to use and occupancy conveyed by lease to others, and usually
consists of the right to receive rent and the right to repossession at the
termination of the lease.
The appraisal includes the value of land, land improvements such as paving,
fencing, on-site sewer and water lines, and the buildings as of December 31,
1995. The appraisal does not include supplies, materials on hand, inventories,
furniture, equipment or other personal property, company records, or current or
intangible assets that may exist. The appraisal pertains only to items
considered as real estate.
VALUATION METHODOLOGY
Pursuant to the terms of this engagement, Stanger has estimated the value of
the fee simple interests or, where appropriate, the leased fee interests in the
Portfolio's Properties based on the
Schedule II - Page 6
<PAGE>
Income Approach and Sales Comparison Approach to valuation. (Appraisers
typically use up to three approaches in valuing real property: the Cost
Approach, the Income Approach, and the Sales Comparison Approach. The type and
age of a property, market conditions and the quantity and quality of data affect
the applicability of each approach in a specific appraisal situation.)
The Income Approach is based on the assumption that the value of a property
or portfolio of properties is dependent upon the property's or portfolio's
ability to produce income. The Income Approach estimates a property's capacity
to produce income through an analysis of the rental market, operating expenses
and net operating income. Net income may then be processed into value through
either (or a combination of) two methods: direct capitalization or discounted
cash flow analysis. In this Portfolio Valuation, a direct capitalization
analysis and a discounted cash flow ("DCF") analysis are used to determine the
value of the fee simple interests or, where appropriate, leased fee interests in
each Property. The indicated value by the Income Approach represents the amount
an investor may pay for the expectation of receiving the net cash flow from the
Properties and proceeds from the ultimate sale of the Properties.
The direct capitalization analysis is based upon the estimated net operating
income of each Property capitalized at an appropriate capitalization rate based
upon property characteristics and competitive position and market conditions as
of the date of the appraisal.
In applying the DCF analysis, Stanger utilized pro forma statements of
operations for each Portfolio Property including revenues and expenses projected
over a ten-year period. Each Portfolio Property is assumed to be sold at the end
of the ten-year holding period. The reversion value of each Portfolio Property
which can be realized upon sale at the end of the ten-year holding period is
estimated based on capitalization of the estimated net income of the property in
the year of sale, utilizing a capitalization rate deemed appropriate in light of
the age, anticipated functional and economic obsolescence and competitive
position of the property at the time of sale. Net proceeds to owners are
determined by deducting appropriate costs of sale. The discount rate selected
for the DCF analysis is based upon estimated target rates of return for buyers
of self-storage properties. Total estimated value for the Portfolio Properties
is arrived at by summing the discounted present value of the cash flow stream
from operations and net proceeds from sale for each property.
The Sales Comparison Approach utilizes indices of value derived from actual
or proposed sales of comparable properties to estimate the value of the
Portfolio Property. Price per square foot -- a unit of comparison typically
analyzed for self-storage facilities -- was utilized in applying the Sales
Comparison Approach to the Portfolio Properties.
The following describes more fully the steps involved in the valuation
methodology utilized.
SITE INSPECTIONS & DATA GATHERING
In conducting the Portfolio Valuation, representatives of Stanger performed
a site inspection of each Portfolio Property during March 1996. In the course of
these site visits, the physical facilities of each property were inspected,
current rental and occupancy information for the property was obtained, current
market rental rates for competing properties were investigated, primary
competing properties were visited, information on the local market was gathered,
and the on-site manager or assistant manager was interviewed concerning the
property and other factors. Information gathered during the site inspection was
supplemented by a review of published information concerning economic,
demographic and real estate trends in local or regional and national markets.
In conducting the appraisal, Stanger also interviewed and relied upon
Partnership and property management personnel to obtain information relating to
the condition of each property, including any deferred maintenance, capital
budgets, known environmental conditions, status of on-going or newly planned
property additions, reconfigurations, improvements, and other factors affecting
the physical condition of the property improvements.
Schedule II - Page 7
<PAGE>
In addition, Stanger interviewed district and/or regional managers of the
Portfolio Properties, SSCI management personnel and Partnership management
personnel. Such interviews included discussions of competitive conditions in
local markets, area economic and development trends affecting the subject
properties, historical and budgeted operating revenues and expenses and
occupancies. Stanger also reviewed historical operating statements and 1996
operating budgets for each Portfolio Property, and reviewed surveys of local
self-storage markets conducted by property management personnel.
To define the occupancy, rental rate and expense escalators to be used in
developing operating projections, Stanger reviewed the acquisition criteria and
projection parameters in use in the marketplace by major self-storage investors,
owners and operators. In addition, Stanger reviewed other published information
concerning acquisition criteria in use by property investors at or around the
valuation date. Further, Stanger interviewed various sources in local markets to
identify recent sales of self-storage properties and to derive certain valuation
indicators. Sources for transaction data included local appraisers, property
owners, real estate brokers, tax assessors, and real estate research firms.
In addition, Stanger reviewed the acquisition criteria and parameters used
by self-storage real estate investors. Such review included a search of real
estate data sources and publications concerning real estate buyer's criteria,
and direct telephonic interviews with major national investors, owners,
managers, brokers and appraisers of self-storage property portfolios to
investigate the interaction of such factors as required rates of return, initial
capitalization rate requirements, and property type or geographical preferences.
Stanger also compiled data on actual transactions involving self-storage
properties from which acquisition criteria and parameters were extracted.
Stanger reviewed publicly available information on acquisitions of self-storage
properties by certain publicly owned real estate companies and contacted various
industry sources for relevant data.
INCOME AND EXPENSE ANALYSIS
During the course of the site inspections, competing properties were
identified and data on local market rental rates and occupancy were obtained.
Such data was compared to national averages for self-storage properties and
posted rental rates, the rent roll and occupancy reports for each subject
property, as available. Historical and budgeted effective gross income and
income from ancillary sources was also reviewed for each subject property. In
addition, discussions were conducted with relevant Partnership and property
management personnel concerning property and market trends and competitive
conditions. After assessing the above factors, an effective gross income
estimate was prepared for each property based upon the unit configuration,
market rental rates, market occupancy rate and estimates of ancillary income.
Historical and budgeted data on expenses were obtained from the Partnership
for each property. In addition, property tax bills were obtained and tax
assessments were confirmed with local municipalities. Expenses for each
individual property were estimated based on historical and budgeted operating
expenses, discussions with management and certain industry expense guidelines.
Estimated expenses were then deducted from estimated income for each
property to arrive at each properties' estimated net operating income. Expenses
relating solely to investor reporting and accounting were excluded.
During the course of the site inspections, any deferred maintenance was
observed. Historical and budgeted capital expenditures were reviewed and
discussed with management, and appropriate capital expenditures were considered
in the analysis.
Schedule II - Page 8
<PAGE>
INCOME APPROACH ANALYSIS
Stanger then employed both direct capitalization and discounted cash flow
analysis to estimate the value of the subject properties. The direct
capitalization rate used was based on current acquisition criteria among
self-storage investors and reflected in specific sales transactions. Where
appropriate, the capitalization rate used for an individual property was
adjusted to reflect valuation factors unique to the property, such as overall
quality, recent buildouts, and other unique valuation facts affecting the
individual properties. Where deferred maintenance or extraordinary capital
expenditures were required the capitalized value was adjusted accordingly.
- DIRECT CAPITALIZATION ANALYSIS -- Based upon the net operating income
estimated in accordance with the analyses of effective gross income and expenses
described above, an estimate of value was derived for each Portfolio Property by
capitalizing the estimated net operating income at a rate determined in
accordance with surveys of buyers of self-storage properties, as confirmed by a
review of comparable sales transactions, and deemed appropriate given the
characteristics of each property. Capitalization rates ranging from 9.25% to
10.25% were applied to the projected net operating income from each of the
Portfolio Properties which were considered to be at stabilized occupancy during
the twelve-month period following the valuation date.
- DISCOUNTED CASH FLOW ANALYSIS -- In applying discounted cash flow analysis,
projections of cash flows from each property (assuming no indebtedness thereon)
for a ten-year period ending December 31, 2005 were developed. The base year
projection of net operating income was prepared consistent with the direct
capitalization analysis based upon the analysis of effective gross income and
expenses described above. Income and expense escalators used in developing the
projections were based on projection parameters in use as of the Valuation Date
by property investors, market factors, historical and budgeted financial results
for each property, and inflation rates. Income escalators generally ranged from
3% to 3.5%. In highly competitive markets or where a property's operations were
below stabilized levels, income escalators were adjusted as deemed appropriate
or until stabilized operations were achieved. Effective expense escalators
generally ranged from 2.7% to 3.5%.
To determine the residual value for each property at the end of the
projection period, the estimated net operating income of the property for the
twelve months ending December 2006 was capitalized at a rate deemed appropriate
for the property. Terminal capitalization rates generally ranged from 10.25% to
10.75% and for the office property was 11.0%. The residual value was discounted
to a present value after deducting appropriate sales expenses using the same
discount rate applied to the stream of annual cash flows. The discount rate
employed was based on current acquisition criteria among self-storage investors,
commercial/industrial property investors' target rates of return, and the
historical spread in rates of return between real estate and other investments.
Discount rates utilized ranged from 12.25% to 12.5%.
The results of each analysis (direct capitalization and discounted cash
flow) then were correlated to arrive at a final income approach value
determination.
SALES COMPARISON ANALYSIS
In the course of performing the Portfolio Valuation, Stanger compiled data
on actual transactions involving properties similar in type to the Portfolio
Properties. To gather such data, Stanger interviewed various sources in local
markets to identify recent sales of self-storage or office/storage properties,
reviewed publicly available information on acquisitions of self-storage
properties by certain publicly owned real estate companies, reviewed information
provided by management, and contacted various industry sources for data.
For each Portfolio Property, the data was grouped into local and/or regional
transactions. Where local transactions sample sizes were small or dated,
regional and/or national data was relied upon.
Schedule II - Page 9
<PAGE>
Utilizing such data, an index of value was derived based upon price per
square foot. The index of value was applied to each property to estimate value.
Price per square foot as estimated by reference to comparable sales transactions
was multiplied by the rentable square footage of each property to derive an
estimated range of value.
In addition, Stanger conducted a statistical analysis of self-storage
property transaction data to determine value indicators reflective of recent
market conditions. Due to the relatively low number of recent transactions in
any specific local or regional market from which to extract reliable statistical
indicators, Stanger utilized a sample of recent national transactions. A
regression analysis was performed to determine the relationship between the
price per square foot paid in recent transactions and the net operating income
of the property acquired. Based on this analysis, a probable range of value per
square foot was derived for each property. The resulting indicated values were
reconciled.
In the case of the Stone Mountain and Forest Park properties, the valuation
included consideration of the value of excess land parcels currently held for
resale. Such values were determined utilizing the sales comparison approach
based on analysis of transactions involving land parcels in the local market of
each property.
SALES COMPARISON APPROACH AND INCOME APPROACH RECONCILIATION
The estimated values resulting from the Sales Comparison Approach were
reconciled with the values estimated resulting from the Income Approach (direct
capitalization and discounted cash flow analyses) for each Portfolio Property,
and the resulting values were summed to determine the estimated value of the
Portfolio.
The Income Approach reflects the quality, durability and risk of the
estimated income stream. Properties such as the subject Portfolio Properties are
typically purchased and sold based upon their income characteristics. The Income
Approach was given primary consideration based upon the income producing nature
of the Portfolio Properties and their appeal to investors. The Sales Comparison
Approach was given secondary consideration.
Where necessary, Stanger adjusted the value conclusion for each Portfolio
Property to reflect any deferred maintenance items, excess land associated with
the Property, and joint venture interests, if any.
PORTFOLIO VALUE CONCLUSION
Based upon the review as described above, it is our opinion that the market
value of the fee simple interests or, where appropriate, the leased fee
interests in the Portfolio owned by IDS/Shurgard Income Growth Partners L.P. III
as of December 31, 1995 is:
FIFTY MILLION, EIGHT HUNDRED AND NINETY THOUSAND DOLLARS
$50,890,000
------------------------
Schedule II - Page 10
<PAGE>
PORTFOLIO SUMMARY
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
DECEMBER 31, 1995
<TABLE>
<CAPTION>
RENTABLE
SQUARE
NUMBER PROPERTY ADDRESS TYPE FOOTAGE
- --------- ------------------------------------------------------------ --------------- ------------
<S> <C> <C> <C>
3-1 Shurgard of Gilbert Self-Storage 65,800
405 North Gilbert, Gilbert, AZ
3-2 Shurgard of Dobson Ranch 2640 South Alma Self-Storage 58,500
School Road, Mesa, AZ
3-3 Shurgard of Castro Valley Self-Storage 69,300
21655 & 21082 Redwood Road, Castro Valley, CA
3-4 Castro Valley Office Building Office 3,100
21663 Redwood Road, Castro Valley, CA
3-5 Shurgard of Newark Self-Storage 61,500
37444 Cedar Boulevard, Newark, CA
3-6 Shurgard of Sacramento Self-Storage 53,100
8959 Pocket Road, Sacramento, CA
3-7 Shurgard of San Leandro Self-Storage 58,500
2011 Marina Boulevard, San Leandro, CA
3-8 Shurgard of San Lorenzo Self-Storage 54,100
16025 Ashland Avenue, San Lorenzo, CA
3-9 Shurgard of Delray Beach Self-Storage 77,300
6000 West Atlantic Avenue, Delray Beach, FL
3-10 Shurgard of Norcross Self-Storage 61,800
5010 Jimmy Carter Boulevard, Norcross, GA
3-11 Shurgard of Stone Mountain Self-Storage 61,200(1)
840 Hambrick Road, Stone Mountain, GA
3-12 Shurgard of Tucker Self-Storage/ 60,000
2660 Mountain Industrial Boulevard, Tucker, GA Office
3-13 Shurgard of Forest Park Self-Storage 65,200(2)
5979 Old Dixie Road, Forest Park, GA
3-14 Shurgard of Rochester/Utica Self-Storage 56,600
2100 West Utica Road, Utica, MI
3-15 Shurgard of Allen Boulevard Self-Storage 42,500
11160 SW Allen Boulevard, Beaverton, OR
3-16 Shurgard of Windcrest Self-Storage 86,200
10652 Interstate Hwy 35 N, San Antonio, TX
3-17 Shurgard of Tracy Self-Storage 69,600
400 West Larch Road, Tracy, CA
</TABLE>
- ------------------------
(1) Stone Mountain Property includes approximately 1.5 acres of excess land held
for resale.
(2) Forest Park Property includes approximately 1.99 acres of excess land held
for resale.
Schedule II - Page 11
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
This summary appraisal report is subject to the assumptions and limiting
conditions as set forth below.
1. No responsibility is assumed for matters of a legal nature affecting the
Portfolio Properties or the titles thereto. Titles to the properties are assumed
to be good and marketable and the properties are assumed free and clear of all
liens unless otherwise stated.
2. The Portfolio Valuation assumes (a) responsible ownership and competent
management of the properties; (b) there are no hidden or unapparent conditions
of the properties' subsoil or structures that render the properties more or less
valuable (no responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them); (c) full compliance
with all applicable federal, state and local zoning, access and environmental
regulations and laws, unless noncompliance is stated, defined and considered in
the Appraisal; and (d) all required licenses, certificates of occupancy and
other governmental consents have been or can be obtained and renewed for any use
on which the value estimate contained in the Portfolio Valuation is based.
3. The Appraiser shall not be required to give testimony or appear in court
because of having made the appraisal with reference to the portfolio in
question, unless arrangements have been previously made therefore.
4. The information contained in the Portfolio Valuation or upon which the
Portfolio Valuation is based has been provided by or gathered from sources
assumed to be reliable and accurate. Some of such information has been provided
by the owner of the properties. The Appraiser shall not be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, exhibits and other factual matters. The
Portfolio Valuation and the opinion of value stated herein are as of the date
stated in the Portfolio Valuation. Changes since that date in property, external
and market factors can significantly affect portfolio value.
5. Disclosure of the contents of the appraisal report is governed by the
Bylaws and Regulations of the professional appraisal organization with which the
Appraiser is affiliated.
6. Neither all, nor any part of the content of the report, or copy thereof
(including conclusions as to the portfolio's value, the identity of the
Appraiser, professional designations, reference to any professional appraisal
organizations, or the firm with which the Appraiser is connected) shall be used
for any purpose by anyone other than the client specified in the report,
including, but not limited to, the mortgagee or its successors and assignees,
mortgage insurers, consultants, professional appraisal organizations, any state
or federally approved financial institution, any department, agency or
instrumentality without the previous written consent of the Appraiser; nor shall
it be conveyed by anyone to the public through advertising, public relations,
news sales or other media, without the written consent and approval of the
Appraiser.
7. On all appraisals subject to completion, repairs or alterations, the
appraisal report and value conclusions are contingent upon completion of the
improvements in a workmanlike manner.
8. The physical condition of the improvements considered by the Portfolio
Valuation is based on visual inspection by the Appraiser or other
representatives of Stanger and on representations by the owner. Stanger assumes
no responsibility for the soundness of structural members or for the condition
of mechanical equipment, plumbing or electrical components. The Appraiser has
made no surveys of the Portfolio Properties.
9. The projections of income and expenses and the valuation parameters
utilized are not predictions of the future. Rather, they are the Appraiser's
best estimate of current market thinking relating to future income and expenses.
The Appraiser makes no warranty or representations that these projections will
materialize. The real estate market is constantly fluctuating and changing. It
is not the Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the investment
community, as of the date of the Appraisal,
Schedule II - Page 12
<PAGE>
envisions for the future in terms of rental rates, expenses, supply and demand.
We have used methods and assumptions deemed appropriate in our professional
judgment; however, future events may demonstrate that the assumptions were
incorrect or that other different methods or assumptions may have been more
appropriate.
10. The Portfolio Valuation represents normal consideration for the
Portfolio's Properties based on a cash purchase and unaffected by special terms,
services, fees, costs, or credits incurred in the transaction.
11. Unless otherwise stated in the report, the existence of hazardous
materials, which may or may not be present on the Portfolio Properties, was not
disclosed to the Appraiser by the owner. The Appraiser has no knowledge of the
existence of such materials on or in the Portfolio Properties. However, the
Appraiser is not qualified to detect such substances. The presence of substances
such as asbestos, ureaformaldehyde foam insulation, oil spills, or other
potentially hazardous materials may affect the value of the Portfolio. The
Portfolio Value estimate is predicated on the assumption that there is no such
material on or in the Portfolio Properties that would cause a loss of value. No
responsibility is assumed for such conditions, or for any expertise or
engineering knowledge required to discover them. The client is urged to retain
an expert in this field, if desired.
12. For purposes of this report, it is assumed that each Portfolio Property
is free of any negative impact with regard to the Environmental Cleanup
Responsibility Act (ECRA) or any other environmental problems or with respect to
non-compliance with the Americans with Disabilities Act (ADA). No investigation
has been made by the Appraiser with respect to any potential environmental or
ADA problems. Environmental and ADA compliance studies are not within the scope
of this report.
13. Pursuant to the Engagement Agreement, the Portfolio Valuation has been
prepared on a limited scope basis using a summary report format in conformity
with the departure provisions of the Uniform Standards of Professional Appraisal
Practice and the Standards of Professional Appraisal Practice of the Appraisal
Institute, relying on the income approach and sales comparison approach to
value. Further, the engagement calls for delivery of a summary appraisal report
in which the content has been limited to that data presented herein. As such,
the summary appraisal report is not designed to meet the requirements of Title
XI of the Federal Financial Institutions Reform, Recovery and Enforcement Act of
1989. Therefore, federally regulated institutions should not rely on this report
for financing purposes.
14. The Portfolio Valuation reported herein may not reflect the premium or
discount a potential buyer may assign to an assembled portfolio of properties or
to a group of properties in a particular local market which provides
opportunities for enhanced market presence and penetration. In addition, where
properties are owned jointly with other entities affiliated with the general
partner, minority interest discounts were not applied.
15. The appraisal is solely for the purpose of providing our opinion of the
value of the Portfolio, and we make no representation as to the adequacy of such
review for any other purpose. The owner has directed that the Portfolio
Properties be valued assuming the properties are free and clear of any debt. The
use of other valuation methodologies might produce a higher or lower value.
16. In addition to these general assumptions and limiting conditions, any
assumptions or conditions applicable to specific properties have been retained
in our files.
Schedule II - Page 13
<PAGE>
SCHEDULE III
- --------------------------------------------------------------------------------
1129 Broad Street
Shrewsbury, NJ 07702-4314
ROBERT A. STANGER & CO., INC.
(908) 389-3600
FAX: (908) 389-1751
FINANCIAL AND MANAGEMENT CONSULTANTS
(908) 544-0779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IDS/Shurgard Income Growth Partners L.P. III
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Gentlemen:
We have been informed by IDS/Shurgard Income Growth Partners L.P. III (the
"Partnership") that the Partnership is contemplating a transaction in which
Shurgard Storage Centers, Inc. ("SSCI"), an affiliated, publicly traded real
estate investment trust which currently manages the properties owned by the
Partnership, is offering to purchase up to 52,000 of the outstanding limited
partnership interests in the Partnership (the "Offer"). In the Offer the limited
partners of the Partnership (the "Limited Partners") will be offered cash equal
to the Partnership's estimated net asset value per unit of limited partnership
interest as of March 31, 1996 as determined by the general partner of the
Partnership (the "General Partner") in accordance with the Partnership Agreement
and based in part on an independent appraisal of the value of the portfolio of
properties owned by the Partnership as of December 31, 1995 (the
"Consideration"). We have been further advised that the Consideration to be paid
in the Offer will be $308 per unit.
The General Partner has requested that Robert A. Stanger & Co., Inc.
("Stanger") provide its opinion as to the fairness to the Limited Partners, from
a financial point of view, of the Consideration to be paid in the Offer.
In the course of our review to render this opinion, we have, among other
things:
- Reviewed a draft of (i) the Offer to Purchase statement to be included in
Form 14(d)-1 related to the Offer, and (ii) the Acquisition Agreement
between the Partnership, IDS/Shurgard Income Growth Partners L.P., and
IDS/Shurgard Income Growth Partners L.P. II (the "Other Partnerships") and
SSCI relating to the Offer and a subsequent merger of the Partnership with
and into SSCI, which drafts management of the Partnership has indicated to
be in substantially the form intended to be finalized and filed with the
Securities and Exchange Commission (the "SEC");
- Reviewed the Partnership's annual reports filed with the SEC on Form 10-K
for the fiscal years ending December 31, 1993, 1994 and 1995, and
quarterly reports filed with the SEC on Form 10-Q for the period ending
March 31, 1996;
- Performed an appraisal of the portfolio of properties owned by the
Partnership as of December 31, 1995 (the "Portfolio Valuation") pursuant
to a separate engagement agreement to perform such services for the
Partnership;
- Reviewed information regarding purchases and sales of self-storage
properties by SSCI or any affiliated entities during the prior 12-month
period and other information available relating to acquisition criteria
for self-storage properties;
- Reviewed internal financial analyses and forecasts prepared by the
Partnership of the current net liquidation value of the Partnership and
projections of cash flow from operations and going-concern values for the
Partnership, which were based in part on the Portfolio Valuation;
- Discussed with members of senior management of the Partnership and SSCI
conditions in self-storage property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by the
Partnership, current and projected operations and performance, financial
condition and future prospects of the properties and the Partnership; and
- Conducted other studies, analyses, inquiries and investigations as we
deemed appropriate.
Schedule III - Page 1
<PAGE>
In rendering this fairness opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness in all material respects
of all financial and other information contained in the Offer to Purchase or
that was furnished or otherwise communicated to us by the Partnership and SSCI.
We have not performed an independent appraisal of the non-real estate assets and
liabilities of the Partnership and have relied upon the balance sheet value
determinations and the adjustments thereto made by the General Partner to
determine the net asset value of the Partnership. We have also relied on the
assurance of the Partnership and SSCI that the calculations made to determine
allocations within the Partnership between the General Partner and Limited
Partners are consistent with the provisions of the Partnership Agreement; that
any pro forma financial statements, projections, budgets, estimates of
environmental liability, or value estimates or adjustments contained in the
Offer to Purchase or otherwise provided or comunicated to us, were reasonably
prepared on bases consistent with actual historical experience and reflect the
best currently available estimates and good faith judgments; that no material
changes have occurred in the appraised value of the properties or the
information reviewed between the date of the Portfolio Valuation or the date of
the other information provided and the date of this letter; and that the
Partnership and SSCI are not aware of any information or facts that would cause
the information supplied to us to be incomplete or misleading in any material
respect.
We have not been requested to, and therefore did not: (i) select the method
of determining the Consideration to be paid in the Offer; (ii) make any
recommendation to the Limited Partners with respect to whether to accept or
reject the Offer; or (iii) express any opinion as to the business decisions made
by the Partnership in response to the Offer or alternatives to the Offer, tax
factors resulting from the Offer, the impact of the Offer on Limited Partners
who do not accept the Offer, the allocation of expenses relating to the Offer
and subsequent merger between the Partnership and SSCI, or any terms of the
Offer other than the Consideration. Our opinion is based on business, economic,
real estate and securities markets, and other conditions as of the date of our
analysis and addresses the Offer in the context of information available as of
the date of our analysis. Events occurring after that date may materially affect
the assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Consideration to be paid per unit
of limited partnership interest in the Offer is fair to the Limited Partners
from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised the Partnership that our entire analysis must be considered as a whole
and that selecting portions of our analysis and the factors considered by us,
without considering all analyses and facts, could create an incomplete view of
the evaluation process underlying this opinion.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
July 1, 1996
Schedule III - Page 2
<PAGE>
- --------------------------------------------------------------------------------
1129 Broad Street
Shrewsbury, NJ 07702-4314
ROBERT A. STANGER & CO., INC.
(908) 389-3600
FAX: (908) 389-1751
FINANCIAL AND MANAGEMENT CONSULTANTS
(908) 544-0779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IDS/Shurgard Income Growth Partners L.P.
IDS/Shurgard Income Growth Partners L.P. II
IDS/Shurgard Income Growth Partners L.P. III
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Gentlemen:
We have been advised that IDS/Shurgard Income Growth Partners L.P.,
IDS/Shurgard Income Growth Partners L.P. II, and IDS/Shurgard Income Growth
Partners L.P. III (collectively, the "Partnerships") are contemplating a
transaction (the "Merger") in which one or more of the Partnerships will be
merged with and into Shurgard Storage Centers, Inc. ("SSCI"), an affiliated,
publicly traded real estate investment trust, pursuant to an acquisition
agreement (the "Acquisition Agreement") between the Partnerships and SSCI. In
the Merger, the limited partners of the Partnerships (the "Limited Partners")
will be asked to approve the Merger with SSCI pursuant to which they will
receive as consideration newly issued shares of SSCI Class A Common Stock ( the
"Shares") and, in the case of fractional shares, cash. We have been further
advised that the Consideration to be received in the Merger by the partners of
each Partnership will be that number of Shares and cash such that the market
value of the Shares and cash will be equal to $40,066,700 for IDS/Shurgard
Income Growth Partners L.P., $26,861,846 for IDS/Shurgard Income Growth Partners
L.P. II, and $39,649,643 for IDS/Shurgard Income Growth Partners L.P. III, which
amounts represent the estimated net asset value of each Partnership as of March
31, 1996 (collectively, the "Consideration"). To the extent a Partnership's net
asset value as of the closing date of the Merger exceeds the net asset value
indicated above, the Partnership will distribute such excess amount in cash to
the partners of such Partnership as soon as practicable after the closing date
of the Merger. For the purposes of determining the number of Shares to be issued
to each Partnership in the Merger, we have been advised that the market value of
the Shares (the "Share Value") will be based on the average per share closing
prices on the New York Stock Exchange of the Shares during the twenty
consecutive trading days ending on the fifth trading day prior to the day of the
meeting of limited partners of the applicable Partnership on which day the
general partner of such Partnership actually calls for the vote of the Limited
Partners to approve the Merger, subject to the condition that such Share Value
falls within the range of $22.25 to $27.75 per Share (the "Share Value Range").
The general partners of the Partnerships have requested that Robert A.
Stanger & Co., Inc. ("Stanger") provide its opinion as to the fairness to the
Limited Partners of each Partnership, from a financial point of view, of the
Consideration to be received in the Merger by each respective Partnership.
In the course of our review to render this opinion, we have, among other
things:
- Reviewed a draft of (i) the Acquisition Agreement, (ii) Offer to Purchase
for each Partnership related to a tender offer by SSCI for interests in
each Partnership, and (iii) the Proxy Statement/Prospectus related to the
Merger, which drafts management of the Partnerships has indicated to be in
substantially the form intended to be finalized and filed with the
Securities and Exchange Commission (the "SEC");
Schedule III - Page 3
<PAGE>
- Reviewed the Partnerships' and SSCI's annual reports filed with the SEC on
Form 10-K for the fiscal years ending December 31, 1993, 1994 and 1995,
and quarterly reports filed with the SEC on Form 10-Q for the period
ending March 31, 1996;
- Reviewed the SSCI pro forma financial statements and pro forma schedules
prepared by the Partnerships' management and SSCI's management;
- Performed appraisals of the portfolios of properties owned by each
Partnership as of December 31, 1995 (the "Portfolio Valuations") pursuant
to a separate engagement agreement to perform such services for the
Partnerships;
- Reviewed information regarding purchases and sales of self-storage
properties by SSCI or any affiliated entities during the prior 12-month
period and other information available relating to acquisition criteria
for self-storage properties;
- Reviewed internal financial analyses and forecasts prepared by the
Partnerships of the current net liquidation value of each Partnership and
projections of going-concern values for each Partnership, which were based
in part on the Portfolio Valuations;
- Discussed with members of senior management of the Partnerships and SSCI
conditions in self-storage property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by the
Partnerships, current and projected operations and performance, and the
financial condition and future prospects of the properties owned by the
Partnerships, the Partnerships and SSCI;
- Reviewed historical market prices, trading volume and dividends for SSCI
Common Stock; and
- Conducted other studies, analyses, inquiries and investigations as we
deemed appropriate.
In rendering this fairness opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness in all material respects
of all financial and other information contained in each Offer to Purchase and
the Proxy Statement/Prospectus or that was furnished or otherwise communicated
to us by the Partnerships and SSCI. We have not performed an independent
appraisal of the non-real estate assets and liabilities of the Partnerships, and
we have relied upon the balance sheet value determinations and the adjustments
thereto made by the general partners to determine the net asset value of each
Partnership. We have also relied on the assurance of the Partnerships and SSCI
that the allocation of the Consideration within each Partnership between the
general partner and Limited Partners is consistent with the provisions of the
Partnership Agreements; that any pro forma financial statements, projections,
budgets, estimates of environmental liability, or value estimates or adjustments
contained in the Offers to Purchase and the Proxy Statement/Prospectus or
otherwise provided or communicated to us, were reasonably prepared on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments; that no material changes have
occurred in the appraised value of the properties or the information reviewed
between the date of the Portfolio Valuations or the date of the other
information provided and the date of this letter; and that the Partnerships and
SSCI are not aware of any information or facts that would cause the information
supplied to us to be incomplete or misleading in any material respect.
We have not been requested to, and therefore did not: (i) select the method
of determining the Consideration offered in the Merger; (ii) make any
recommendation to the Limited Partners of the Partnerships with respect to
whether to approve or reject the Merger, or whether to select the cash tender
offer made by SSCI or the Shares offered in the Merger; or (iii) express any
opinion as to the business decision to effect the Merger, alternatives to the
Merger, tax factors resulting from the Merger, the fairness of the Consideration
to be received in the Merger at a Share Value outside of the low end of the
Share Value Range, the allocation of expenses associated with the Merger and
related tender offers between and among the Partnerships and SSCI, or any terms
of the Merger other than the Consideration. Our opinion is based on business,
economic, real estate and securities markets, and
Schedule III - Page 4
<PAGE>
other conditions as of the date of our analysis and addresses the Merger in the
context of information available as of the date of our analysis. Events
occurring after that date may materially affect the assumptions used in
preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Consideration to be received in
the Merger by the Limited Partners is fair to the Limited Partners of each
respective Partnership from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised each of the Partnerships that our entire analysis must be considered as
a whole and that selecting portions of our analysis and the factors considered
by us, without considering all analyses and facts, could create an incomplete
view of the evaluation process underlying this opinion.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
July 1, 1996
Schedule III - Page 5
<PAGE>
SCHEDULE IV
[LOGO]
JULY 1, 1996
Special Committee of the Board of Directors
of Shurgard Storage Centers, Inc.
c/o Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626-1925
Dear Sirs:
We understand that Shurgard Storage Centers, Inc. (the "Company") and IDS
Shurgard Income Growth Partners L.P. ("IDS I"), IDS/Shurgard Income Growth
Partners L.P. II ("IDS II") and IDS/ Shurgard Income Growth Partners L.P. III
("IDS III"; each of IDS I, IDS II and IDS III may be referred to separately as a
"Partnership" or collectively as the "Partnerships") intend to enter into an
Acquisition Agreement (the "Agreement") pursuant to which the Company will
commence a cash tender offer for (i) up to 65,000 of the outstanding units of
limited partnership of IDS I, (ii) up to 49,000 of the outstanding units of
limited partnership of IDS II, and (iii) up to 52,000 of the outstanding units
of limited partnership of IDS III (collectively, the "Tender Offers"). Upon
completion of the Tender Offers and if certain conditions have been satisfied or
waived, including the receipt of requisite approval by the holders of limited
partnership units of each Partnership, each Partnership will be merged with and
into the Company (the "Mergers") and the general and limited partnership
interests in each of the Partnerships will be converted into that number of
shares of Class A Common Stock, par value $.001 per share ("Common Stock"), of
the Company obtained by dividing (i) the Net Asset Value (as defined in the
Agreement) of the respective Partnerships allocable to such interests by (ii) a
20 trading day average of the per share closing prices for the Common Stock on
the New York Stock Exchange (subject to a minimum and maximum of $22.25 and
$27.75, respectively). You have requested our opinion, as investment bankers, as
to the fairness, from a financial point of view, of the consideration to be paid
in connection with the Tender Offers and the Mergers.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Special Committee of the
Board of Directors in connection with the Tender Offers and the Mergers and have
received a fee for our services. We have also acted as a managing underwriter of
a past offering of the Common Stock and advised a special committee of the Board
of Directors of the Company regarding its merger with Shurgard Incorporated.
Alex. Brown regularly publishes research reports regarding the real estate and
real estate investment trust industries and the businesses and securities of
publicly owned companies in those industries. In the ordinary course of our
business, we may actively trade the Common Stock of the Company for our own
account and for the account of our customers and, accordingly, may at any time
hold a long or short position in the Company's Common Stock.
Schedule IV - Page 1
<PAGE>
In connection with our opinion, we have reviewed drafts of the Agreement,
the Offer to Purchase and the Registration Statement of the Company on Form S-4
(the "Registration Statement") with respect to the Tender Offers and the
Mergers, as well as certain publicly available information and certain internal
financial and other information furnished to us by the Company and the
Partnerships. We have also held discussions with members of the senior
management of the Company and a general partner of each Partnership's general
partner regarding the business and prospects of the Company and the
Partnerships. In addition, we have (i) reviewed the reported price and trading
activity for the Common Stock and each Partnership's limited partnership units,
(ii) compared certain financial and stock market information for certain real
estate companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent acquisitions in the public self-storage
industry and (iv) performed such other studies and analyses and considered such
other factors as we deemed appropriate.
In conducting our review and in rendering our opinion, we have assumed that
the definitive Agreement, Offer to Purchase and Registration Statement will not,
when executed or filed, as the case may be, differ in any material respect from
the drafts thereof which we have reviewed. We have not independently verified
the information described above and for purposes of this opinion have assumed
the accuracy, completeness and fairness thereof. With respect to information
relating to the prospects of the Company and the Partnerships, we have assumed
that such information reflects the best currently available estimates and
judgments of the Company's management and of a general partner of each of the
Partnership's general partner as to the likely future financial performance of
the Company and the Partnerships. In addition, we have not made or obtained an
independent evaluation of the assets of the Company, the assets of the
Partnerships or reviewed environmental issues relating to the Company, the
Partnerships, the Tender Offers or the Mergers. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the date
of this letter.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date of this letter, the consideration to be paid by the
Company in each of the Tender Offers and the Mergers is fair, from a financial
point of view, to the Company.
Very truly yours,
Alex. Brown & Sons Incorporated
Schedule IV - Page 2
<PAGE>
SCHEDULE V
FINANCIAL STATEMENTS OF
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
MARCH 31, 1996 -------------- --------------
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents...................................... $ 395,166 $ 673,130 $ 602,285
Storage centers, net........................................... 33,903,059 34,146,500 35,121,146
Other assets................................................... 358,552 250,621 258,242
Amortizable assets, less accumulated amortization of
$1,190,330, $1,131,762 and $749,074........................... 305,533 364,101 746,789
Land held for resale........................................... 201,835 201,835 201,835
-------------- -------------- --------------
Total Assets................................................. $ 35,164,145 $ 35,636,187 $ 36,930,297
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
Liabilities:
Accounts payable and other accrued expenses.................... $ 422,533 $ 476,306 428,900
Notes payable.................................................. 10,384,296 10,745,854 11,619,725
-------------- -------------- --------------
Total Liabilities............................................ 10,806,829 11,222,160 12,048,625
Partners' equity (deficit):
Limited partners............................................... 24,464,765 24,518,638 24,962,899
General partner................................................ (107,449) (104,611) (81,227)
-------------- -------------- --------------
Total Partners' Equity....................................... 24,357,316 24,414,027 24,881,672
-------------- -------------- --------------
Total Liabilities and Partners' Equity....................... $ 35,164,145 $ 35,636,187 $ 36,930,297
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to financial statements
Schedule V - Page 1
<PAGE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
---------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental.............................. $ 1,806,553 $ 1,720,373 $ 7,224,762 $ 6,608,932 $ 4,109,845
Interest and other income........... 9,343 6,928 36,378 56,948 230,099
------------- ------------- ------------- ------------- -------------
Total Revenue..................... 1,815,896 1,727,301 7,261,140 6,665,880 4,339,944
EXPENSES:
Operating........................... 460,398 440,234 1,799,970 1,625,933 1,183,446
Property management fees............ 108,093 103,223 433,316 393,684 246,650
Depreciation........................ 282,034 280,622 1,122,039 1,052,532 661,921
Real estate taxes................... 134,821 126,333 506,460 504,422 361,790
Interest............................ 194,032 214,039 960,964 820,083 122,691
Amortization........................ 58,568 118,821 382,688 465,348 211,138
Administrative...................... 46,430 57,760 170,424 148,544 125,635
------------- ------------- ------------- ------------- -------------
Total Expenses.................... 1,284,376 1,341,032 5,375,861 5,010,546 2,913,271
EARNINGS.............................. $ 531,520 $ 386,269 $ 1,885,279 $ 1,655,334 $ 1,426,673
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
EARNINGS PER UNIT OF LIMITED
PARTNERSHIP INTEREST................. $ 4.24 $ 3.08 $ 15.02 $ 13.19 $ 11.37
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS PER UNIT OF LIMITED
PARTNERSHIP INTEREST................. $ 4.69 $ 4.69 $ 18.75 $ 17.81 $ 15.31
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements
Schedule V - Page 2
<PAGE>
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
LIMITED
PARTNERS GENERAL PARTNER TOTAL
--------------- --------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1993....................................... $ 25,983,981 $ (27,488) $ 25,956,493
Distributions.................................................. (1,825,475) (96,077) (1,921,552)
Earnings....................................................... 1,355,338 71,335 1,426,673
--------------- --------------- --------------
Balance, December 31, 1993..................................... 25,513,844 (52,230) 25,461,614
Distributions.................................................. (2,123,512) (111,764) (2,235,276)
Earnings....................................................... 1,572,567 82,767 1,655,334
--------------- --------------- --------------
Balance, December 31, 1994..................................... 24,962,899 (81,227) 24,881,672
Distributions.................................................. (2,235,276) (117,648) (2,352,924)
Earnings....................................................... 1,791,015 94,264 1,885,279
--------------- --------------- --------------
Balance, December 31, 1995..................................... 24,518,638 (104,611) 24,414,027
Distributions (unaudited)...................................... (558,819) (29,412) (588,231)
Earnings (unaudited)........................................... 504,944 26,576 531,520
--------------- --------------- --------------
Balance, March 31, 1996 (unaudited)............................ $ 24,464,763 $ (107,447) $ 24,357,316
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
See notes to financial statements
Schedule V - Page 3
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------
1996 1995 1994 1993
------------ 1995 ------------- ------------- -------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings.................................... $ 531,520 $ 386,269 $ 1,885,279 $ 1,655,334 $ 1,426,673
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization........... 340,602 399,443 1,504,727 1,517,880 873,059
Changes in operating accounts:
Other assets.......................... (107,931) (4,414) 7,621 (50,866) (41,318)
Accounts payable and other accrued
expenses............................. (53,773) (42,628) 47,406 (14,540) 129,143
------------ ------------- ------------- ------------- -------------
Net cash provided by operating
activities............................... 710,418 738,670 3,445,033 3,107,808 2,387,557
------------ ------------- ------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of and improvements to storage
centers.................................... (38,593) (7,659) (147,393) (588,910) (15,476,979)
Consideration for amortizable assets........ (286,950) (670,804)
------------ ------------- ------------- ------------- -------------
Net cash used in investing activities..... (38,593) (7,659) (147,393) (875,860) (16,147,783)
------------ ------------- ------------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from notes payable................. 600,000 9,500,000 8,865,000
Payments on notes payable................... (961,558) (429,333) (873,871) (9,375,275) (865,000)
Payments of loan costs...................... (242,226) (127,846)
Distributions to partners................... (588,231) (588,231) (2,352,924) (2,235,276) (1,921,552)
------------ ------------- ------------- ------------- -------------
Net cash (used in) provided by financing
activities............................... (949,789) (1,017,564) (3,226,795) (2,352,777) 5,950,602
------------ ------------- ------------- ------------- -------------
(Decrease) increase in cash and cash
equivalents................................ (277,964) (286,553) 70,845 (120,829) (7,809,624)
Cash and cash equivalents at beginning of
year....................................... 673,130 602,285 602,285 723,114 8,532,738
------------ ------------- ------------- ------------- -------------
Cash and cash equivalents at end of year.... $ 395,166 $ 315,732 $ 673,130 $ 602,285 $ 723,114
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during year for interest.......... $ 194,032 $ 214,039 $ 940,442 $ 776,498 $ 113,247
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Liabilities incurred in connection with the
purchase of storage centers................ $ -- $ -- $ -- $ 674,000 $ 2,821,000
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements
Schedule V - Page 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: IDS/Shurgard Income Growth Partners L.P. III (the Partnership) was
organized under the laws of the State of Washington on November 15, 1988, to
serve as a vehicle for investments in and ownership of a professionally managed
real estate portfolio consisting of self storage properties which provide
month-to-month leases for business and personal use. The Partnership will
terminate December 31, 2030, unless terminated at an earlier date. The general
partner is Shurgard Associates L.P. III, a Washington limited partnership.
As of March 31, 1996, there were approximately 4,100 limited partners in the
Partnership. There were approximately 119,215 units of limited partnership
interest outstanding at a contribution of $250 per unit.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during the
reporting period. Actual results can differ from those estimates.
The interim financial statements included in this report are unaudited. In
the opinion of the Partnership, all adjustments necessary for a fair
presentation of such financial statements have been included. Such adjustments
consisted only of normal recurring items. Interim results are not necessarily
indicative of results for a full year.
CASH EQUIVALENTS: Cash equivalents consist of money market instruments with
original maturities of 90 days or less.
STORAGE CENTERS: Storage centers, including land, buildings and equipment
are recorded at cost. Depreciation on buildings and equipment is recorded on a
straight-line basis over their estimated useful lives which range from three to
thirty years.
AMORTIZABLE ASSETS: Amortizable assets, consisting primarily of non-compete
covenants and loan costs, are amortized over their expected useful lives of two
to eight years.
RENTAL REVENUE: Rental revenue is recognized as earned under accrual
accounting principles.
TAXES ON INCOME: The financial statements do not reflect a provision for
Federal income taxes because such taxes are the responsibility of the individual
partners.
LITIGATION: The Partnership has a policy of accruing for probable losses,
which if any, could be material to the future financial position or results of
operations. As of March 31, 1996, there are currently no known probable losses,
therefore, no such accruals have been made.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Earnings per unit of
limited partnership interest is based on earnings allocated to the limited
partners divided by the number of limited partnership units outstanding during
the year (119,215 units for each of the three years ended December 31, 1995 and
the three months ended March 31, 1996 and 1995).
DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST: Distributions per
unit of limited partnership interest is based on the total amount distributed to
limited partners divided by the number of limited partnership units outstanding
during the year (119,215 units for each of the three years ended December 31,
1995 and the three months ended March 31, 1996 and 1995).
VALUATION OF LONG LIVED ASSETS: The Partnership, using its best estimates
based on reasonable and supportable assumptions and projections, reviews storage
centers and other assets for impairment whenever events or changes in
circumstances have indicated that the carrying amounts of its assets might not
be recoverable. Impaired assets are reported at the lower of cost or fair value.
Assets to be disposed of are reported at the lower of cost or net realizable
value. At March 31, 1996, no assets had been written down.
Schedule V - Page 5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- STORAGE CENTERS
Storage centers consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
MARCH 31, 1996
--------------
(UNAUDITED)
--------------
<S> <C> <C> <C>
Land................................................... $ 7,503,081 $ 7,503,081 $ 7,515,406
Buildings.............................................. 29,277,560 29,238,967 29,110,884
Equipment.............................................. 699,802 699,802 668,167
-------------- -------------- --------------
37,480,443 37,441,850 37,294,457
Less accumulated depreciation.......................... (3,577,384) (3,295,350) (2,173,311)
-------------- -------------- --------------
$ 33,903,059 $ 34,146,500 $ 35,121,146
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
NOTE C -- NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
MARCH 31, 1996
--------------
(UNAUDITED)
--------------
<S> <C> <C> <C>
Notes payable to sellers............................... $ 674,000 $ 1,583,653 $ 2,264,000
Note payable to bank................................... 9,710,296 9,162,201 9,355,725
-------------- -------------- --------------
$ 10,384,296 $ 10,745,854 $ 11,619,725
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
On March 31, 1994, the Partnership consolidated outstanding notes payable
totaling $8 million and borrowed an additional $1.5 million. The new terms of
this note provide the Partnership the option to borrow an additional $3 million.
This note is secured by real estate and bears interest at 8%. The note matures
April 1, 2001 and requires monthly payments of principal and interest based on a
twenty-year amortization. The note reprices to market every six months,
accordingly, the recorded value approximates fair value.
Notes to sellers, which mature December 31, 1996, are secured by certain
storage centers of the Partnership. The recorded value of these seller's notes
approximates fair value. Annual payments of principal are due 90 days after year
end under conditions provided in the note agreement based on each center's
performance. Quarterly interest is payable to the extent any center's net
operating income, as defined, exceeds 10% of the Partnership's investment in the
related center. In 1994 and 1995, the Partnership made principal payments of
$651,000 and $680,347 respectively, on these notes. On February 29, 1996, the
Partnership borrowed $600,000 on its bank note to partially fund the final
payment of $909,653 on the seller's note that originated with the purchase of
the Castro Valley storage center and to replenish cash reserves. Maturities of
notes payable include this final payment made February 29, 1996.
Maturities of notes payable at December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 1,798,135
1997.......................................................... 233,730
1998.......................................................... 254,705
1999.......................................................... 277,563
2000.......................................................... 302,472
Thereafter.................................................... 7,879,249
-----------
$10,745,854
-----------
-----------
</TABLE>
Schedule V - Page 6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- ACQUISITION
During the years ended December 31, 1993 and 1994, the Partnership acquired
existing storage centers from unaffiliated parties. These acquisitions were
funded through a combination of bank notes, seller notes and cash. Certain
information about these acquisitions is as follows:
<TABLE>
<CAPTION>
PROPERTY ACQUISITION
FACILITY LOCATION PRICE DATE
- ----------------------------------- --------------------------- ----------- -----------------------
<S> <C> <C> <C>
Castro Valley (1) Castro Valley, CA 5,000,000 August, 1993
Newark (1) Newark, CA 3,340,000 August, 1993
San Leandro (1) San Leandro, CA 2,671,000 August, 1993
Tracy (1) Tracy, CA 2,250,000 August, 1993
Sacramento (1) Sacramento, CA 2,834,000 February, 1994
San Lorenzo (1) San Lorenzo, CA 2,905,000 February, 1994
Castro Valley Office Bldg. (2) Castro Valley, CA 500,000 May, 1994
</TABLE>
- ------------------------
(1) These purchases were funded with cash, a $8 million bank note, and $3.495
million in seller notes.
(2) This purchase was funded with cash.
The transactions were accounted for as purchases, and the results of
operations for each of the storage centers from their respective acquisition
date have been included in the financial statements. The general partner
estimates that if these properties had been acquired on January 1, 1994 and
1993, the pro forma combined results of operations for the year would have been
as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
(UNAUDITED)
<S> <C> <C>
Total revenue............................................................. $ 6,773,234 $ 6,237,005
Earnings.................................................................. $ 1,613,010 $ 1,331,884
Earnings per unit of limited partnership interest......................... $ 12.85 $ 10.61
</TABLE>
These pro forma operating results include the Partnership's results of
operations, less increased depreciation and amortization on storage centers and
other assets, respectively, and increased interest expense on the bank loans.
The pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted for the full year and is not intended to be a projection of future
results.
NOTE E -- TRANSACTIONS WITH AFFILIATES
In connection with the management of the centers, the Partnership has paid
or accrued a monthly property management fee equal to 6% of the properties gross
revenue to Shurgard Storage Centers, Inc., an affiliate of the general partner.
On March 24, 1995 Shurgard Incorporated merged with Shurgard Storage Centers,
Inc. Prior to the merger date such fees were paid to Shurgard Incorporated.
Schedule V - Page 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
General Partner and Limited Partners
IDS/Shurgard Income Growth Partners L.P. III
Seattle, Washington
We have audited the accompanying balance sheets of IDS/Shurgard Income
Growth Partners L.P. III as of December 31, 1995 and 1994, and the related
statements of earnings, partners equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1995 and
1994 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
March 1, 1996
Schedule V - Page 8
<PAGE>
SCHEDULE VI
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1996, AND 1995
The Partnership's performance continued to improve with earnings up $145,000
or 38% over the same quarter of 1995. Rental revenue increased $86,000 or 5% in
the first quarter of 1996 compared to the corresponding quarter of 1995. The
increase resulted primarily from a 10% increase in the average rental rate per
square foot. Stone Mountain, Tracy, and Castro Valley storage centers
contributed the largest revenue gain in your Partnership of $21,300 $19,500, and
$18,300, respectively. During the month of March 1996 the Partnership lost its
only tenant in the Castro Valley office building representing approximately
$5,000 per month in rent. Management is currently making efforts to fill the
office space; however, it has impacted average occupancies at quarter end.
Average occupancies decreased eight percentage points from 89% at March 31, 1995
to 81% at March 31, 1996.
Total expenses decreased 4% for the first quarter compared to the same
quarter of 1995. The majority of this decrease was due to the drop in
amortization expense which does not affect the Partnership's cash flow.
Additionally, interest expense decreased as a result of the final payment on the
seller's note which originated with the purchase of the Castro Valley storage
center. Operating and administrative expenses increased 2% over the same quarter
of 1995 due to additional hours worked by the store mangers as well as increased
salaries. Real estate taxes increased 7% over the same quarter of 1995 due to a
refund received in March 1995 for the successful appeal of San Lorenzo's 1994
real estate taxes.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
From 1993 to 1995, the Partnership's revenue and expenses increased
primarily due to the acquisition of new storage centers and the interest on the
corresponding debt. The Partnership acquired the following storage centers:
Sacramento and San Lorenzo (February 1994); Castro Valley Office Building (May
1994); Castro Valley, Newark, San Leandro and Tracy (August 1993).
The Partnership's rental revenue and earnings from 1994 to 1995 increased 9%
and 14%, respectively, resulting from a 10.7% increase in the average rental
rate per square foot. Rate increases were partially offset by a decline in
occupancies from 93% at December 31, 1993 to 90% at December 31, 1994 to 88% at
December 31, 1995. Although the average occupancy for the Partnership has
decreased, the Partnership seeks to maximize revenue by adjusting rents to match
demand more flexibly. Store managers evaluate their store's rental rates, based
on unit demand, unit availability and competitors' rental rates. The Partnership
trains its store managers in revenue optimization and empowers them to adjust
marginal rental rates based on their "on the ground" analysis of demand and
availability at their particular store. In addition, the use of month-to-month
leases, combined with customer turnover, allows rents to be quickly adjusted to
match current demand in a flexible manner.
Revenue for the three storage centers purchased in 1994 increased 20% or
$156,000 in 1995 over their 1994 results, while comparable operating expenses
increased by 5% or $15,000. These combined to provide a 32% or $141,000 increase
in 1995 earnings for these centers compared to their 1994 operating results.
These increases resulted from the additional two months of operations.
Occupancies for these three centers, which averaged 91% during 1994, rose
slightly to an average of 92% during 1995.
Revenue and operating expenses for the four properties purchased in 1993
rose 161% or $1.3 million and 145% or $415,000 from 1993 to 1994, respectively.
These increases reflect the additional seven months of operations in 1994.
Additionally, revenue and expenses increased 8% or $173,000 and 4% or $26,000
from 1994 to 1995, respectively. This provided a 11% increase in 1995 earnings
for these centers compared to 1994. Annual occupancies for these four centers
averaged 91%, 90%, and 91% at December 31, 1993, 1994 and 1995, respectively.
Schedule VI - Page 1
<PAGE>
Storage centers owned prior to 1993 had increased revenue of 14% from 1993
to 1994 and 8% from 1994 to 1995. Operating expenses for these storage centers
increased 8% or $126,000 in 1995 over 1994. The majority of this increase is due
to additional hours worked by managers, higher repair and maintenance expenses
which included retail renovations at the Tucker facility, and increased store
inventory costs. Additionally operating expenses increased 3% in 1994 over 1993.
Annual occupancies for these storage centers averaged 94% at December 31, 1993,
89% at December 31, 1994, and 85% December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES -- THREE MONTHS ENDED MARCH 31, 1996 AND 1995
TRANSACTION COSTS. The Partnership continues to investigate various
alternatives to provide the limited partners with greater liquidity. During the
first quarter of 1996, costs incurred by the Partnership in exploring various
alternative transactions totaled approximately $82,000. Whether and when the
Partnership will reach agreement regarding the implementation of any of the
various alternatives will depend on a number of factors. There can be no
assurance that any agreement will be reached, or if reached, that the
transactions contemplated thereby will be consummated.
INVESTING ACTIVITIES: Capital improvements for the first quarter of 1996
totaled $38,600 which represents the conversion of storage units at the Dobson
Ranch storage center.
FINANCING ACTIVITIES: During the first quarter of 1996, the Partnership
borrowed $600,000 on its bank note in order to make final payment of $909,653 on
the seller's note that originated with the purchase of the Castro Valley storage
center. During the first quarter of 1995, the Partnership made payments totaling
$378,900 on the seller's notes pertaining to the Castro Valley and Newark
storage centers. These payments were funded out of operating cash flow.
DISTRIBUTIONS TO PARTNERS: Annualized distribution rates were 7.50% for the
three months ended March 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES -- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CASH FROM OPERATIONS: Cash from operations increased by $720,300 from 1993
to 1994 and $337,200 from 1994 to 1995, reflecting the increase in earnings.
Management believes that cash balances and cash flow from operations will be
adequate to support the future operating needs of the Partnership.
INVESTING ACTIVITIES: In 1993, the Partnership invested $237,000 in
existing storage centers, including office remodeling at Norcross, Stone
Mountain, Tucker and Forest Park and new signage at Rochester. The Partnership
also purchased four storage centers during the third quarter of 1993 at a total
cost of $13.3 million. The Partnership acquired a security interest in two
additional properties as part of a binding purchase agreement with the same
seller. These two centers were purchased on February 10, 1994, for $5.7 million.
All six California properties are subject to similar terms under the purchase
and sales agreements. These agreements provide the Partnership a 10% return on
funds invested for the first three years. All of these storage centers are
located in northern California, San Francisco Bay and Sacramento areas and they
range in size from 58,000 to 69,000 net rentable square feet. Additionally, in
March 1994, the Partnership purchased an office building from the same seller at
a total cost of $500,000.
In 1994, the Partnership invested $157,000 in existing storage centers.
These improvements included new signage at Castro Valley, Newark, San Leandro
and Tracy. Security improvements were also made at the Gilbert Dobson Ranch,
Castro Valley, Newark and Tracy storage centers. As part of Stone Mountain and
Forest Park's original acquisitions, the Partnership acquired undeveloped land
in Atlanta adjacent to each storage center. The Partnership has listed both
parcels with a local real estate broker for resale.
During 1995, the Partnership invested $147,000 in capital improvements which
included pavement work at the Gilbert, Allen Boulevard and Rochester storage
centers, as well as a new perimeter
Schedule VI - Page 2
<PAGE>
fence at the Windcrest storage center. Additionally, the septic system at the
Delray Beach storage center was replaced. Planned improvements for 1996 total
approximately $188,600 and are expected to be funded from operations and cash
reserves.
FINANCING ACTIVITIES: During 1993, the Partnership issued $10,821,000 of
debt in conjunction with the purchase of the six storage centers in the San
Francisco area. This debt was comprised of an $8 million bank note and
$2,821,000 in seller notes. Seller's notes require quarterly interest payments
to the extent any center's net operating income, as defined, exceeds 10% of the
Partnership's investment in the related center. Annual payments are due under
conditions provided in the note agreement based on each center's performance.
During 1994, the Partnership consolidated existing outstanding notes payable
totaling $8 million and borrowed an additional $1.5 million. This new note
matures April 1, 2001 and bears an interest rate of 8% until September 1, 1996,
at which time it reprices and can be fixed for various periods at the
Partnership's option. Cash proceeds from the additional borrowing under this
note were used to make $580,000 in payments on the seller's notes taken in 1993
and fund the $500,000 purchase price of the Castro Valley office building. The
terms of this note provide the Partnership the option to borrow up to an
additional $3 million. It may be necessary for the Partnership to borrow under
this provision to meet the future repayment obligations of the seller's notes to
the extent they cannot be funded from operating cash flow. In 1994, the
Partnership made the final payments of $651,000 on the seller's notes that
originated with the purchase of the Tracy and San Leandro storage centers.
In 1995, the Partnership made a $65,347 payment on the seller's note which
originated with the purchase of the Castro Valley storage center as well as
final payment of $615,000 on the seller's note which originated with the
purchase of the Newark storage center.
DISTRIBUTIONS TO PARTNERS: Annualized distribution rates were 7.5%, 7.125%,
and 6.125% for 1995, 1994 and 1993, respectively. Distributions are expected to
continue on a quarterly basis and will reflect the Partnership's future
operating results and cash position.
Schedule VI - Page 3
<PAGE>
SCHEDULE VII
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet as of March 31,
1996 and unaudited pro forma consolidated statement of net income for the three
month period ended March 31, 1996 set forth the effect of the Transaction on the
Purchaser's historical balance sheet and historical statement of income as of
and for the same dates as if the Transaction had occurred on January 1, 1995.
The following unaudited consolidated statement of net income for the year
ended December 31, 1995 sets forth the effect of the Transaction on the
Purchaser's pre-Merger pro forma consolidated statement of income for the year
then ended as if the Transaction had occurred on January 1, 1995.
The Purchaser's pre-Merger pro forma consolidated statement of net income is
based on the Purchaser's historical financial statements adjusted to reflect the
consummation of the following transactions as if they had occurred on January 1,
1995: (i) the merger of Shurgard Incorporated, (ii) the acquisition of Shurgard
Evergreen Limited Partnership, (iii) the sale of approximately 4.9 million
shares of common stock of the Purchaser, and (iv) the acquisition of 4 storage
centers. Any additional net income resulting from the assumption and
consummation of these transactions on January 1, 1995 is assumed to have been
distributed to shareholders during 1995.
These pro forma consolidated financial statements are presented in two
scenarios: (a) the purchase by the Purchaser through the Offer and the
Additional Offers of 29,640, 23,022 and 23,843 of the outstanding units of IDS1,
IDS2 and IDS3, respectively (representing approximately 20% of the total
outstanding units) and (b) the purchase by the Purchaser of 65,000, 49,000 and
52,000 of the outstanding units of IDS1, IDS2 and IDS3, respectively
(representing the maximum number of units to be acquired by the Purchaser
through the Offer and the Additional Offers). These pro forma consolidated
financial statements have been formatted to show the pro forma adjustments to
the Purchaser's pre-Merger pro forma and historical consolidated financial
statements related to the Purchaser and to the Partnerships in four separate
columns so that the Unitholder can evaluate the Merger of any one, two or three
of the Partnerships with the Purchaser.
The pro forma consolidated financial statements are not necessarily
indicative of what the Purchaser's actual financial position or results of
operations would have been as of the date or for the periods indicated, nor do
they purport to represent the Purchaser's financial position or results of
operations as of or for any future period. The pro forma consolidated financial
statements should be read in conjunction with all financial statements included
elsewhere herein or incorporated by reference in this Offer to Purchase.
Schedule VII - Page 1
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
20% TENDER ASSUMPTION
MARCH 31, 1996
<TABLE>
<CAPTION>
PURCHASER
PURCHASER PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
(IN THOUSANDS) HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Storage centers, net............... $537,732 $ $ 42,476(3) $30,520(3) $50,688(3) $661,416
Other real estate investments...... 22,169 20,054 (9,810)(4) (5,104)(5) (7,136)(5) 20,173
Cash, cash equivalents and other
assets............................ 58,027 2,300 1,088(6) 562(6) 754(6) 62,731
---------- ------------- ----------- ----------- ----------- -----------
Total assets................... $617,928 $22,354 $ 33,754 $25,978 $44,306 $744,320
---------- ------------- ----------- ----------- ----------- -----------
---------- ------------- ----------- ----------- ----------- -----------
Accounts payable and other
liabilities....................... $ 43,854 $ -- $ 1,300(7) $ 1,371(7) $ 2,779(7)(8) $ 49,304
Notes payable...................... 132,247 22,354 -- 2,850 10,384 167,835
---------- ------------- ----------- ----------- ----------- -----------
Total liabilities.............. 176,101 22,354 1,300 4,221 13,163 217,139
---------- ------------- ----------- ----------- ----------- -----------
Stockholders' equity............... 441,827 -- 32,454(9) 21,757(9) 31,143(9) 527,181
---------- ------------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity.......... $617,928 $22,354 $ 33,754 $25,978 $44,306 $744,320
---------- ------------- ----------- ----------- ----------- -----------
---------- ------------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect the purchase of 29,640, 23,022 and 23,843 Units of IDS1,
IDS2 and IDS3, respectively ("Tendered Units"), as if such occurred on
January 1, 1995, the additional debt incurred to finance the purchase of the
Tendered Units, and the Purchaser's estimated costs related to the Mergers
and the Offers assuming all the Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership.
(3) Amounts reflect market value of self storage centers based on the
Appraisals. IDS1 includes only 70% of the step-up to market value of SJP
II's storage centers as the remaining 30% was owned by the Purchaser prior
to the Merger and will be carried at the Purchaser's historical cost.
(4) Historical amounts have been adjusted to eliminate the Tendered Units and
the Purchaser's 30% interest in SJP II.
(5) Historical amounts have been adjusted to eliminate the Tendered Units.
(6) Historical assets have been reduced to eliminate amortizable assets which
were specifically excluded from the calculation of Net Asset Value per the
Acquisition Agreement.
(7) Historical amounts have been adjusted to include estimated liabilities for
Partnership transaction costs of $939,800, $630,100 and $930,100 for IDS1,
IDS2 and IDS3, respectively. See "The Offer" -- Section 10 ("Fees and
Expenses").
(8) Historical amount has been adjusted to include $257,000 of estimated costs
to complete the expansion of Dobson Ranch, the market value of which was
included in the Appraisal.
(9) Amount reflects Net Asset Value less the value of the Tendered Units.
Schedule VII - Page 2
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
20% TENDER ASSUMPTION
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PURCHASER
PURCHASER PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
(IN THOUSANDS, EXCEPT SHARE DATA) HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue..................... $ 23,531 $ -- $ 1,622 $ 1,093 $ 1,807 $ 28,053
Revenue from other real estate
investments....................... 434 287 (186)(3) (66)(4) (101)(4) 368
Property management revenue........ 854 -- (109)(5) (75)(5) (119)(5) 551
----------- ------ ----------- ----------- ----------- -----------
Total revenue.................. 24,819 287 1,327 952 1,587 28,972
----------- ------ ----------- ----------- ----------- -----------
Operating expense.................. 6,926 -- 403 255 468 8,052
Depreciation and amortization...... 5,085 21 333(6) 216(6) 350(6) 6,005
Real estate taxes.................. 2,081 -- 127 90 135 2,433
General and administrative......... 1,082 -- 34(5) 29(5) 28(5) 1,173
----------- ------ ----------- ----------- ----------- -----------
Total expenses................. 15,174 21 897 590 981 17,663
----------- ------ ----------- ----------- ----------- -----------
Income from operations............. 9,645 266 430 362 606 11,309
----------- ------ ----------- ----------- ----------- -----------
Interest and other income.......... 95 -- 10 5 9 119
Interest expense................... (2,427) (461) -- (59)(7) (214)(7) (3,161)
----------- ------ ----------- ----------- ----------- -----------
Total other income (expense)... (2,332) (461) 10 (54) (205) (3,042)
----------- ------ ----------- ----------- ----------- -----------
Net income (loss).................. $ 7,313 $(195) $ 440 $ 308 $ 401 $ 8,267
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
Net income per share............... $ 0.32 $ 0.31
----------- -----------
----------- -----------
FFO (8)............................ $ 12,196 $ (16) $ 724 $ 479 $ 686 $ 14,070
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
Weighted average number of
shares............................ 23,196,858 -- 1,276,961(9) 856,799(9) 1,275,199(9) 26,605,817
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect income from the Tendered Units as if the purchase of such
occurred on January 1, 1995, interest (at 8.25% per annum) on the additional
debt incurred to finance the purchase of the Tendered Units, and
depreciation of estimated costs related to the Mergers and the Offers
assuming all the Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership. Certain reclassifications to the historical balances have been
made to conform to the Purchaser's historical presentation.
(3) Historical amounts have been adjusted to eliminate earnings related to the
Tendered Units and the Purchaser's 30% interest in the earnings of SJP II.
(4) Historical amounts have been adjusted to eliminate earnings from the
Tendered Units.
(5) Historical amounts have been adjusted to eliminate management fees and
reimbursements (included as administrative expenses on the Partnerships'
books) received by the Purchaser in connection with the management of the
Partnerships' properties.
(6) Historical amounts have been adjusted to reflect depreciation of the market
value of self storage centers based on the Appraisals.
(7) Historical amounts have been adjusted to reflect interest (at 8.25% per
annum) on the Partnership's debt. All Partnership debt will be refinanced in
the Mergers.
(8) The Purchaser defines funds from operations ("FFO") as net income before
extraordinary items (determined in accordance with GAAP), plus depreciation
and amortization related to real estate activities, plus or minus certain
nonrecurring revenue and expenses.
FFO is used by many financial analysts in evaluating REITs. FFO should not
be considered as an alternative to net income (determined in accordance with
GAAP), as an indication of the Purchaser's or the Partnerships' financial
performance or cash from operating activities (determined in accordance with
GAAP) or as a measure of liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Purchaser's or the Partnerships'
needs.
(9) Calculation is based on an assumption of a $25.00 REIT Share Price.
Schedule VII - Page 3
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
20% TENDER ASSUMPTION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PURCHASER PURCHASER
(IN THOUSANDS, EXCEPT PER PRE-MERGER PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
SHARE AND SHARE DATA) PRO FORMA ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 94,381 $ -- $ 6,465 $ 4,309 $ 7,225 $ 112,380
Revenue from other real estate
investments.................. 1,397 1,111 (739)(3) (278)(4) (358)(4) 1,133
Property management revenue... 3,780 -- (443)(5) (313)(5) (490)(5) 2,534
----------- ------------ ----------- ----------- ----------- -----------
Total revenue............. 99,558 1,111 5,283 3,718 6,377 116,047
----------- ------------ ----------- ----------- ----------- -----------
Operating expense............. 26,194 -- 1,516 958 1,820 30,488
Depreciation and
amortization................. 18,059 84 1,331(6) 863(6) 1,399(6) 21,736
Real estate taxes............. 7,727 -- 466 324 506 9,023
General and administrative.... 5,543 -- 138(5) 90(5) 94(5) 5,865
----------- ------------ ----------- ----------- ----------- -----------
Total expenses............ 57,523 84 3,451 2,235 3,819 67,112
----------- ------------ ----------- ----------- ----------- -----------
Income from operations........ 42,035 1,027 1,832 1,483 2,558 48,935
----------- ------------ ----------- ----------- ----------- -----------
Interest and other income..... 507 -- 107 11 36 661
Interest expense.............. (10,170) (1,844) -- (235)(7) (857)(7) (13,106)
----------- ------------ ----------- ----------- ----------- -----------
Total other income
(expense)................ (9,663) (1,844) 107 (224) (821) (12,445)
----------- ------------ ----------- ----------- ----------- -----------
Net (loss) income............. $ 32,372 $ (817) $ 1,939 $ 1,259 $ 1,737 $ 36,490
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
Net income per share.......... $ 1.40 $ 1.37
----------- -----------
----------- -----------
FFO (8)....................... $ 49,236 $ (61) $ 3,058 $ 1,947 $ 2,850 $ 57,031
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
Weighted average number of
shares....................... 23,193,921 -- 1,276,961(9) 856,799(9) 1,275,199(9) 26,602,880
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect income from the Tendered Units as if the purchase of such
occurred on January 1, 1995, interest (at 8.25% per annum) on the additional
debt incurred to finance the purchase of the Tendered Units, and
depreciation of estimated costs related to the Mergers and the Offers
assuming all the Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership. Certain reclassifications to the historical balances have been
made to conform to the Purchaser's historical presentation.
(3) Historical amounts have been adjusted to eliminate earnings related to the
Tendered Units and the Purchaser's 30% interest in the earnings of SJP II.
(4) Historical amounts have been adjusted to eliminate earnings from the
Tendered Units.
(5) Historical amounts have been adjusted to eliminate management fees and
reimbursements (included as administrative expenses on the Partnerships'
books) received by the Purchaser in connection with the management of the
Partnerships' properties.
(6) Historical amounts have been adjusted to reflect depreciation of the market
value of self storage centers based on the Appraisals.
(7) Historical amounts have been adjusted to reflect interest (at 8.25% per
annum) on the Partnership's debt. All Partnership debt will be refinanced in
the Mergers.
(8) The Purchaser defines funds from operations ("FFO") as net income before
extraordinary items (determined in accordance with GAAP), plus depreciation
and amortization related to real estate activities, plus or minus certain
nonrecurring revenue and expenses.
FFO is used by many financial analysts in evaluating REITs. FFO should not
be considered as an alternative to net income (determined in accordance with
GAAP), as an indication of the Purchaser's or the Partnerships' financial
performance or cash from operating activities (determined in accordance with
GAAP) or as a measure of liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Purchaser's or the Partnerships'
needs.
(9) Calculation is based on an assumption of a $25.00 REIT Share Price.
Schedule VII - Page 4
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
MAXIMUM TENDER ASSUMPTION
MARCH 31, 1996
<TABLE>
<CAPTION>
PURCHASER
PURCHASER PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
(IN THOUSANDS) HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Storage centers, net........... $ 537,732 $ -- $ 42,476(3) $ 30,520(3) $ 50,688(3) $ 661,416
Other real estate
investments................... 22,169 43,560 (18,892)(4) (10,863)(5) (15,801)(5) 20,173
Cash, cash equivalents and
other assets.................. 58,027 2,300 1,088(6) 562(6) 754(6) 62,731
----------- ------------- ----------- ----------- ----------- -----------
Total assets............... $ 617,928 $ 45,860 $ 24,672 $ 20,219 $ 35,641 $ 744,320
----------- ------------- ----------- ----------- ----------- -----------
----------- ------------- ----------- ----------- ----------- -----------
Accounts payable and other
liabilities................... $ 43,854 $ -- $ 1,300(5) $ 1,371(7) $ 1,609( (8) $ 48,134
Notes payable.................. 132,247 45,860 -- 2,850 10,384 191,341
----------- ------------- ----------- ----------- ----------- -----------
Total liabilities.......... 176,101 45,860 1,300 4,221 11,993 239,475
----------- ------------- ----------- ----------- ----------- -----------
Stockholders' equity........... 441,827 -- 23,372(9) 15,998(9) 23,648(9) 504,845
----------- ------------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity...... $ 617,928 $ 45,860 $ 24,672 $ 20,219 $ 35,641 $ 744,320
----------- ------------- ----------- ----------- ----------- -----------
----------- ------------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect the purchase of 65,000, 49,000 and 52,000 Units of IDS1,
IDS2 and IDS3, respectively ("Maximum Tendered Units"), as if the purchase
of such occurred on January 1, 1995, the additional debt incurred to finance
the purchase of the Tendered Units, and the Purchaser's estimated costs
related to the Mergers and the Offers assuming all the Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership.
(3) Amounts reflect market value of self storage centers based on the
Appraisals. IDS1 includes only 70% of the step-up to market value of SJP
II's storage centers as the remaining 30% was owned by the Purchaser prior
to the Merger and will be carried at the Purchaser's historical cost.
(4) Historical amounts have been adjusted to eliminate the Maximum Tendered
Units and the Purchaser's 30% interest in SJP II.
(5) Historical amounts have been adjusted to eliminate the Maximum Tendered
Units.
(6) Historical assets have been reduced to eliminate amortizable assets which
were specifically excluded from the calculation of Net Asset Value per the
Acquisition Agreement.
(7) Historical amounts have been adjusted to include estimated liabilities for
Partnership transaction costs of $939,800, $630,100 and $930,100 for IDS1,
IDS2 and IDS3, respectively. See "The Offer" -- Section 10 ("Fees and
Expenses").
(8) Historical amount has been adjusted to include $257,000 of estimated costs
to complete the expansion of Dobson Ranch, the market value of which was
included in the Appraisal.
(9) Amount reflects Net Asset Value less the value of the Maximum Tendered
Units.
Schedule VII - Page 5
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
MAXIMUM TENDER ASSUMPTION
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT PER PURCHASER PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
SHARE AND SHARE DATA) HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 23,531 $ -- $ 1,622 $ 1,093 $ 1,807 $ 28,053
Revenue from other real estate
investments.................. 434 623 (329)(3) (140)(4) (220)(4) 368
Property management revenue... 854 -- (109)(5) (75)(5) (119)(5) 551
----------- ------ ----------- ----------- ----------- -----------
Total revenue............. 24,819 623 1,184 878 1,468 28,972
----------- ------ ----------- ----------- ----------- -----------
Operating expense............. 6,926 -- 403 255 468 8,052
Depreciation and
amortization................. 5,085 21 333(6) 216(6) 350(6) 6,005
Real estate taxes............. 2,081 -- 127 90 135 2,433
General and administrative.... 1,082 -- 34(5) 29(5) 28(5) 1,173
----------- ------ ----------- ----------- ----------- -----------
Total expenses............ 15,174 21 897 590 981 17,663
----------- ------ ----------- ----------- ----------- -----------
Income from operations........ 9,645 602 287 288 487 11,309
----------- ------ ----------- ----------- ----------- -----------
Interest and other income..... 95 -- 10 5 9 119
Interest expense.............. (2,427) (945) -- (59)(7) (214)(7) (3,645)
----------- ------ ----------- ----------- ----------- -----------
Total other income
(expense)................ (2,332) (945) 10 (54) (205) (3,526)
----------- ------ ----------- ----------- ----------- -----------
Net income (loss)............. $ 7,313 $ (343) $ 297 $ 234 $ 282 $ 7,783
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
Net income per share.......... $ 0.32 $ 0.30
----------- -----------
----------- -----------
FFO (8)....................... $ 12,196 $ 23 $ 522 $ 355 $ 491 $ 13,587
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
Weighted average number of
shares....................... 23,196,858 -- 913,700(9) 626,436(9) 928,582(9) 25,665,576
----------- ------ ----------- ----------- ----------- -----------
----------- ------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect income from the Maximum Tendered Units as if the purchase of
such occurred on January 1, 1995, interest (at 8.25% per annum) on the
additional debt incurred to finance the purchase, and depreciation of
estimated costs related to the Mergers and the Offers assuming all the
Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership. Certain reclassifications to the historical balances have been
made to conform to the Purchaser's historical presentation.
(3) Historical amounts have been adjusted to eliminate earnings related to the
Maximum Tendered Units and the Purchaser's 30% interest in the earnings of
SJP II.
(4) Historical amounts have been adjusted to eliminate earnings from the Maximum
Tendered Units.
(5) Historical amounts have been adjusted to eliminate management fees and
reimbursements (included as administrative expenses on the Partnerships'
books) received by the Purchaser in connection with the management of the
Partnerships' properties.
(6) Historical amounts have been adjusted to reflect depreciation of the market
value of self storage centers based on the Appraisals.
(7) Historical amounts have been adjusted to reflect interest (at 8.25% per
annum) on the Partnership's debt. All Partnership debt will be refinanced in
the Mergers.
(8) The Purchaser defines funds from operations ("FFO") as net income before
extraordinary items (determined in accordance with GAAP), plus depreciation
and amortization related to real estate activities, plus or minus certain
nonrecurring revenue and expenses.
FFO is used by many financial analysts in evaluating REITs. FFO should not
be considered as an alternative to net income (determined in accordance with
GAAP), as an indication of the Purchaser's or the Partnership's financial
performance or cash from operating activities (determined in accordance with
GAAP) or as a measure of liquidity; nor is it necessarily indicative of
sufficient cash flow to fund all of the Purchaser's or the Partnership's
needs.
(9) Calculation is based on an assumption of a $25.00 REIT Share Price.
Schedule VII - Page 6
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
MAXIMUM TENDER ASSUMPTION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PURCHASER PURCHASER
(IN THOUSANDS, EXCEPT PER PRO FORMA PURCHASER (1) IDS1 (2) IDS2 (2) IDS3 (2) POST-MERGER
SHARE AND SHARE DATA) PRE-MERGER ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 94,381 $ -- $ 6,465 $ 4,309 $ 7,225 $ 112,380
Revenue from other real estate
investments.................. 1,397 2,414 (1,306)(3) (591)(4) (781)(4) 1,133
Property management revenue... 3,780 -- (443)(5) (313)(5) (490)(5) 2,534
----------- ------------ ----------- ----------- ----------- -----------
Total revenue............. 99,558 2,414 4,716 3,405 5,954 116,047
----------- ------------ ----------- ----------- ----------- -----------
Operating expense............. 26,194 -- 1,516 958 1,820 30,488
Depreciation and
amortization................. 18,059 84 1,331(6) 863(6) 1,399(6) 21,736
Real estate taxes............. 7,727 -- 466 324 506 9,023
General and administrative.... 5,543 -- 138(5) 90(5) 94(5) 5,865
----------- ------------ ----------- ----------- ----------- -----------
Total expenses............ 57,523 84 3,451 2,235 3,819 67,112
----------- ------------ ----------- ----------- ----------- -----------
Income from operations........ 42,035 2,330 1,265 1,170 2,135 48,935
----------- ------------ ----------- ----------- ----------- -----------
Interest and other income..... 507 -- 107 11 36 661
Interest expense.............. (10,170) (3,784) -- (235)(7) (857)(7) (15,046)
----------- ------------ ----------- ----------- ----------- -----------
Total other income
(expense)................ (9,663) (3,784) 107 (224) (821) (14,385)
----------- ------------ ----------- ----------- ----------- -----------
Net income (loss)............. $ 32,372 $ (1,454) $ 1,372 $ 946 $ 1,314 $ 34,550
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
Net income per share.......... $ 1.40 $ 1.35
----------- -----------
----------- -----------
FFO (8)....................... $ 49,236 $ 91 $ 2,239 $ 1,437 $ 2,089 $ 55,092
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
Weighted average number of
shares....................... 23,193,921 -- 913,700(9) 626,436(9) 928,582(9) 25,662,639
----------- ------------ ----------- ----------- ----------- -----------
----------- ------------ ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Amounts reflect income from the Maximum Tendered Units as if the purchase of
such occurred on January 1, 1995, interest (at 8.25% per annum) on the
additional debt incurred to finance the purchase of the Maximum Tendered
Units, and depreciation of estimated costs related to the Mergers and the
Offers assuming all the Partnerships merge.
(2) Except as otherwise noted, amounts represent the historical balances of the
Partnership. Certain reclassifications to the historical balances have been
made to conform to the Purchaser's historical presentation.
(3) Historical amounts have been adjusted to eliminate earnings related to the
Maximum Tendered Units and the Purchaser's 30% interest in the earnings of
SJP II.
(4) Historical amounts have been adjusted to eliminate earnings from the Maximum
Tendered Units.
(5) Historical amounts have been adjusted to eliminate management fees and
reimbursements (included as administrative expenses on the Partnerships'
books) received by the Purchaser in connection with the management of the
Partnerships' properties.
(6) Historical amounts have been adjusted to reflect depreciation of the market
value of self storage centers based on the Appraisals.
(7) Historical amounts have been adjusted to reflect interest (at 8.25% per
annum) on the Partnership's debt. All Partnership debt will be refinanced in
the Mergers.
(8) The Purchaser defines funds from operations ("FFO") as net income before
extraordinary items (determined in accordance with GAAP), plus depreciation
and amortization related to real estate activities, plus or minus certain
nonrecurring revenue and expenses.
FFO is used by many financial analysts in evaluating REITs. FFO should not
be considered as an alternative to net income (determined in accordance with
GAAP), as an indication of the Purchaser's or the Partnership's financial
performance or cash from operating activities (determined in accordance with
GAAP) or as a measure of liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Purchaser's or the Partnership's
needs.
(9) Calculation is based on an assumption of a $25.00 REIT Share Price.
Schedule VII - Page 7
<PAGE>
SCHEDULE IX
PROPERTY INFORMATION
The following table sets forth certain information regarding each of the
Partnership's self storage centers, including occupancy at December 31, 1993,
1994, 1995 and March 31, 1996
<TABLE>
<CAPTION>
OCCUPANCY
NET AT OCCUPANCY AT
YEAR RENTABLE DEC. 31 DEC. 31
PROPERTY NAME PROPERTY LOCATION OWNED SINCE BUILT SQUARE FEET ACREAGE 1993 1994
- ------------------ ------------------ ----------- --------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gilbert Gilbert, AZ 1991 1985 66,000 4.0 * *
Delray Beach Delray Beach, FL 1991 1986 77,000 4.5 * *
Allen Blvd. Beaverton, OR 1991 1973/1975 42,000 2.6 * *
Windcrest San Antonio, TX 1991 1975/1993 86,000 6.3 * *
Dobson Ranch Mesa, AZ 1992 1978 55,000 4.2 * *
Norcross Norcross, GA 1992 1984 62,000 9.3 * *
Stone Mountain Stone Mountain, GA 1992 1985 61,000 10.1 * *
Tucker Tucker, GA 1992 1987 60,000 4.6 * *
Forest Park Forest Park, GA 1992 1980 65,000 7.9 * *
Rochester Utica, MI 1992 1989 57,000 4.8 * *
Castro Valley Castro Valley, CA 1993 1975/1988 69,000 2.8 96 95
Newark Newark, CA 1993 1991 61,000 3.1 * *
San Leandro San Leandro, CA 1993 1991 59,000 2.7 * *
Tracy Tracy, CA 1993 1986 70,000 3.0 * *
Sacramento Sacramento, CA 1994 1991 53,000 2.6 N/A *
San Lorenzo San Lorenzo, CA 1994 1990 54,000 1.9 N/A *
Castro Valley
Business Park Castro Valley, CA 1994 1989 3,000 0.3 N/A *
----------- -----
Total 1,000,000 74.7
<CAPTION>
OCCUPANCY AT OCCUPANCY AT
DEC. 31 MAR. 31
PROPERTY NAME 1995 1996
- ------------------ --------------- ---------------
<S> <C> <C>
Gilbert * *
Delray Beach * *
Allen Blvd. * *
Windcrest * *
Dobson Ranch * *
Norcross * *
Stone Mountain * *
Tucker * *
Forest Park * *
Rochester * *
Castro Valley 91 93
Newark * *
San Leandro * *
Tracy * *
Sacramento * *
San Lorenzo * *
Castro Valley
Business Park * *
Total
</TABLE>
- ----------------------------------
* These properties are individually less than 10% of historical cost of total
storage centers for the Partnership. The average occupancy of these
properties was 93%, 92%, and 87% at December 31, 1993, 1994, and 1995,
respectively and 87% at March 31, 1996.
The following table presents the average occupancy per net rentable square
foot and average annual rental rate per net rentable square foot for the
Partnership's properties for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE
------------------------------------- MONTHS ENDED
1993 1994 1995 MARCH 31, 1996
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Weighted average occupancy....................................... 90% 92 % 89 % 87 %
Average rental rate per square foot.............................. $ 5.79 $ 6.72 $ 7.45 $ 7.92
</TABLE>
Schedule IX - Page 1
<PAGE>
LETTER OF TRANSMITTAL
RELATING TO THE OFFER TO PURCHASE
LIMITED PARTNERSHIP UNITS OF IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
PURSUANT TO THE OFFER TO PURCHASE DATED JULY 2, 1996
OF SHURGARD STORAGE CENTERS, INC.
DESCRIPTION OF UNITS TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF UNITHOLDER NUMBER OF UNITS TENDERED
- -------------------------------- ----------------------------------------------
<S> <C>
*
* Unless otherwise indicated, it will be
assumed that all Units held by the
Unitholder are being tendered. For
restrictions regarding partial tenders, see
Instruction 2.
</TABLE>
THIS OFFER WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON WEDNESDAY, JULY
31, 1996, UNLESS EXTENDED. UNITS WHICH ARE TENDERED PURSUANT TO THIS OFFER MAY
BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THIS OFFER.
To tender Units, this Letter of Transmittal must be executed by the
Unitholder and received by Gemisys Corporation (the "Depositary") prior to
expiration of this Offer at one of the following addresses:
BY MAIL BY OVERNIGHT COURIER/HAND DELIVERY
P.O. Box 3897 7103 S. Revere Parkway
Englewood, CO 80155-9756 Englewood, CO 80112
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE ACCOMPANYING INSTRUCTIONS SHOULD
BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Shurgard Storage Centers, Inc., a Delaware
corporation (the "Purchaser"), for $308 net per Unit in cash (the "Offer Price")
the above-described units of limited partnership interest (the "Units") of
IDS/Shurgard Income Growth Partners L.P. III, a Washington limited partnership
(the "Partnership"), in accordance with the terms and subject to the conditions
of the Purchaser's offer contained in the Offer to Purchase dated July 2, 1996
(the "Offer to Purchase") and in this Letter of Transmittal (which together with
the Offer to Purchase constitutes the "Offer"). The undersigned hereby
acknowledges receipt of the Offer to Purchase.
Subject to, and effective upon, acceptance for tender of the Units tendered
herewith in accordance with the terms and subject to the conditions of the
Offer, the undersigned hereby sells, assigns and transfers to, or upon the order
of, the Purchaser, all right, title and interest in and to all of the Units that
are being tendered hereby and that are being accepted for purchase pursuant to
the Offer and any other non-cash distributions, Units or other securities issued
or issuable in respect thereof on or after July 2, 1996 and appoints the
Depositary the true and lawful attorney-in-fact of the undersigned with respect
to such Units (and such non-cash distributions, other Units or securities), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) transfer ownership of such
Units (and any such non-cash distributions, other Units or securities), to or
upon the order of the Purchaser, (b) present such Units (and any such non-cash
distributions, other Units or securities) for transfer on the books of the
Partnership and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Units (and any such non-cash distributions, other
Units or securities), all in accordance with the terms of the Offer. If the
undersigned is the beneficial owner of the Units, the undersigned hereby
instructs the record owner of the Units to tender the Units to, or upon the
order of, the Purchaser pursuant to the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned (i) has
received and reviewed the Offer to Purchase and (ii) has full power and
authority to sell, assign and transfer the Units tendered hereby (and any and
all non-cash distributions, other Units or securities issued or issuable in
respect thereof on or after July 2, 1996) or, if the undersigned is the
beneficial owner of the Units, to instruct the record owner to do so, and that
when the same are accepted for purchase by the Purchaser, the Purchaser will
acquire good, marketable and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances, and the same will not be subject
to any adverse claim. The undersigned, upon request, will execute and deliver
any additional documents deemed by the Depositary or the Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Units tendered hereby (and any non-cash distributions, other Units or other
securities issued or issuable in respect of such Units on or after July 2,
1996). In addition, the undersigned shall promptly remit and transfer to the
Depositary for the account of the Purchaser any and all non-cash distributions,
other Units or other securities issued to the undersigned or the record owner on
or after July 2, 1996 in respect of Units tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights and
privileges as owner of any such other non-cash distributions, Units or other
securities and may withhold the entire consideration or deduct from the
consideration the amount of value thereof as determined by the Purchaser, in its
sole discretion.
<PAGE>
The undersigned understands that notwithstanding any other provisions of the
Offer and subject to the applicable rules of the Securities and Exchange
Commission, the Purchaser will not be required to accept for purchase any Units,
may postpone the acceptance for purchase of Units tendered and may terminate or
amend the Offer if prior to the time of purchase of any such Units any of the
following events shall occur or the Purchaser shall have learned of the
occurrence of any of such events:
(a) There shall be threatened, instituted or pending any action or
proceeding before any domestic or foreign court or governmental agency or
other regulatory or administrative agency or commission (i) challenging the
acquisition by the Purchaser of the Units, seeking to restrain or prohibit
the making or consummation of the Offer, seeking to obtain any material
damages or otherwise directly or indirectly relating to the transactions
contemplated by the Offer, (ii) seeking to prohibit or restrict the
Purchaser's ownership or operation of any material portion of the
Purchaser's business or assets, or to compel the Purchaser to dispose of or
hold separate all or any material portion of its business or assets as a
result of the Offer, (iii) seeking to make the purchase of, or payment for,
some or all of the Units illegal or invalid, (iv) resulting in a delay in
the ability of the Purchaser to accept for payment or pay for some or all of
the Units, (v) seeking to impose material limitations on the ability of the
Purchaser effectively to acquire or hold or to exercise full rights of
ownership of the Units, including, without limitation, the right to vote the
Units purchased by the Purchaser on all matters properly presented to the
limited partners of the Partnership, (vi) which could materially and
adversely affect the treatment of the Offer for federal income tax purposes,
(vii) which otherwise is reasonably likely to materially adversely affect
the Partnership or value of the Units or (viii) which imposes any material
condition unacceptable to the Purchaser;
(b) Any statute, rule, regulation or order shall be enacted,
promulgated, entered or deemed applicable to the Offer, any legislation
shall be pending, or any other action shall have been taken, proposed or
threatened, by any domestic government or governmental authority or by any
court, domestic or foreign, which is likely, directly or indirectly, to
result in any of the consequences referred to in paragraph (a) above; or
(c) There shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange ("NYSE"), (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii) the
commencement of a war, armed hostilities or other international or national
calamity materially affecting the United States, (iv) any limitation by any
governmental authority or any other event which is reasonably likely to
affect the extension of credit by banks or other leading institutions in the
United States, (v) any material decline in security prices on the NYSE or
(vi) in the case of any of the foregoing existing at the time of the Offer,
any material worsening thereof;
which in the sole judgment of the Purchaser, acting in good faith, with respect
to each and every matter referred to above and regardless of the circumstances
(including any action or inaction by the Purchaser) giving rise to any such
condition, makes it inadvisable to proceed with the Offer or with such
acceptance for purchase. The foregoing conditions are for the sole benefit of
the Purchaser and may be asserted by the Purchaser regardless of the
circumstances giving rise to any such conditions (including any action or
inaction by the Purchaser) or may be waived by the Purchaser in whole or in
part. The failure by the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, and each such right shall
be deemed a continuing right which may be asserted at any time and from time to
time.
The undersigned hereby irrevocably appoints Charles K. Barbo and Kristin H.
Stred designees of the Purchaser, and each of them, the attorneys and proxies of
the undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his or her substitute shall, in his or her sole
discretion, deem proper, and otherwise act (including pursuant to written
consent) with respect to all of the Units tendered hereby which have been
accepted for payment by the Purchaser prior to the time of such vote or action
(and any and all non-cash distributions, other Units or securities, issued or
issuable in respect thereon on or after July 2, 1996), which the undersigned is
entitled to vote, at any meeting (whether or not an adjourned or postponed
meeting) of limited partners of the Partnership, or with respect to which the
undersigned is empowered to act in connection with action by written consent in
lieu of any such meeting or otherwise. This proxy is irrevocable and is granted
in consideration of, and is effective upon, the acceptance for payment of such
Units by the Purchaser, in accordance with the terms of the Offer. Such
acceptance for payment shall revoke any other proxy granted by the undersigned
at any time with respect to such Units (and any such non-cash distributions,
other Units or securities) and no subsequent proxies will be given (and if given
will be deemed not to be effective) with respect thereto by the undersigned.
The undersigned understands that tenders of Units pursuant to any one of the
procedures described in the Offer and in the instructions hereto will constitute
a binding agreement between the undersigned and the Purchaser upon the terms and
subject to the conditions of the Offer and, if the undersigned is not the record
owner of the Units, instructions to the record owner to tender the Units to, or
upon the order of, the Purchaser pursuant to the terms of the Offer.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, legal and
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
Unless separate Special Payment/Delivery Instructions are submitted, please
issue the payment for the Units in the name(s) of the record owner and mail the
payment (and accompanying documents, as appropriate) to the record owner at the
address shown on the Partnership's records.
<PAGE>
TENDER OF UNITS IN OFFER
The Undersigned tenders Units in the Offer on the terms described above.
SIGN HERE
Signature(s)
Date ()
TELEPHONE NUMBER
(Must be signed by Unitholder(s) as name(s) appear(s) on the mailing label
above. Your signature MUST be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee Medallion program). If signature is by
trustees, executors, administrators, guardians, attorneys-in-fact, agents,
officers of corporations or others acting in a fiduciary or representative
capacity, please provide the following information. See Instruction 3.)
Name(s) (PLEASE PRINT)
Capacity (full title)
Address
(INCLUDE ZIP
CODE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 3.)
Authorized Signature(s)
Name
Name of Firm
Address
(INCLUDE ZIP CODE)
Area Code and Telephone
No.
Date
<PAGE>
NONFOREIGN AFFIDAVIT
(SEE INSTRUCTION 9.)
1. Section 1445 of the Internal Revenue Code of 1986, as amended, provides
that a transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person.
2. In order to inform Shurgard Storage Centers, Inc., a Delaware
corporation ("Purchaser"), that withholding of tax is not required upon
disposition of a U.S. real property interest by the seller referred to below
("Seller"), the undersigned hereby certifies to the following:
(If Seller is an individual)
a. I am not a nonresident alien for purposes of U.S. income taxation.
b. My U.S. taxpayer identification number (Social Security number) is ___.
c. My home address is
____________________________________
____________________________________
(If Seller is an entity)
a. Seller is not a foreign corporation, foreign partnership, foreign trust
or foreign estate (as these terms are defined in the Internal Revenue
Code and Income Tax Regulations).
b. Seller's U.S. employer identification number
is ____________________________________.
c. Seller's office address is
____________________________________
____________________________________
____________________________________
Seller understands that this affidavit may be disclosed to the Internal
Revenue Service by Purchaser and that any false statement contained in this
affidavit may be punished by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this affidavit
and to the best of my knowledge and belief it is true, correct and complete,
and, if Seller is an entity, I further declare that I have authority to sign
this document on behalf of Seller.
Dated
If Seller is an individual: If Seller is an entity:
Signature Name of Seller
Print Name By
Its
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL. A properly completed and duly
executed Letter of Transmittal and any other documents required by this Letter
of Transmittal must be received by the Depositary at its address set forth
herein on or prior to July 31, 1996, unless extended.
The method of delivery of this Letter of Transmittal and all other required
documents is at the option and risk of the tendering Unitholder and the delivery
will be deemed made only when actually received by the Depositary. If delivery
is by mail, registered mail with return receipt requested is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted. All
tendering Unitholders, by executing this Letter of Transmittal, waive any right
to receive any notice of the acceptance of their Units for payment.
2. PARTIAL TENDERS. If fewer than all the Units held by a Unitholder are
to be tendered, (i) fill in the number of Units which are to be tendered in the
section entitled "Number of Units Tendered" and (ii) the Unitholder must hold
after the tender at least the applicable minimum number of Units required to be
subscribed for in the initial offering of Units. Generally, a Unitholder should
not tender if, as a result of such tender, the Unitholder (other than one
transferring all of his or her Units) will hold less than 10 Units. The minimum
subscription requirement is four Units for tax-exempt Unitholders, eight Units
for Minnesota Unitholders owning Units through an IRA, and 10 Units for all
other Minnesota tax-exempt Unitholders. All Units held by a Unitholder will be
deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON LETTER OF TRANSMITTAL.
(a) The signature on the Letter of Transmittal must be guaranteed by an
eligible guarantor institution with membership in an approved signature
guarantee Medallion program. Please refer to the Guarantee of Signature(s) box
on the signature page.
(b) Signatures on this Letter of Transmittal must correspond exactly with
the name on the mailing label above.
(c) If any of the Units are owned of record by two or more joint owners, all
such owners must sign this Letter of Transmittal.
(d) If any Units are registered in different names, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
different registrations.
(e) If this Letter of Transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and if requested, proper evidence satisfactory to the
Purchaser of such person's authority so to act must be submitted.
4. STOCK TRANSFER TAXES. Except as set forth in this Instruction 4, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Units to it or its order pursuant to the Offer. If
payment of the purchase price is to be made to any person other than the record
owner, the amount of any stock transfer taxes (whether imposed on the record
owner or such other person) payable on account of the transfer to such person
will be deducted from the purchase price unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If payment for the Units is
to be issued in the name of a person other than the record owner or sent to
someone other than the record owner or sent to the record owner at a address
different than that shown on the Partnership's records, contact the Information
Agent (toll-free) at 1-800-207-2872 to obtain a "Special Payment/Delivery
Instructions" form.
6. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to, or additional copies of the Offer to Purchase and this
Letter of Transmittal may be obtained from, the Depositary or the Information
Agent at their respective addresses set forth below.
7. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Units will be
determined by the Purchaser, in its sole discretion, and its determination shall
be final and binding. The Purchaser reserves the absolute right to reject any or
all tenders of any particular Units (i) determined by it not to be in the
appropriate form or (ii) the acceptance for purchase of Units which may, in the
opinion of the Purchaser's counsel, be unlawful.
8. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires
that a Unitholder whose Units are accepted for payment must provide the
Depositary with his or her correct Taxpayer Identification Number ("TIN"),
which, in the case of a Unitholder who is an individual, is his or her social
security number. If the Depositary is not provided with the correct TIN or an
adequate basis for an exemption, such Unitholder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, backup withholding at the
rate of 31% may be imposed upon the gross proceeds resulting from the Offer. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt Unitholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt
Unitholder must enter its correct TIN in Part 1 of Substitute Form W-9, write
"Exempt" in Part 2 of such form, and sign and date the form. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (the "W-9 Guidelines") for additional instructions. In order for a
nonresident alien or foreign entity to qualify as exempt, such person must
submit a completed Form W-8, "Certificate of Foreign Status." Such forms may be
obtained from the Depositary.
<PAGE>
If the Units are held in more than one name or are not in the name of the
actual owner, consult the W-9 Guidelines for information on which TIN to report.
If you do not have a TIN, consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9, and sign
and date the form. If the box in Part 2 is checked, the Unitholder or other
payee must also complete the Certificate of Awaiting Taxpayer Identification
Number below. If you provide your TIN to the Depositary within 60 days of the
date the Depositary receives such form, any amounts withheld during such 60-day
period will be refunded to you by the Depositary. NOTE: CHECKING THE BOX IN PART
2 ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN OR THAT YOU INTEND
TO APPLY FOR ONE IN THE NEAR FUTURE.
9. NONFOREIGN AFFIDAVIT. Federal income tax law generally requires that in
the case of any disposition of a United States real property interest, including
the Units, by a foreign person, the purchaser is required to deduct and withhold
a tax equal to 10% of the total amount realized on the disposition. To avoid
this withholding, each Unitholder must provide the Depositary a Nonforeign
Affidavit, signed by the Unitholder under penalty of perjury, stating the
Unitholder's TIN and that the Unitholder is not a foreign person. A foreign
person is generally defined as any person other than (a) a citizen or resident
of the United States, (b) a partnership or corporation created or organized in
the United States or under the law of the United States or of any State, or (c)
any estate or trust whose income, from sources within or without the United
States, is taxable in the United States. If the Unitholder is a foreign person
or does not execute and complete the Nonforeign Affidavit, any amounts withheld
will be credited against the amount of income tax incurred by the Unitholder on
the sale of his or her Units when the Unitholder files his or her income tax
return for the period including the year of the sale.
Unitholders should complete and execute the attached Nonforeign Affidavit to
avoid this withholding. In the case of Unitholders other than individuals, the
Nonforeign Affidavit must be completed and signed by an authorized officer, in
the case of a corporation, by a general partner, in the case of a partnership,
by a manager or member, in the case of a limited liability company and by a
trustee, executor or equivalent fiduciary in the case of a trust or estate. A
foreign corporation that has made a valid election under Section 897(i) of the
Internal Revenue Code of 1986, as amended, to be treated as a domestic
corporation for purposes of such section may provide a Nonforeign Affidavit but
must attach to the Nonforeign Affidavit a copy of the acknowledgment of the
election provided to the foreign corporation by the Internal Revenue Service.
10. NOTICE OF TRANSFER TO PARTNERSHIP. A Unitholder's execution of this
Letter of Transmittal and delivery to the Depositary will be treated as
providing the necessary notice of transfer to the Partnership for purposes of
Code Section 6050K.
IMPORTANT: THIS LETTER OF TRANSMITTAL, TOGETHER WITH ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO JULY 31, 1996,
UNLESS EXTENDED.
THE DEPOSITARY: THE INFORMATION AGENT:
GEMISYS CORPORATION D.F. KING & CO., INC.
7103 S. REVERE PARKWAY 77 WATER STREET
ENGLEWOOD, COLORADO 80112 NEW YORK, NEW YORK 10005
1-800-955-2235 (212) 269-5550 (CALL COLLECT)
OR
1-800-207-2872
TO BE COMPLETED BY ALL TENDERING UNITHOLDERS
(SEE INSTRUCTION 8.)
PAYER'S NAME: GEMISYS CORPORATION
<TABLE>
<S> <C> <C>
Part 1 -- PLEASE PROVIDE YOUR TIN TIN
IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number or
SUBSTITUTE SIGNING AND DATING BELOW Employer Identification Number
Part 2
Form W-9 Awaiting TIN / /
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), (2) I am not subject
to backup withholding either because I have not been notified by the
Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to
Department of the Treasury backup withholding, and (3) any other information provided on this form
Internal Revenue Service is true and correct.
PAYER'S REQUEST FOR TAXPAYER SIGNATURE
IDENTIFICATION NUMBER (TIN) DATE
AND CERTIFICATION
You must cross out item (2) of the above Certification if you have been
notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return and you have
not been notified by the IRS that you are no longer subject to backup
withholding.
</TABLE>
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT
TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of such payment of the purchase price will be withheld.
Signature __________________________________________ Date _____________________
<PAGE>
Release Number: 96-4
CONTACTS:
Jennifer R. Wall DeLise Keim
David B. Frank Harrell Beck
D.F. King & Co., Inc. Shurgard Storage Centers, Inc.
212/269-5550 206/624-8100
FOR IMMEDIATE RELEASE
- ---------------------
SHURGARD SIGNS AGREEMENT TO ACQUIRE THREE AFFILIATED
SELF STORAGE REAL ESTATE LIMITED PARTNERSHIPS
PARTNERSHIPS COLLECTIVELY OWN INTERESTS IN 37 SELF STORAGE FACILITIES IN NINE
STATES
SEATTLE, WASHINGTON, JULY 2, 1996 . . . Shurgard Storage Centers, Inc.
("Shurgard") (NYSE:SHU), IDS/Shurgard Income Growth Partners L.P. ("IDS1"),
IDS/Shurgard Income Growth Partners L.P. II ("IDS2") and IDS/Shurgard Income
Growth Partners L.P. III ("IDS3") today jointly announced that they have
signed an agreement (the "Agreement") providing for the acquisition by
Shurgard of IDS1, IDS2 and IDS3 (the "Partnerships") for an aggregate
consideration of approximately $107 million in cash and shares of Shurgard's
Class A Common Stock. Each acquisition will be made by means of an offer (the
"Offer") by Shurgard to the limited partners of each of the Partnerships to
purchase for cash the units of limited partnership interest ("Units") held by
them, followed by a merger of each of the Partnerships into Shurgard (the
"Mergers"). The price per unit in the Offer and the Merger for IDS1, IDS2 and
IDS3 is $257, $222 and $308, respectively. The Offer prices and Merger prices
are based upon the net asset values of the respective Partnerships.
Consummation of each Merger is subject to the satisfaction of various
conditions, including the approval of the respective Mergers by the IDS1,
IDS2 and IDS3 limited partners. Acquisition of a Partnership is not
conditioned upon the acquisition of any other Partnership.
The agreement provides that Shurgard will offer to purchase for cash up
to 43.9% of the Units in IDS1, up to 42.6% of the Units in IDS2 and up to
43.6% of the Units in IDS3. The Offers will not be conditioned upon a minimum
number of Units being tendered. Shurgard intends to commence the Offers
today, but, in any event, no later than July 9, 1996, and will finance the
purchases of Units made pursuant to the Offers through borrowings under its
existing credit facilities.
(MORE...)
<PAGE>
Shurgard Storage Centers, Inc.
July 2, 1996
Page 2
Following completion of the Offers, IDS1, IDS2 AND IDS3 will hold
meetings of limited partners to vote upon approval of the Mergers. If a
Partnership's Merger is approved by the requisite vote of the Unitholders
under the Partnership agreement, that Partnership will, if other conditions
to the Merger are satisfied or waived, merge with and into Shurgard, and each
outstanding Unit of the Partnership (other than those owned by Shurgard) will
be converted into the right to receive the number of shares of Class A Common
Stock of Shurgard determined in the manner provided in the Agreement.
It is currently anticipated that notice of the meetings of limited
partners of the Partnerships to be held to consider the Mergers will be
mailed to limited partners in August and that the meetings will be held in
October. The timing of the notice and the meetings, however, will be subject,
among other things, to the timing of the effectiveness of a registration
statement to be filed with the Securities & Exchange Commission covering the
Shurgard Class A Common Stock proposed to be issued in the Mergers. The offer
of the Class A Common Stock to be issued in the Mergers will be made only by
means of a prospectus that complies with the applicable provisions of law.
* * *
Shurgard Storage Centers, Inc., is a fully integrated,
self-administered, self-managed real estate investment trust (REIT)
headquartered in Seattle, Washington, specializing in all aspects of the self
storage industry. Shurgard operates a network of more than 265 storage
centers located throughout the United States and in Europe. Of these
properties, the Company owns directly, or through joint venture interests,
approximately two-thirds of the portfolio. The remaining properties are owned
by affiliated and unaffiliated parties, including the 37 properties owned by
IDS1, IDS2 and IDS3.
<PAGE>
[LOGO]
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
IF YOU HAVE ANY QUESTIONS ABOUT THIS OFFER OR IF YOU NEED HELP IN COMPLETING THE
LETTER OF TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT, D.F. KING& CO., INC.,
AT (800) 207-2872
July2, 1996
Re: Cash Tender Offer for up to 52,000 Units of
IDS/Shurgard Income Growth Partners L.P. III
Dear Unitholder:
Shurgard Storage Centers,Inc., a Delaware corporation (the "Purchaser"), is
offering to purchase (the "Offer") up to 52,000 units of limited partnership
interest (the "Units") in IDS/Shurgard Income Growth Partners L.P. III, a
Washington limited partnership (the "Partnership"), at a net cash price per Unit
of $308 (the "Offer Price"). The Offer is not conditioned upon a minimum number
of Units being tendered. If more than 52,000 Units are validly tendered, the
Purchaser will accept only 52,000 Units and will purchase Units from tendering
Unitholders on a pro rata basis. You will not have to pay any commissions or
fees associated with the sale. The Offer presents a current opportunity to sell
your Units if you desire immediate liquidity.
The Partnership and the Purchaser have entered into an Acquisition Agreement
which provides for the merger (the "Merger") of the Partnership into the
Purchaser after completion of the Purchaser's purchase of Units in the Offer.
The Merger is subject to the approval of holders of a majority of the Units at a
special meeting of Unitholders to be held after the Offer has expired. If the
Merger is approved by the requisite vote of Unitholders and certain other
conditions to the Merger are satisfied, the Partnership will merge into the
Purchaser and cease to exist as a separate legal entity. Unitholders who
participate in the Merger will receive shares of Common Stock of the Purchaser
in exchange for their Units.
THE GENERAL PARTNER OF THE PARTNERSHIP HAS APPROVED THE OFFER AND THE MERGER
AND HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO
UNITHOLDERS. THE GENERAL PARTNER RECOMMENDS THAT THOSE UNITHOLDERS WHO DESIRE
IMMEDIATE LIQUIDITY TENDER THEIR UNITS IN THE OFFER AND THAT ALL OTHER
UNITHOLDERS RETAIN THEIR UNITS AND, INSTEAD, PARTICIPATE IN THE MERGER. THE
MERGER WILL ONLY OCCUR IF IT IS APPROVED BY THE REQUISITE VOTE OF UNITHOLDERS.
THE GENERAL PARTNER IS AN AFFILIATE OF THE PURCHASER AND HAS SIGNIFICANT
CONFLICTS OF INTEREST IN THE OFFER AND THE MERGER.
The Purchaser has enclosed an Offer to Purchase and Letter of Transmittal
which together describe the terms of the Offer and the Merger. The Purchaser
urges you to read both the Offer to Purchase and the Letter of Transmittal
carefully. If you wish to sell your Units and receive a net cash price of $308
per Unit, please complete the enclosed Letter of Transmittal and return it to
the address set forth on the back cover of the Offer to Purchase. The Offer will
expire on Wednesday, July31, 1996, unless extended.
We thank you for your prompt attention to this matter.
Very truly yours,
[SIGNATURE]
Charles K. Barbo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SHURGARD STORAGE CENTERS, INC.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens, i.e. 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen, i.e. 00-0000000. The table below will help determine the number to give
the payer.
- --------------------------------------------------------------------------------
Give the
For this type of account: SOCIAL SECURITY
number of:
- --------------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) the account or, if combined
funds, any one of the individuals(1)
3. Husband and wife (joint account) The actual owner of the account
or, if joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor
is the only contributor,
the minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent person(3)
minor, or incompetent person
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is
also trustee)
b. So-called trust account that
is not a legal or valid trust
under state law.
8. Sole proprietorship account The owner(4)
- --------------------------------------------------------------------------------
Give the EMPLOYER
For this type of account IDENTIFICATION
number
- --------------------------------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that receives
agricultural program payments
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form 55-5. Application for a Social Security Number Card, or Form
55-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof
- A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a)
- An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section
1441.
- Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid
in money.
- Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding including the
following:
- Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $500 or more
and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 52).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
Exempt payers described above must still complete the Substitute Form W-5
enclosed herewith to avoid possible erroneous. backup withholding. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER. REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON THE FORM AND WRITE "EXEMPT" ON THE FACE OF THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, use the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of 550 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income and such failure is due to negligence, a
penalty of 20% is imposed on any portion of an under-payment attributable to
that failure.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
[LOGO]
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
July 2, 1996
RE: Offer to Purchase by Shurgard Storage Centers, Inc. ("Purchaser") for Units
of IDS/Shurgard Income Growth Partners L.P., IDS/Shurgard Income Growth
Partners L.P. II, and IDS/Shurgard Income Growth Partners L.P. III (the
"Partnerships")
Dear Financial Advisor:
Enclosed for your information and use are materials relating to the Offers
to Purchase of up to 65,000 units of limited partnership interest in
IDS/Shurgard Income Growth Partners L.P., up to 49,000 units of limited
partnership interest in IDS/Shurgard Income Growth Partners L.P. II, and up to
52,000 units of limited partnership interest in IDS/Shurgard Income Growth
Partners L.P. III by Shurgard Storage Centers, Inc. The Offers to Purchase and
Letters of Transmittal are also being mailed to your clients, a list of which
has been enclosed for your convenience.
Please note that following the completion of the purchase of units pursuant
to these Offers, notification of a special meeting to consider and vote upon
approval of the merger of each of the Partnerships with and into the Purchaser
(the "Merger") will be sent to unitholders. If the Merger is approved by the
requisite vote of unitholders of each Partnership and certain other conditions
are satisfied or waived, that Partnership will merge into the Purchaser and
cease to exist as a separate legal entity. Unitholders participating in the
Merger will receive shares of common stock of the Purchaser in exchange for
their units.
After you have reviewed and considered the content of the enclosed
materials, we urge that you contact your clients to discuss what is in their
best interests. Please note that the tender deadline is 11:59 p.m., New York
City time, on July 31, 1996, unless extended.
Questions and requests for additional copies of the enclosed materials may
be directed to our Information Agent, D.F. King & Co., Inc., at 1-800-207-2872.
Sincerely,
[SIGNATURE]
Charles K. Barbo
Chairman & CEO
of Shurgard Storage Centers, Inc.
