<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 3, 1995)
2,100,000 SHARES
[LOGO]
SHURGARD STORAGE CENTERS, INC.
CLASS A COMMON STOCK
------------------
Shurgard Storage Centers, Inc. (the "Company") is a fully integrated,
self-administered and self-managed real estate investment trust ("REIT") that
develops, acquires, owns and manages self storage centers. As of September 30,
1996, the Company operated, directly and through its subsidiaries and joint
ventures, 230 self storage properties that it owned or had an interest in,
containing approximately 14.7 million net rentable square feet, which are
located in over 22 major metropolitan areas in 19 states and Europe. In
addition, the Company owns two business parks and one commercial building. The
Company also manages, under the "Shurgard" name, 37 self storage centers and one
business park, containing approximately 1.9 million net rentable square feet.
All of the shares of Class A Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby are being sold by the Company (the "Offering").
See "Underwriting." Upon the closing of the Offering, approximately 3.9% of the
outstanding capital stock of the Company (including the Common Stock and the
Class B Common Stock) will be beneficially owned by executive officers and
directors of the Company. The Company has restricted the ownership of more than
9.8% of its capital stock by most holders in order to maintain its qualification
as a REIT for federal income tax purposes. See "Description of Common Stock and
Class B Common Stock" and "Restrictions on Transfers of Capital Stock; Excess
Stock" in the accompanying Prospectus.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "SHU." On January 15, 1997, the reported closing price of the Common
Stock on the NYSE was $28.625 per share. The Company has paid regular quarterly
distributions to holders of the Common Stock and has increased its annual
distribution each year since the completion of the consolidation of the 17
publicly held limited partnerships that formed the Company in March 1994.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................... $28.625 $1.43 $27.195
Total(3).................................... $60,112,500 $3,003,000 $57,109,500
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $140,000 payable by the Company.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
315,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$69,129,375, $3,453,450 and $65,675,925, respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriter named
herein, subject to prior sale, when, as and if accepted by it and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about January 22, 1997
at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
------------------------
SMITH BARNEY INC.
----------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JANUARY 16, 1997.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the "SEC")
covering the Common Stock offered hereby. As permitted by the rules and
regulations of the SEC, this Prospectus Supplement and the accompanying
Prospectus omit certain information, exhibits and undertakings contained in the
Registration Statement. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits filed as part thereof.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
Reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549; and at its Regional Offices
located at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and
13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants such as the Company which
file electronically with the SEC. The Common Stock is listed on the NYSE and
such reports, proxy statements and other information concerning the Company can
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the SEC and are incorporated herein by reference:
a. Annual Report on Form 10-K for the year ended December 31, 1995, as
amended;
b. Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996;
c. Description of the Common Stock contained in the Company's Registration
Statement on Form 8-A, dated April 19, 1995, as amended;
d. Description of the Preferred Share Purchase Rights contained in the
Company's Registration Statement on Form 8-A, dated April 19, 1995, as
amended; and
e. Current Reports on Form 8-K dated November 14, 1996 and January 16,
1997.
All documents filed by the Company pursuant to Sections 13(a), 13(d), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus Supplement and the accompanying Prospectus and
to be part hereof from the date of filing such documents.
Any statements contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein (or in the accompanying Prospectus) or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus Supplement.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus Supplement
incorporates) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus Supplement and the accompanying
Prospectus is delivered, upon written or oral request. Requests should be
directed to Investor Relations at the Company, 1201 Third Avenue, Suite 2200,
Seattle, Washington 98101 (telephone number: (206) 624-8100).
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN,
OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, INCLUDING DOCUMENTS INCORPORATED HEREIN BY REFERENCE, CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. FORWARD-LOOKING STATEMENTS ARE
INHERENTLY SUBJECT TO RISK AND UNCERTAINTIES, MANY OF WHICH CANNOT BE PREDICTED
WITH ACCURACY AND SOME OF WHICH MIGHT NOT EVEN BE ANTICIPATED. FUTURE EVENTS AND
ACTUAL RESULTS, FINANCIAL AND OTHERWISE, MAY DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" IN
THIS PROSPECTUS SUPPLEMENT AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS" IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE COMPANY'S QUARTERLY
REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, JUNE 30, AND SEPTEMBER 30,
1996, WHICH ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED
IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE UNDERWRITER'S
OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED HEREIN THE
TERM "COMPANY" REFERS TO SHURGARD STORAGE CENTERS, INC. AND ITS SUBSIDIARIES ON
A CONSOLIDATED BASIS.
THE COMPANY
Shurgard Storage Centers, Inc. is a fully integrated, self-administered and
self-managed REIT that develops, acquires, owns and manages self storage
centers. The Company is one of the three largest operators of self storage
centers in the United States and through its predecessors has been in the self
storage business since 1972. The Company's strategy is to be the national leader
in storage products and services by offering high-quality, conveniently located
and secure self storage and a high level of customer service. This strategy
enables the Company to position itself as a premium-priced storage provider in
its target markets. The Company seeks to own and operate self storage centers
that are located in major metropolitan areas along retail and high-traffic
corridors.
The Company's growth strategies are designed to maximize stockholder value
by increasing funds from operations through (i) internal growth through
increases in revenues and operating efficiencies at its existing stores and (ii)
external growth through the development of new self storage properties and the
acquisition of additional self storage properties. The Company believes that the
experience of its management team in operating, developing and acquiring self
storage properties and its access to capital markets strongly contribute to its
ability to execute these strategies.
The Company expects to fund future development and acquisitions through the
incurrence of additional indebtedness, future offerings of equity securities and
retained cash flow. Upon completion of the Offering and application of the net
proceeds therefrom, the Company and its consolidated subsidiaries expect to have
outstanding borrowings equal to approximately 22% of the Company's total market
capitalization.
As of September 30, 1996, the Company operated, directly and through its
subsidiaries and joint ventures, 230 self storage properties that it owned or
had an interest in, containing approximately 14.7 million net rentable square
feet, which are located in over 22 major metropolitan areas in 19 states and
Europe. In addition, the Company owns two business parks and one commercial
building. The Company also manages, under the "Shurgard" name, 37 self storage
centers and one business park, containing approximately 1.9 million net rentable
square feet. For the nine months ended September 30, 1996, the self storage
centers owned by the Company 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 $9.14.
The Company employed approximately 700 persons as of December 31, 1996, and
is headquartered in Seattle, Washington, with regional offices in Phoenix,
Arizona; Chicago, Illinois; Atlanta,
S-3
<PAGE>
Georgia; and Bellevue, Washington. The Company is a Delaware corporation
incorporated on July 23, 1993. The Company's executive offices are located at
1201 Third Avenue, Suite 2200, Seattle, Washington 98101, and its telephone
number is (206) 624-8100.
RECENT DEVELOPMENTS
ACQUISITION ACTIVITIES. On November 14, 1996, the Company completed the
acquisition 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
(collectively, the "Partnerships") through the merger of each of the
Partnerships into the Company pursuant to an Acquisition Agreement among the
Partnerships and the Company dated as of July 1, 1996 (the "Acquisition
Agreement"). Pursuant to the Acquisition Agreement, the Company issued
approximately 2,462,000 shares of Common Stock in the mergers. Based on the
value of the Common Stock as defined in the Acquisition Agreement, $25.90 per
share, the shares issued in the mergers had a value of approximately $63.8
million. The Company paid cash in lieu of issuing any fractional shares of
Common Stock. The Company had previously acquired between 32% and 43% of the
limited partnership units of each of the Partnerships through cash tender offers
for an aggregate purchase price of approximately $40.6 million.
DEVELOPMENT ACTIVITIES. During the nine months ended September 30, 1996,
the Company opened nine storage centers and, as of September 30, 1996, had
twelve additional storage centers under construction (five developed through
joint venture partnerships and seven developed directly). As of September 30,
1996, the average occupancy of the seven projects opened by the Company in the
first half of 1996 was 51% and the average rental rate for the month of
September was $9.48 per square foot. As of September 30, 1996, the average
occupancy of the six storage centers opened by the Company in 1995 was 70% and
the average rental rate for the month of September was $10.13 per square foot.
The Company's development projects were funded from stock offering proceeds,
operating cash flow and proceeds from the Company's revolving credit facility.
Because the annualized yield on these development projects for the quarter ended
September 30, 1996 was only 4.7% compared to the Company's long-term borrowing
rate of approximately 8.3%, these projects negatively impacted the Company's
Funds From Operations ("FFO") for the quarter ended September 30, 1996 by an
estimated $400,000. The Company anticipates the yields on such projects will
improve as these development projects reach stabilization. For further
discussion regarding the potential impact of development, refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 filed with the
SEC. See "Risk Factors -- General Real Estate Investment Risks -- Risks of Real
Estate Development and Acquisitions."
The following table summarizes the Company's domestic development and
expansion activity as of September 30, 1996:
<TABLE>
<CAPTION>
ESTIMATED
COMPLETED COST
NO. OF PROJECTS OF PROJECTS
------------------- --------------
<S> <C> <C>
NEW DEVELOPMENTS:
Opened in 1995............................................... 6 $ 17 million
Opened year to date September 30, 1996....................... 9 $ 33 million
Construction in progress..................................... 12 $ 41 million
EXPANSION OF EXISTING PROPERTIES:
Opened year to date September 30, 1996....................... 3 $ 2 million
Construction in progress..................................... 3 $ 6 million
</TABLE>
The Company opened four additional domestic storage centers in the fourth
quarter of 1996 and anticipates opening an additional 30 to 35 during 1997. The
projected number of projects to be opened in 1996 and 1997 could be reduced by
zoning and permitting delays outside of the control of the
S-4
<PAGE>
Company, increased competition for sites, delays during construction caused by,
among other things, weather, unforeseen site conditions, labor shortages,
scheduling problems with contractors, subcontractors or suppliers, or resource
constraints.
OTHER DEVELOPMENTS. In September 1996, the Company negotiated a two-year
revolving credit facility (the "Credit Facility") to borrow up to $175 million
bearing interest at a rate equal to a specified spread over LIBOR, which at
September 30, 1996 was 162.5 basis points. After March 31, 1997, the Company's
borrowing capacity under the Credit Facility will be reduced to $100 million.
The Credit Facility currently is secured, but if certain events occur, it will
become unsecured. Upon receiving an investment grade rating, the spread over
LIBOR will become 137.5 basis points or lower, depending on the level of the
investment grade rating.
During the first quarter of 1997 the Company intends to register
approximately $200 million of securities with the SEC on a shelf registration
statement.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,100,000 shares
Common Stock to be outstanding after the
Offering.................................... 27,764,152 shares(1)
Use of Proceeds.............................. To pay down amounts drawn under the Company's
revolving credit facility and for general
corporate purposes. See "Use of Proceeds."
NYSE Symbol.................................. SHU
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) Excludes 1,442,000 shares of Common Stock reserved for issuance under the
Company's employee stock purchase plan and upon exercise of outstanding
options or options to be granted in the future under the Company's stock
option plans.
</TABLE>
S-5
<PAGE>
RISK FACTORS
AN INVESTMENT IN SHARES OF COMMON STOCK INVOLVES VARIOUS RISKS. IN
EVALUATING THE COMMON STOCK, INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO OTHER MATTERS SET FORTH OR INCORPORATED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
GENERAL REAL ESTATE INVESTMENT RISKS
GENERAL RISKS RELATING TO REAL ESTATE OWNERSHIP AND OPERATION OF SELF
STORAGE CENTERS. An investment in the Company is subject to the risks incident
to the ownership of real estate-related assets and the operation of self storage
centers. These risks include the fact that real estate investments are generally
illiquid, which may impact the Company's ability to vary its portfolio in
response to changes in economic and other conditions, as well as the risks
normally associated with changes in market rental rates, the impact of
environmental protection laws, and changes in tax, real estate and zoning laws.
RISKS OF REAL ESTATE DEVELOPMENT AND ACQUISITIONS. The Company may invest
new capital or reinvest sale or refinancing proceeds to develop properties or to
acquire existing properties. Real estate development involves risks in addition
to those involved in the ownership and operation of established properties,
including the risks that construction may not be completed on schedule,
resulting in increased construction and other costs, and that properties may not
be leased on profitable terms or in accordance with scheduled lease-up plans. In
addition, to develop properties, the Company must engage appropriate contractors
or subcontractors or both to construct the properties, and problems may arise in
connection with such engagements, thereby increasing the cost of the
construction and resulting in delays in completion. Real estate acquisitions
entail risks that acquired properties may not perform in accordance with
management's expectations, including projected occupancy and rental rates, and
that the Company may have overpaid for acquisitions. Furthermore, the Company
may have underestimated the cost of improvements required to bring an acquired
property up to standards established for the market position intended for that
property. If any of the above were to occur to a material extent, the Company's
ability to make expected distributions to stockholders would be adversely
affected. The Company's ability to develop and acquire properties is dependent
upon its ability to obtain equity or debt financing. As of the date hereof, the
Company has a borrowing capacity of $175 million (which will be reduced to $100
million after March 31, 1997) under the Credit Facility. The issuance of
additional capital stock to obtain financing to develop and acquire properties
could result in a dilution of ownership for the existing stockholders. In
addition, if cash flows generated from the investment of the net proceeds of
such offering in properties or otherwise is less than the distributions payable
to such new stockholders, distributions to all stockholders may be adversely
affected. If any property fails to perform as expected or if any property owned
by the Company requires significant unanticipated capital improvements, cash
flow would be adversely affected.
INVESTMENTS IN OTHER COMMERCIAL REAL ESTATE. Although the Company invests
primarily in self storage properties, it may also invest in other commercial
real estate if such investments are specifically approved by the Company's Board
of Directors. The Company has no present plans to make any such investments. The
authority of the Board of Directors to make such investments permits the Company
flexibility in selecting appropriate investments and in adjusting to changes in
the marketplace, without requiring amendments to the Company's Amended Bylaws
(the "Bylaws") or specific stockholder approval. Investments in other forms of
real estate, if they were to occur, will be subject to the risks unique to such
investments and, in particular, the Company must ensure that such investments
are managed by persons having the experience and expertise necessary for the
effective management and operation of those investments. Unfamiliarity with
local laws, procedures and practices, or in the operation of such other
investments, might adversely affect the Company's FFO and its ability to make
expected distributions to stockholders.
INDIRECT INVESTMENTS. The Company has invested and may continue to invest
in real estate by making participating mortgages or acquiring equity interests
in partnerships, joint ventures or other legal entities that in turn have
invested in real estate constituting appropriate investments for the Company.
For example, in 1995 and 1996, the Company invested an aggregate of $11.5
million (as of
S-6
<PAGE>
December 31, 1996) in SSC Benelux & Co. SCS, a Belgian entity that owns and
operates self storage properties in the Benelux region of Europe. Under the
Bylaws, a number of conditions must be satisfied before the Company is permitted
to make these indirect investments, including, among others, the requirement
that the joint investment not jeopardize the Company's eligibility to be taxed
as a REIT or result in the Company's becoming an investment company under the
Investment Company Act of 1940, as amended. These investments expose the Company
to certain risks not present had the Company invested directly in the real
estate, including, among others, currency risks, the risk that the Company may
not have control over the legal entity that has title to the real estate, the
possibility that the Company may invest in an enterprise that has liabilities
that are not disclosed at the time of the investment and the possibility that
the Company's investments would be illiquid and not readily accepted as
collateral by the Company's lenders. Each of these risks might reduce the
Company's cash flow or impair its ability to borrow funds, which ultimately
could adversely affect the Company's ability to meet debt service obligations
and make expected distributions to stockholders.
LIMITED ASSET DIVERSIFICATION. The Company limits its investments primarily
to self storage properties. The success of an investment in the Company will
depend in large measure on the profitability of such businesses and real estate
investments. The Company is not expected to have substantial interests in other
real estate investments to hedge against the risk that national trends might
adversely affect the profitability of self storage facilities.
COMPETITION. Competition exists in every market in which the Company's
stores are located. The Company competes with, among others, national, regional
and numerous local self storage operators and developers. Such competition has
adversely affected the occupancy levels and the rental revenues of the Company's
self storage properties in specific markets. If competition adversely affects
occupancy levels and rental revenues in a significant number of the Company's
markets, it would adversely affect the Company's cash flow from operations and
its ability to meet debt service obligations and make expected distributions to
stockholders. The Company believes that the primary competition for potential
customers of any of the Company's self storage stores comes from other self
storage properties within a three-to-five-mile radius of that store. The Company
does not seek to be the lowest-price self storage provider. Entry into the self
storage business through acquisition of existing properties is relatively easy
for persons or institutions with the required initial capital. Some of the
Company's competitors may have more resources than the Company. Competition may
be accelerated by any increase in availability of funds for investment in real
estate. Decreases in interest rates tend to increase the availability of funds
and therefore can increase competition. Due to recent increases in development
of self storage properties in certain markets, the Company anticipates that
increased available storage space may reduce occupancy levels per storage
property within the industry in 1997 and further intensify competition among
storage providers for available tenants. The extent to which the Company is
affected by competition will depend in significant part on local market
conditions.
LIMITED POTENTIAL FOR OCCUPANCY GAINS. Although relatively low increases in
storage supply and continued increases in industry demand have driven
substantial occupancy gains over the last several years, the Company believes
that significant future occupancy gains will be difficult to achieve with
respect to stabilized properties. The Company anticipates that future increases
in revenue from stabilized properties in its portfolio will be primarily the
result of rental rate increases. To the extent that the existing properties
continue to operate profitably, this will likely stimulate further development
and result in greater competition between the newly developed and existing
properties.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property may become liable for the costs of removal or remediation of
certain hazardous substances released on or in its property. Such laws may
impose liability without regard to whether the owner or operator knew of, or
caused, the release of such hazardous substances. Although the Company has
received a Phase I environmental assessment report for each of the properties
that it owns, it has not received such a report for certain of the properties
that it manages where the Company might be considered the operator. The purpose
of each such report was to identify, as of the date of that report, potential
sources of contamination of the
S-7
<PAGE>
property and to assess the status of environmental regulatory compliance. In
addition, for some of the properties that it owns, the Company has received
Phase II environmental assessment reports consisting of soil testing, subsurface
water sampling, asbestos inspections or other investigations deemed appropriate
by an independent environmental consultant. While the reports have not revealed
any environmental liability or compliance concerns at the Company-owned
properties that the Company believes would have a material adverse effect on its
financial condition or results of operations, they have identified the presence
of asbestos (which the Company believes may be managed in place in accordance
with applicable environmental requirements) and contamination of soil and
groundwater by former on-site underground storage tanks at certain of the
Company-owned properties. The presence of hazardous substances on a property or
the failure to meet environmental regulatory requirements may materially
adversely affect the owner's ability to use or sell such property or to borrow
using such property as collateral, and may cause the owner or operator of the
property to incur substantial remediation or compliance costs. In addition to
claims for cleanup or compliance costs, the presence of hazardous substances on
a property or the release of hazardous substances from such property could
result in the owner or operator incurring substantial liabilities as a result of
a claim by a private party for personal injury, by an adjacent property owner
for property damage or by a governmental entity for other damages. Such
liability may be imposed under environmental laws or common-law principles.
Persons who arrange for the disposal or treatment of hazardous substances may
also be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility and associated damages, whether such facility is
ever owned or operated by such persons. Although the Company has not received
any notice of potential liability for any environmental remediation or
associated damages or environmental compliance costs, and is not currently aware
of any material environmental claims against it, there can be no assurance that
no such claim will be asserted against the Company. In addition, there can be no
assurance that any environmental assessments undertaken by the Company with
respect to the properties that it owns and certain properties that it operates
have revealed all potential environmental liabilities, that any prior owner or
operator of the properties did not create any material environmental condition
not known to the Company, or that an environmental contamination, noncompliance
or other condition does not otherwise exist as to any one or more of the
properties that could have a material adverse effect on the Company's financial
condition or results of operations. Furthermore, there can be no assurance that
(i) future laws, ordinances or regulations will not impose any material
environmental liability, (ii) the current environmental conditions of the
Company's owned or managed properties will not be affected by the condition of
properties in the vicinity of such properties (such as the presence of leaking
underground storage tanks) or by the actions of third parties unrelated to the
Company, or (iii) tenants will not violate their leases by introducing hazardous
or toxic substances into the Company's owned or managed properties that could
expose the Company to liability under federal or state environmental laws. The
cost of defending such claims, conducting such environmental remediation or
responding to such changed condition could materially adversely affect the
Company's financial condition and results of operations.
COST OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND FIRE AND SAFETY
REGULATIONS. All of the Company's properties are required to comply with the
Americans With Disabilities Act, and the regulations, rules and orders that may
be issued thereunder (the "ADA"). The ADA has separate compliance requirements
for "public accommodations" and "commercial facilities," but generally requires
that buildings be made accessible to persons with disabilities. Compliance with
ADA requirements might require, among other things, removal of access barriers
and noncompliance could result in the imposition of fines by the U.S.
government, or an award of damages to private litigants. In addition, the
Company is required to operate its properties in compliance with fire and safety
regulations, building codes and other land use regulations, as they may be
adopted by governmental agencies and bodies and become applicable to the
Company's properties. Compliance with such requirements may require the Company
to make substantial capital expenditures, which expenditures would reduce cash
otherwise available for distribution to stockholders.
S-8
<PAGE>
PROPERTY TAXES. Each of the Company's properties is subject to real
property taxes. The real property taxes on these properties and any other
properties that the Company develops or acquires in the future may increase as
property tax rates change and as such properties are assessed or reassessed by
tax authorities.
POTENTIAL UNDERINSURED LOSSES. The Company maintains title insurance on all
of its properties. The Company uses its discretion in determining amounts,
coverage limits and deductibility provisions of title, casualty and other
insurance, based on appraisals and the purchase price paid by the Company for
such property, in each case with a view to obtaining appropriate insurance
coverage on the Company's properties at a reasonable cost and on suitable terms.
This may result in insurance coverage that in the event of a loss would not be
sufficient to pay the full current market value or current replacement cost of
the Company's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace a facility after it has been
damaged or destroyed. Under such circumstances, the insurance proceeds received
by the Company might not be adequate to restore its economic position with
respect to such property.
RISKS RELATING TO QUALIFICATION AND OPERATION AS A REIT
FAILURE TO REMAIN QUALIFIED AS A REIT. The Company has elected to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1994. So long as the Company
meets the requirements under the Code for qualification as a REIT each year, the
Company will be entitled to a deduction when calculating its taxable income for
dividends paid to its stockholders. For the Company to qualify as a REIT,
however, certain detailed technical requirements must be met (including certain
income, asset and stock ownership tests) under Code provisions for which, in
many cases, there are only limited judicial and administration interpretations.
In addition, the determination of various factual matters and circumstances not
entirely within the Company's control may affect its ability to qualify as a
REIT, and there can be no assurance that new legislation, regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. Although the Company believes that it is
organized so as to qualify as a REIT under the Code, and that it has operated
and will continue to operate in such a manner to so qualify as a REIT, the
highly complex nature of the rules governing REITs, the ongoing importance of
factual determinations and the possibility of future changes in the Company's
circumstances preclude any assurance that the Company will so qualify in any
year. For any taxable year that the Company fails to qualify as a REIT, it would
not be entitled to a deduction for dividends paid to its stockholders in
calculating its taxable income. Consequently, the net assets of the Company and
distributions to stockholders would be substantially reduced because of the
Company's increased tax liability. Furthermore, to the extent that distributions
had been made in anticipation of the Company's qualification as a REIT, the
Company might be required to borrow additional funds or to liquidate certain of
its investments in order to pay the applicable tax. Should the Company's
qualification as a REIT terminate, the Company may not be able to elect to be
treated as a REIT for the four taxable years following the year during which the
qualification was lost. See "Certain Federal Income Tax Considerations --
Failure of the Company to Qualify as a REIT" in the accompanying Prospectus.
EFFECT OF DISTRIBUTION REQUIREMENTS. To maintain its status as a REIT for
federal income tax purposes, the Company generally is required each year to
distribute to its stockholders at least 95% of its taxable income. In addition,
the Company is subject to a 4% nondeductible excise tax on the amount, if any,
by which certain distributions paid by it with respect to any calendar year are
less than the sum of 85% of its ordinary income for such calendar year, 95% of
its capital gain net income for the calendar year and any amount of such income
that was not distributed in prior years. The Company may be required, under
certain circumstances, to accrue as income for tax purposes interest, rent and
other items treated as earned for tax purposes but not yet received. In
addition, the Company may not be able to deduct currently as expenses for tax
purposes certain items that actually have been paid. It is
S-9
<PAGE>
also possible that the Company could realize income, such as income from
cancellation of indebtedness, that is not accompanied by cash proceeds. In any
such event, the Company could have taxable income in excess of cash available
for distribution. In such circumstances, the Company could be required to borrow
money or liquidate investments on unfavorable terms in order to meet the
distribution requirement applicable to a REIT. See "Certain Federal Income Tax
Considerations -- Overview of REIT Qualification Rules -- Annual Distribution
Requirements" in the accompanying Prospectus.
CHANGES IN TAX LAWS WHICH COULD AFFECT REITS. Income tax treatment of REITs
may be modified, prospectively or retroactively, by legislative, judicial or
administrative action at any time. There can be no assurance that legislation,
new regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to the qualification as a REIT or
the federal income tax consequences of such qualification. While any such
legislation may contain transitional rules that would reduce their impact on the
Company, it is impossible to predict whether or in what form such legislation
may be enacted in the future.
OTHER GENERAL RISKS
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK. One of the
factors that influence the price of the Common Stock in public trading markets
is the annual yield from distributions by the Company on the price paid for the
Common Stock as compared to yields on other financial instruments. Thus, an
increase in market interest rates will result in higher yields on other
financial instruments, which could adversely affect the market price of the
Common Stock.
DEBT FINANCING. The Company is subject to risks normally associated with
debt financing, including the risk that the Company's net cash flow from
operations will be insufficient to meet required payments of principal and
interest, the risk that existing indebtedness on the properties will not be able
to be refinanced and the risk that the terms of such refinancing will not be as
favorable as the terms of the existing indebtedness.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby will be approximately $57.0 million ($65.5 million if the Underwriter's
over-allotment option is exercised in full). The Company intends to use the net
proceeds to pay down outstanding indebtedness under the Credit Facility, which
had an outstanding balance as of September 30, 1996 of $92.6 million, and for
general corporate purposes. The Credit Facility is a two-year revolving line of
credit to borrow up to $175 million bearing interest at a rate equal to a
specified spread over LIBOR, which at September 30, 1996 was 162.5 basis points.
After March 31, 1997, the Company's borrowing capacity under the Credit Facility
will be reduced to $100 million. The Credit Facility currently is secured, but
if certain events occur, it will become unsecured. Upon receiving an investment
grade rating, the spread over LIBOR will become 137.5 basis points or lower,
depending on the level of the investment grade rating.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
On May 5, 1995, the Company began trading on the NYSE under the symbol
"SHU." On January 15, 1997, the most recent available date before printing this
Prospectus Supplement, the reported NYSE closing price per share of Common Stock
was $28.625.
Before May 5, 1995, the Common Stock was quoted on the Nasdaq National
Market under the symbol "SHUR." The table below sets forth for the fiscal
periods indicated the high and low closing prices per share of Common Stock as
reported in published financial sources, and distributions declared.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
COMMON STOCK
-------------------- DISTRIBUTIONS
HIGH LOW DECLARED(1)
--------- --------- --------------
<S> <C> <C> <C>
1995
First Quarter............................................... $ 23.75 $ 19.50 $ .46
Second Quarter(2)........................................... 24.25 22.63 .46
Third Quarter............................................... 26.00 22.25 .46
Fourth Quarter.............................................. 27.38 24.75 .56(3)
1996
First Quarter............................................... 27.50 25.88 .47
Second Quarter.............................................. 26.13 24.13 .47
Third Quarter............................................... 26.00 23.63 .47
Fourth Quarter.............................................. 29.63 25.13
1997
First Quarter (through January 15, 1997).................... 28.88 28.25
</TABLE>
- --------------------------
(1) Dividends declared by the Board of Directors based on financial results for
the quarter specified.
(2) The high and low closing prices of the Common Stock were $23.50 and $23.00
per share, respectively, during the period from April 1, 1995 through May 4,
1995, when the Common Stock was quoted on the Nasdaq National Market. The
high and low closing prices of the Common Stock were $24.50 and $22.63 per
share, respectively, during the period from May 5, 1995, the date of
commencement of trading of the Common Stock on the NYSE, through June 30,
1995.
(3) Includes a special dividend of $.10 declared in November 1995.
As of January 15, 1997, there were approximately 28,000 holders of record of
the Common Stock. The Company's current annualized distribution is $1.88 per
share.
The Company intends to continue to pay regular quarterly distributions to
stockholders. Future distributions will be declared and paid at the discretion
of the Board of Directors and will depend upon cash generated by operating
activities, the Company's financial condition, capital requirements, annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant. Under certain circumstances,
which management of the Company does not expect to occur, the Company could be
required to make distributions in excess of cash available for distribution in
order to meet such requirements.
S-11
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON STOCK
GENERAL
The following summary of certain federal income tax considerations to
holders of Common Stock is based on current law, is for general information only
and is not tax advice. The tax treatment of a holder of Common Stock will vary
depending on his or her particular situation, and this discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
foreign corporations and persons who are not citizens or residents of the United
States, except to the extent discussed under "-- Taxation of Tax-Exempt
Stockholders" and "-- Federal Income Taxation of Foreign Stockholders") subject
to special treatment under federal income tax laws.
This discussion does not address any aspects of federal income taxation to
the Company relating to its election to be taxed as a REIT. A summary of certain
federal income tax considerations relating to the Company's REIT status is
provided in the accompanying Prospectus.
EACH INVESTOR SHOULD REFER TO THE ACCOMPANYING PROSPECTUS FOR A SUMMARY OF
THE FEDERAL INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH
INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE COMMON
STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for U.S. federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, or (iii) is an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its source.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to a U.S.
Stockholder as long-term capital gains (to the extent that they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which the U.S. Stockholder has held his or her shares of stock.
U.S. Stockholders that are corporations may, however, be required to treat up to
20% of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis that such U.S.
Stockholder has in his or her shares of stock for tax purposes by the amount of
such distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his or her shares taxable as capital gains
(provided that the shares have been held as a capital asset). Dividends declared
by the Company in October, November or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
S-12
<PAGE>
Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be able
to apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other disposition of Common
Stock, however, will not be treated as investment income unless the U.S.
Stockholder so elects, in which case such capital gains will be taxed at
ordinary income rates. The Company will notify stockholders after the close of
the Company's fiscal year as to the portions of the distributions attributable
to that year that constitute ordinary income, return of capital and capital
gain.
Upon any sale or other disposition of shares of Common Stock, a U.S.
Stockholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in the shares for tax purposes. Such gain or loss
will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if the shares
have been held for more than one year. In general, any loss recognized by a U.S.
Stockholder on the sale or other disposition of shares of the Company that have
been held for six months or less (after applying certain holding period rules)
will be treated as a long-term capital loss, to the extent of distributions
received by such U.S. Stockholder from the Company that were required to be
treated as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the Internal Revenue
Service (the "IRS") the amount of dividends paid during each calendar year, and
the amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Stockholder that does not
provide the Company with his or her correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the U.S. Stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions to any stockholders who fail to certify their
nonforeign status to the Company. See "-- Federal Income Taxation of Foreign
Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account or a 401(k) plan, that holds
the Common Stock as an investment will not be subject to tax on dividends paid
by the Company. However, if such tax-exempt investor is treated as having
purchased the Common Stock with borrowed funds, some or all of its dividends may
be subject to tax as "Unrelated Business Taxable Income" ("UBTI"). In addition,
under Section 856(h) of the Code, if certain requirements are met, a pension
trust that owns more than 10% (by value) of the Company's outstanding stock,
including preferred stock, could be treated as recognizing UBTI on a portion of
their dividends even if their stock is held for investment and is not treated as
acquired with borrowed funds. The ownership limit provisions on Company stock,
however, should prevent this result in most cases.
S-13
<PAGE>
FEDERAL INCOME TAXATION OF FOREIGN STOCKHOLDERS
OVERVIEW. The rules governing U.S. income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex and the following
discussion is intended only as a summary of these rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of federal, state and local income tax laws on an investment in the Company,
including any reporting requirements.
In general, a Non-U.S. Stockholder will be subject to the same U.S. federal
income tax rules and rates that apply to a U.S. Stockholder if its investment in
the Company is "effectively connected" with the Non-U.S. Stockholder's conduct
of a trade or business in the United States. A corporate Non-U.S. Stockholder
that receives income that is (or is treated as) effectively connected with a
U.S. trade or business also may be subject to the branch profits tax at a 30%
rate (or such lower rate as may be specified by an nonapplicable income tax
treaty) under Section 884 of the Code, which tax is payable in addition to
regular U.S. federal corporate income tax. The following discussion will apply
to a Non-U.S. Stockholder whose investment in the Company is not so effectively
connected.
A distribution by the Company that is neither attributable to gain from the
sale or exchange by the Company of "United States Real Property Interests"
("USRPIs") nor designated by the Company as a capital gain dividend will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits of the Company. Generally, an
ordinary income dividend made to a Non-U.S. Stockholder will be subject to a
U.S. federal withholding tax equal to 30% of the gross amount of the dividend.
This tax may be reduced by an applicable tax treaty between the United States
and the country in which the Non-U.S. Stockholder resides. A distribution in
excess of the Company's earnings and profits will be treated first as a
nontaxable return of capital that will reduce a Non-U.S. Stockholder's basis in
its stock. Any excess is then treated as a gain from the disposition of the
Company's shares, the tax treatment of which is described below.
Distributions by the Company that are attributable to gain from the sale or
exchange by the Company of USRPIs may be taxed to the Non-U.S. Stockholder in
the United States under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). FIRPTA generally applies to gains realized by foreign persons upon
the sale or exchange of USRPIs, which includes real property situated in the
United States and stock of any U.S. company that has a significant proportion of
U.S. real property comprising its total business assets (e.g., 50% or more).
Under FIRPTA, gains on sales of USRPIs are taxed to a Non-U.S. Stockholder as if
the distributions were gains effectively connected with a U.S. trade or business
even if the Non-U.S. Stockholder is not in fact engaged in a U.S. trade or
business. Accordingly, if the Company distributes capital gains to which FIRPTA
applies, a Non-U.S. Stockholder will be taxed at the same capital gain rates
that apply to U.S. Stockholders (subject to any applicable alternative minimum
tax and special alternative minimum tax in the case of a nonresident alien
individual). Distributions subject to FIRPTA also may be subject to a 30% branch
profits tax when made to a foreign corporate stockholder (except as otherwise
provided by an applicable income tax treaty).
The Company generally will be required to withhold from distributions to
Non-U.S. Stockholders and remit to the IRS (i) 35% of capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% (or lower treaty rate) of ordinary
dividends paid out of earnings and profits. If the Company designates prior
distributions as capital gain dividends, it need not make payment of the 35%
withholding requirement; however, subsequent distributions, up to the amount of
such prior distributions, will be treated as capital gain dividends for
withholding purposes. A distribution in excess of the Company's earnings and
profits may be subject to a 30% withholding tax on ordinary dividends if at the
time of the distribution it cannot be determined whether the distribution will
be in an amount in excess of the Company's current or accumulated earnings and
profits. Because it generally cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated
S-14
<PAGE>
earnings and profits, the entire amount of any distribution normally will be
subject to withholding at the same rate as a dividend. To the extent the Company
does not so withhold, it is required to withhold 10% from any distribution to a
Non-U.S. Stockholder whose shares are classified as a USRPI to the extent such
distribution is in excess of current and accumulated earnings and profits. If
the amount of tax withheld by the Company with respect to a distribution to a
Non-U.S. Stockholder exceeds the Non-U.S. Stockholder's U.S. federal tax
liability with respect to such distribution, the Non-U.S. Stockholder may file
for a refund of such excess from the IRS.
A sale of Company stock by a Non-U.S. Stockholder generally will not be
subject to U.S. federal income taxation unless the stock sold constitutes a
USRPI. Similarly, ordinary income dividends in excess of earnings and profits
and basis will not be subject to U.S. federal taxation if the stock with respect
to which the dividend is paid does not constitute a USRPI. The Common Stock will
not constitute a USRPI if (i) the Company is a "domestically controlled REIT" or
(ii) the stock is "regularly traded" on an established securities market (such
as the Nasdaq or the NYSE) and the stockholder owns (actually and constructively
under certain constructive ownership rules) less than 5% of the stock during an
applicable "look back" period. A domestically controlled REIT is a REIT in which
at all times during a specified testing period less than 50% in value of its
shares is held directly or indirectly by Non-U.S. Stockholders. There can be no
assurance that the Company is or will continue to be a domestically controlled
REIT.
If, notwithstanding the above, gain on a sale of the Company's stock is
taxable under FIRPTA, a Non-U.S. Stockholder would generally be subject to the
same tax treatment discussed above with respect to capital gain dividends, with
the exception that the requirement that the Company withhold 35% of the capital
gain dividends will not apply. Instead, the purchaser of stock would be required
to withhold 10% of the gross proceeds and remit this amount to the IRS.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends, or
(iii) distributions attributable to gain from the sale or exchange by the
Company of USRPIs. Generally, backup withholding and information reporting will
not apply to a payment of stock sale proceeds by or through a foreign office of
a foreign broker. Information reporting (but not backup withholding) will apply,
however, to a payment of stock sale proceeds by a foreign office of a broker
that (a) is a United States person, (b) derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or (c) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by U.S. Stockholders) for United States tax purposes,
unless the broker has documentary evidence that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the stock sale proceeds is subject to both backup withholding and
information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a Non-U.S. Stockholder, or otherwise establishes
an exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
The backup withholding and information reporting rules are under review by
the United States Treasury and their application to the stocks could be changed
prospectively by future Treasury regulations.
STATE AND LOCAL TAXES
Holders of Common Stock may be subject to various state or local taxes in
other jurisdictions in which stockholders reside or own property or other
interests. Such tax treatment of the stockholders in states having taxing
jurisdiction over them may differ from the federal income tax treatment
described in this summary. Consequently, each stockholder should consult his or
her tax advisor as to the tax consequences of the Common Stock under the
respective state laws applicable to him or her.
S-15
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the Underwriting
Agreement, dated the date hereof, by and between the Company and Smith Barney
Inc. (the "Underwriter"), the Underwriter has agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriter, the Common Stock
offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Common Stock is subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter is obligated to take and pay for all shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are taken.
The Underwriter initially proposes to offer the Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession of $0.85 per
share. After the initial offering, the public offering price and concession to
dealers may be changed.
The Company has granted to the Underwriter an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to an aggregate
of 315,000 additional shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus Supplement, minus the underwriting
discounts and commissions. The Underwriter may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sale of the shares offered hereby.
The Company and its officers and directors have agreed that they will not,
directly or indirectly, offer, sell, contract to sell or otherwise dispose of
any Common Stock or any security convertible into or exchangeable for Common
Stock prior to the expiration of 90 days from the date hereof, without the prior
written consent of the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock to be issued in connection with
the Offering will be passed upon for the Company by Perkins Coie, Seattle,
Washington. Certain legal matters relating to the Offering will be passed upon
for the Underwriter by King & Spalding, Atlanta, Georgia.
S-16
<PAGE>
PROSPECTUS
SHURGARD STORAGE CENTERS, INC.
$200,000,000
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
Shurgard Storage Centers, Inc. (the "Company") may from time to time offer
in one or more series (i) its debt securities (the "Debt Securities"), (ii)
shares of its preferred stock, par value $.001 per share (the "Preferred
Stock"), or (iii) shares of its Class A Common Stock, par value $.001 per share
(the "Common Stock"), with an aggregate public offering price of up to
$200,000,000 on terms to be determined at the time of offering. The Debt
Securities, the Preferred Stock and the Common Stock (collectively, the
"Securities") may be offered, separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the Company's option or repayment at the holder's option, terms
for sinking fund payments, terms for conversion into Preferred Stock or Common
Stock, covenants and any initial public offering price; (ii) in the case of
Preferred Stock, the specific designation and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, and any initial
public offering price; and (iii) in the case of Common Stock, any initial public
offering price. In addition, such specific terms may include limitations on
actual or constructive ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for federal income tax purposes. See
"Restrictions on Transfers of Capital Stock; Excess Stock."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is May 3, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The registration
statement on Form S-3 (of which this Prospectus is a part) (the "Registration
Statement"), the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Common Stock is quoted on the Nasdaq National Market ("Nasdaq") and similar
information concerning the Company can be inspected and copied at the offices of
Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006. The Company's Common Stock
has been approved for listing on the New York Stock Exchange (the "NYSE")
commencing May 5, 1995, and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005 after that time.
The Company has filed with the Commission the Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities. This Prospectus does not contain all the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the Commission's rules and regulations. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Securities, reference is hereby made to the Registration Statement and
such exhibits and schedules, which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December 31, 1994;
b. Description of the Common Stock contained in the Company's Registration
Statement on Form 8-A, as amended, dated April 19, 1995;
c. Description of the Preferred Share Purchase Rights contained in the
Company's Registration Statement on Form 8-A, as amended, dated April 19,
1995; and
d. Current Report on Form 8-K dated April 24, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request. Requests should be directed to the Secretary of the Company, 1201 Third
Avenue, Suite 2200, Seattle, Washington, 98101 (telephone number: (206) 624-8100
ext. 434).
2
<PAGE>
THE COMPANY
Shurgard Storage Centers, Inc. (the "Company") is a fully integrated,
self-administered and self-managed real estate investment trust ("REIT") that
develops, acquires, owns and manages self storage centers. The Company's self
storage centers offer low-cost, easily accessible storage space for personal and
business uses. The Company is one of the three largest operators of self storage
centers in the United States. The Company owns and operates, as of March 31,
1995, directly and through its wholly owned subsidiaries and joint ventures, 160
self storage centers, containing approximately 10.7 million net rentable square
feet, which are located in 22 major metropolitan areas in 19 states. As a result
of the merger (the "Merger") with Shurgard Incorporated (the "Management
Company") described below, the Company also manages 84 self storage centers for
affiliates and nonaffiliates. In addition, the Company owns two business parks
and a commercial building. As of December 31, 1994 the Company's owned self
storage centers had a weighted average annual net rentable square foot occupancy
rate of 89% and a weighted average rent per net rentable square foot of $8.25.
The Company 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 the Management Company. On March 24, 1995, the Management
Company merged with and into the Company pursuant to an Agreement and Plan of
Merger dated December 19, 1994, and the Company became self-administered and
self-managed. Through the Merger, the Company internalized the expertise and
experience of the Management Company's personnel that cover all aspects of the
self-storage industry.
The Company is a Delaware corporation incorporated on July 23, 1993. The
Company's executive offices are located at 1201 Third Avenue, Suite 2200,
Seattle, Washington 98101, and the telephone number is (206) 624-8100.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which will include the development and acquisition
of additional properties and other acquisition transactions, the expansion and
improvement of certain properties in the Company's portfolio, and the repayment
of indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for the
periods shown. The ratio shown for the year ended December 31, 1994 is for the
Company. Ratios shown for the years ended December 31, 1993, 1992, 1991 and 1990
are derived from combined historical financial information of the 17 publicly
held real estate limited partnerships that were included in the Consolidation
("Predecessor").
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------
PREDECESSOR COMPANY
- ------------------------------------------ -----------
1990 1991 1992 1993 1994
- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
7.69x 8.93x 10.23x 8.80x 2.95x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of net income before
extraordinary items plus fixed charges. Fixed charges consist of interest
expense (including interest costs capitalized) and the amortization of debt
issuance costs. To date, the Company has not issued any Preferred Stock;
therefore, the ratios of earnings to combined fixed charges and preferred share
dividends are the same as the ratios presented above.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct obligations of the Company, which may be
secured or unsecured, and which may be senior or subordinated indebtedness of
the Company. The Debt Securities may be issued under one or more indentures,
each dated as of a date before the issuance of the Debt Securities to which it
relates and in the form that has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. Each such indenture
(collectively, the "Indenture") will be entered into between the Company and a
trustee (the "Trustee"), which may be the same Trustee. The Indenture will be
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
statements made hereunder relating to the Indenture and the Debt Securities are
summaries of the anticipated provisions thereof, do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
provisions of the Indenture and such Debt Securities. Capitalized terms used but
not defined herein shall have the respective meanings set forth in the
Indenture.
TERMS
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along with
any applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable federal income tax considerations. Accordingly, for a description of
the terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limits as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company's Board of
Directors or as set forth in the applicable Indenture or one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. If two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the applicable Indenture separate
and apart from the trust administered by any other Trustee and, except as
otherwise indicated herein, any action described herein to be taken by a Trustee
may be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indenture and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on such
aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount thereof) at
which such Debt Securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof, or (if applicable) the
portion of the principal amount of such Debt Securities that is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
4
<PAGE>
(4) if convertible, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate and conversion period and, in
connection with the preservation of the Company's status as a REIT, any
applicable limitations on the ownership or transferability of the Common
Stock or the Preferred Stock into which such Debt Securities are
convertible;
(5) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by which
such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(7) the date or dates, or the method for determining such date or dates, from
which any interest will accrue, the dates upon which any such interest will
be payable, the record dates for payment of such interest, or the method by
which any such dates shall be determined, the persons to whom such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Company in respect of
such Debt Securities and the Indenture may be served;
(9) the period or periods, if any, within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the Company's option;
(10) the obligation, if any, of the Company to redeem, repay or purchase such
Debt Securities pursuant to any sinking fund or analogous provision or at
the option of a holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased, as a whole or in part,
pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such Debt
Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not, be based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall
be determined;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form, and, if so, the identity of the depositary for such Debt
Securities;
(14) whether such Debt Securities will be in registered or bearer form and, if
in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof
and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable Indenture, or any
modification thereof;
(16) any deletions from, modifications of or additions to the events of default
or covenants of the Company, to the extent different from those described
herein or in the applicable Indenture with respect to such Debt Securities,
and any change in the right of any Trustee or any of the holders to declare
the principal amount of any such Debt Securities due and payable;
5
<PAGE>
(17) whether and under what circumstances the Company will pay any Additional
Amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment;
(18) the subordination provisions, if any, relating to such Debt Securities;
(19) the provisions, if any, relating to any security provided for such Debt
Securities; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the Company's ability to incur
indebtedness or that would afford holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving the Company or in
the event of a change of control. Restrictions on ownership and transfers of the
Common Stock, the Company's Class B Common Stock and Preferred Stock are,
however, designed to preserve the Company's status as a REIT and, therefore, may
act to prevent or hinder a change of control. See "Restrictions on Transfers of
Capital Stock; Excess Stock." In addition, the Company's Restated By-Laws (the
"By-Laws") provide that, subject to certain exceptions, the Company may not
incur debt if after giving effect to such borrowing, its indebtedness for
borrowed funds would exceed 50% of its total assets (as defined in the By-Laws)
or 300% of its adjusted net worth (as defined in the By-Laws). Reference is made
to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the events of default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise described in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the applicable Trustee's corporate trust office,
the address of which will be set forth in the applicable Prospectus Supplement;
PROVIDED, HOWEVER, that, at the Company's option, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the applicable register for such Debt Securities or by wire transfer of funds
to such person at an account maintained within the United States.
Subject to certain limitations imposed on Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the applicable Trustee's corporate trust office or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed on Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the applicable Trustee's corporate trust office or at the
office of any transfer agent designated by the Company for such purpose. Every
Debt Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer and
the person requesting such transfer must provide evidence of title and identity
satisfactory to the applicable Trustee or transfer agent. No service charge will
be made for any registration of transfer or exchange of any Debt Securities, but
the
6
<PAGE>
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the
applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Company nor any Trustee shall be required to (a) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the day of mailing of notice
of redemption of any Debt Securities of that series that may be selected for
redemption and ending at the close of business on the day of mailing the
relevant notice of redemption; (b) register the transfer of or exchange any Debt
Security, or portion thereof, so selected for redemption, in whole or in part,
except the unredeemed portion of any Debt Security being redeemed in part; or
(c) issue, register the transfer of or exchange any Debt Security that has been
surrendered for repayment at the holder's option, except the portion, if any, of
such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company may, with or without the consent
of the holders of any outstanding Debt Securities, consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) either the Company shall be the
continuing entity, or the successor entity (if other than the Company) formed by
or resulting from any such consolidation or merger or which shall have received
the transfer of such assets shall expressly assume the Company's obligation to
pay the principal of (and premium, if any) and interest on all the Debt
Securities and the due and punctual performance and observance of all the
covenants and conditions contained in the Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of the Company or any subsidiary as a result thereof as having been
incurred by the Company or such subsidiary at the time of such transaction, no
event of default under the Indenture, and no event that, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (c) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indenture will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by certificate of incorporation, by-laws and statute) and
franchises; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Indenture will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the Company's judgment may be necessary so that
the business carried on or in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
INSURANCE. The Indenture will require the Company to, and to cause each of
its subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability.
7
<PAGE>
PAYMENT OF TAXES AND OTHER CLAIMS. The Indenture will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (a) all taxes, assessments and governmental charges levied or
imposed on it or any subsidiary or on the income, profits or property of the
Company or any subsidiary and (b) all lawful claims for labor, materials and
supplies that, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indenture will require the
Company, within 15 days after each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (a) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, without cost to such holders,
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Company were subject to such Sections,
(b) to file with the Trustee copies of the annual reports, quarterly reports and
other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections, and (c) to supply, promptly upon written request
and payment of the reasonable cost of duplication and delivery, copies of such
documents to any prospective holder of Debt Securities.
ADDITIONAL COVENANTS. Any additional covenants of the Company with respect
to any of the series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Indenture, each Indenture will
provide that the following events are "events of default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any installment of interest on any Debt Security of such series; (b)
default in the payment of the principal of (or premium, if any, on) any Debt
Security of such series at its maturity; (c) default in making any sinking fund
payment as required for any Debt Security of such series; (d) default in the
performance of any other covenant of the Company contained in the Indenture
(other than a covenant added to the Indenture solely for the benefit of a series
of Debt Securities issued thereunder other than such series), continued for 60
days after written notice as provided in the applicable Indenture; (e) a default
under any bond, debenture, note or other evidence of indebtedness for money
borrowed by the Company or any of its subsidiaries (including obligations under
leases required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles, but not including any indebtedness or
obligations for which recourse is limited to property purchased) in an aggregate
principal amount in excess of $10,000,000 or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any of its
subsidiaries (including such leases, but not including such indebtedness or
obligations for which recourse is limited to property purchased) in an aggregate
principal amount in excess of $10,000,000, whether such indebtedness now exists
or shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable or such obligations being
accelerated, without such acceleration having been rescinded or annulled; (f)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Company or any Significant
Subsidiary of the Company; and (g) any other Event of Default provided with
respect to a particular series of Debt Securities. The term "Significant
Subsidiary" has the meaning ascribed to such term in Regulation S-X promulgated
under the Securities Act.
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<PAGE>
If an event of default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or indexed securities, such portion of the principal
amount as may be specified in the terms thereof) of all the Debt Securities of
that series to be due and payable immediately by written notice thereof to the
Company (and to the applicable Trustee if given by the holders). However, at any
time after such a declaration of acceleration with respect to Debt Securities of
such series (or of all Debt Securities then outstanding under the Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
the money due has been obtained by the applicable Trustee, the holders of not
less than a majority of the principal amount of the outstanding Debt Securities
of such series (or of all Debt Securities then outstanding under the Indenture,
as the case may be) may rescind and annul such declaration and its consequences
if (a) the Company shall have deposited with the applicable Trustee all required
payments of the principal of (and premium, if any) and interest on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (b) all events of default, other than the
nonpayment of accelerated principal (or specified portion thereof), with respect
to Debt Securities of such series (or of all Debt Securities then outstanding
under the Indenture, as the case may be) have been cured or waived as provided
in the Indenture. The Indenture will also provide that the holders of not less
than a majority in principal amount of the outstanding Debt Securities of any
series (or of all Debt Securities then outstanding under the Indenture, as the
case may be) may waive any past default with respect to such series and its
consequences, except a default (y) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (z) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the holder of each outstanding Debt
Security affected thereby.
The Indenture will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the Indenture unless such
default shall have been cured or waived; PROVIDED, HOWEVER, that such Trustee
may withhold notice to the holders of any series of Debt Securities of any
default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of the Trustee
consider such withholding to be in such holders' interest.
The Indenture will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof.
The Indenture will provide that, subject to provisions in such Indenture
relating to its duties in case of default, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
the Indenture, unless such holders shall have offered to the Trustee reasonable
security or indemnity. The holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series (or of all Debt
Securities then outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. The
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Trustee may, however, refuse to follow any direction that is in conflict with
any law or the Indenture that may involve the Trustee in personal liability or
that may be unduly prejudicial to the holders of Debt Securities of such series
not joining therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the Indenture and, if so, specifying each such default and the
nature and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of any Indenture will be permitted only with
the consent of the holders of not less than a majority in principal amount of
all outstanding Debt Securities issued under such Indenture affected by such
modification or amendment; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each Debt Security affected
thereby, (a) change the stated maturity of the principal of, or any installment
of interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate or amount of interest on, or any premium
payable on redemption of, any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder of any such
Debt Security; (c) change the place of payment, or the coin or currency, for
payment of principal of (and premium, if any), or interest on any such Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of outstanding Debt Securities of any series necessary
to modify or amend the Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in the Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of outstanding Debt
Securities of each series may, on behalf of all holders of Debt Securities of
that series waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants in the applicable Indenture.
Modifications and amendments of the Indenture will be permitted to be made
by the Company and the Trustee without the consent of any holder of Debt
Securities for any of the following purposes: (a) to evidence the succession of
another person to the Company as obligor under the Indenture; (b) to add to the
covenants of the Company for the benefit of the holders of all or any series of
Debt Securities or to surrender any right or power conferred upon the Company in
the Indenture; (c) to add events of default for the benefit of the holders of
all or any series of Debt Securities; (d) to add or change any provisions of the
Indenture to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, PROVIDED that such action shall not adversely
affect the interests of the holders of the Debt Securities of any series in any
material respect; (e) to change or eliminate any provisions of the Indenture,
PROVIDED that any such change or elimination shall become effective only when
there are no Debt Securities outstanding of any series created prior thereto
that are entitled to the benefit of such provision; (f) to secure the Debt
Securities; (g) to establish the form or terms of Debt Securities of any series,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Stock or Preferred Stock; (h) to provide for
the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee; (i)
to cure any ambiguity, defect or inconsistency in the Indenture; PROVIDED,
HOWEVER, that such action shall not adversely affect the interests of holders of
Debt Securities of any series in any material respect; or (j) to supplement any
of the provisions of the Indenture to the extent
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necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, PROVIDED, HOWEVER, that such action shall not adversely affect
the interests of the holders of the Debt Securities of any series in any
material respect.
The Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (b) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security in the
applicable Indenture, and (d) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
The Indenture will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting may be permitted to be called at any
time by the Trustee, and also, upon request, by the Company or the holders of at
least 10% in principal amount of the outstanding Debt Securities of such series,
in any such case upon notice given as provided in the Indenture. Except for any
consent that must be given by the holder of each Debt Security affected by
certain modifications and amendments of the Indenture, any resolution presented
at a meeting or adjourned meeting duly reconvened at which a quorum is present
may be adopted by the affirmative vote of the holders of a majority in principal
amount of the outstanding Debt Securities of that series; PROVIDED, HOWEVER,
that, except as referred to above, any resolution with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
may be made, given or taken by the holders of a specified percentage, which is
less than a majority, in principal amount of the outstanding Debt Securities of
a series may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of holders
of Debt Securities of any series duly held in accordance with the Indenture will
be binding on all holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any action
is to be taken at such meeting with respect to a consent or waiver that may be
given by the holders of not less than a specified percentage in principal amount
of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, the Indenture will provide that if
any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (a) there shall be no minimum
quorum requirement for such meeting and (b) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities that have not already been delivered to
the applicable Trustee for cancellation and that either have become due and
payable or will become due and payable within one year (or scheduled for
redemption within one year) by irrevocably depositing with the applicable
Trustee, in trust, funds in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are payable in
an amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the stated
maturity or redemption date, as the case may be.
The Indenture will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either to (a) defease
and be discharged from any and all obligations with respect to any series of
Debt Securities (except for the obligation to pay additional amounts, if any,
upon the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities and the obligations to register
the transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold money for payment in
trust) ("defeasance") or (b) be released from its obligations with respect to
such Debt Securities under the applicable Indenture (being the restrictions
described under "-- Certain Covenants") or, if provided in the applicable
Prospectus Supplement, its obligations with respect to any other covenant, and
any omission to comply with such obligations, shall not constitute a default or
an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities that through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company has
delivered to the applicable Trustee an opinion of counsel (as specified in the
applicable Indenture) to the effect that the holders of such Debt Securities
will not recognize income, gain or loss for U.S. federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance, must refer to
and be based on a ruling of the Internal Revenue Service (the "IRS") or a change
in applicable U.S. federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities that are (a) direct obligations of
the United States of America or the government which issued the foreign currency
in which the Debt Securities of a particular series are payable, for the payment
of which its full faith and credit is pledged, or (b) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign currency in
which the Debt Securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; PROVIDED, HOWEVER, that (except
as required by law) such custodian is not authorized to make any deduction from
the amount
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payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security or (b)
a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public institution
of or within the international banking community, (ii) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Communities, or (iii) any currency unit
or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any event of default other than the event of default described
in clause (d) under "-- Events of Default, Notice and Waiver" with respect to
the specified sections of the applicable Indenture (which sections would no
longer be applicable to such Debt Securities) or clause (g) thereunder with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity, but may not be sufficient to
pay amounts due on such Debt Securities at the time of the acceleration
resulting from such event of default. The Company would, however, remain liable
to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the Trustee's
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corporate trust office, the address of which will be stated in the applicable
Prospectus Supplement; PROVIDED, HOWEVER, that, at the Company's option, payment
of interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds to such person at an account maintained within the United
States.
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security that
remain unclaimed at the end of two years after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for payment
thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK
The Company has authority to issue 120,000,000 shares of Common Stock, par
value $.001 per share and 500,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common Stock"). At April 14, 1995, the Company had
outstanding 18,095,988 shares of Common Stock and 154,604 shares of Class B
Common Stock.
GENERAL
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that the Common Stock will
be issuable upon conversion of Debt Securities or Preferred Stock. The
statements below describing the Common Stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws.
TERMS
Subject to the preferential rights of any other shares or series of stock,
holders of Common Stock will be entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. Payment and declaration of dividends on the Common Stock and purchases
of shares thereof by the Company will be subject to certain restrictions if the
Company fails to pay dividends on the Preferred Stock. See "Description of
Preferred Stock." Upon any liquidation, dissolution or winding up of the
Company, holders of Common Stock (together with holders of Class B Common Stock)
will be entitled to share equally and ratably in any assets available for
distribution to them, after payment or provision for payment of the debts and
other liabilities of the Company and the preferential amounts owing with respect
to any outstanding Preferred Stock. The Common Stock will possess ordinary
voting rights for the election of directors and in respect of other corporate
matters, each share entitling the holder thereof to one vote. Holders of Common
Stock will not have cumulative voting rights in the election of directors, which
means that holders of more than 50% of all the shares of the Company's Common
Stock and Class B Common Stock voting for the election of directors can elect
all the directors if they choose to do so and the holders of the remaining
shares cannot elect any directors. Holders of shares of Common Stock will not
have preemptive rights, which means they have no right to acquire any additional
shares of Common Stock that may be issued by the Company at a subsequent date.
All shares of Common Stock now outstanding are, and additional shares of Common
Stock offered will be when issued, fully paid and nonassessable, and no shares
of Common Stock are or will be subject to preemptive or similar rights.
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The Class B Common Stock has rights substantially similar to those of the
Common Stock. Each holder of Class B Common Stock was entitled to a loan from
the Company in an amount necessary to satisfy the holder's general partner
capital obligation to certain partnerships that were acquired by the Company in
the Consolidation. Each loan is secured by a pledge of the Class B Common Stock
held by the borrowing shareholder. Upon repayment of a portion of the loan, that
portion of the Class B Common Stock equal to the percentage of the loan
principal repaid is released from the pledge and is convertible, on a
share-for-share basis, into shares of Common Stock. Class B Common Stock is not
publicly traded but is transferable upon its release from the pledge.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, actually or constructively, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year. To assist the Company in meeting this requirement, the
Company may take certain actions to limit the beneficial ownership, actually or
constructively, by a single person or entity of the Company's outstanding equity
securities. See "Restrictions on Transfers of Capital Stock; Excess Stock."
TRANSFER AGENT
The registrar and transfer agent for the Common Stock and Class B Common
Stock is Gemisys Corporation.
SHAREHOLDER RIGHTS PLAN
Pursuant to the Rights Agreement dated as of March 17, 1994, between the
Company and Gemisys Corporation, as Rights Agent (the "Rights Agreement"),
holders of shares of the Common Stock and the Class B Common Stock have certain
rights to purchase shares of the Company's Series A Junior Participating
Preferred Stock (the "Junior Preferred Shares") exercisable only in certain
circumstances (the "Rights"). The Rights, which are represented by certificates
for the Common Stock and the Class B Common Stock, trade together with the
Common Stock and the Class B Common Stock until a Distribution Date (as defined
below). Each Right, when it becomes exercisable as described below, will entitle
the registered holder to purchase one one-hundredth of a Junior Preferred Share
at $65 per one one-hundredth of a Junior Preferred Share (subject to adjustment,
the "Purchase Price").
Until the earlier to occur of (a) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 10% or more of the outstanding
Common Stock and Class B Common Stock and (b) 10 business days (or such later
date as may be determined by action of the Company's Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 10% or more of such outstanding
Common Stock and Class B Common Stock (the earlier of such dates, the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock and the Class B Common Stock certificates outstanding as of March
25, 1994 (the "Rights Record Date"), by such Common Stock and Class B Common
Stock certificate, with a copy of a Summary of Rights to Purchase Preferred
Shares (the "Summary of Rights") attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Stock or Class B Common Stock. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Stock or Class B
Common Stock certificates issued after the Rights Record Date upon transfer or
new issuance of Common Stock or Class B Common Stock will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Common Stock or Class B Common Stock outstanding as of the
Rights Record Date, even without such notation or a copy of the
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Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Stock or the Class B Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock and the
Class B Common Stock as of the close of business on the Distribution Date, and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 17, 2004, unless such date is extended or unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable and the number of Junior Preferred Shares or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (a) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Junior
Preferred Shares, (b) upon the grant to holders of the Junior Preferred Shares
of certain rights or warrants to subscribe for or purchase Junior Preferred
Shares at a price, or securities convertible into Junior Preferred Shares with a
conversion price, less than the then-current market price of the Junior
Preferred Shares, or (c) upon the distribution to holders of the Junior
Preferred Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Junior Preferred Shares) or of subscription rights or warrants (other
than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right is also subject to
adjustment in the event of a stock split of the Common Stock or the Class B
Common Stock or a dividend on the Common Stock or the Class B Common Stock
payable in Common Stock or subdivisions, consolidations or combinations of the
Common Stock or the Class B Common Stock occurring, in any such case, prior to
the Distribution Date.
Junior Preferred Shares purchasable upon exercise of the Rights will be
redeemable only in accordance with the redemption provisions discussed under
"Restrictions on Transfers of Capital Stock; Excess Stock." Each holder of
Junior Preferred Shares will be entitled to a minimum preferential quarterly
dividend payment of the greater of $1 per share and a per share dividend of 100
times the aggregate dividends declared per share of Common Stock or Class B
Common Stock. In the event of liquidation, the holders of Junior Preferred
Shares will be entitled to a minimum preferential liquidation payment of $100
per share or, if greater, to an aggregate per share payment of 100 times the
aggregate payment made per share of Common Stock or Class B Common Stock. Each
Junior Preferred Share will have 100 votes, voting together with the Common
Stock and the Class B Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock and Class B
Common Stock are exchanged, each Junior Preferred Share will be entitled to
receive 100 times the amount received per share of Common Stock and Class B
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Junior Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Junior
Preferred Share purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision will be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Common Stock or Class B Common Stock having a market
value, as of the date of exercise, of two times the exercise price of the Right.
If the Company is acquired in a merger or other business combination
transaction, or 50% or more of its consolidated assets or earning power are
sold, proper provision will be made so that each holder of a Right will
thereafter
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have the right to receive, upon the exercise thereof at the then-current
exercise price of the Right, that number of shares of common stock of the
acquiring company that at the time of such transaction will have a market value
of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Stock and Class B Common Stock, the Company's Board of Directors may
exchange the Rights (other than Rights owned by such person or group that have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock or Class B Common Stock, or one one-hundredth of a Junior Preferred Share
(or of a share of a class or series of the Company's Preferred Stock having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Junior Preferred Shares will be issued (other
than fractions that are integral multiples of one one-hundredth of a Junior
Preferred Share, which may, at the Company's election, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred Shares on the last trading day
prior to the date of exercise.
At any time prior to any person or group becoming an Acquiring Person, the
Company's Board of Directors may redeem the Rights in whole, but not in part, at
the price of $.0001 per Right, with adjustments for stock splits, stock
dividends or other similar transactions (the "Redemption Price"). The redemption
of the Rights may be made effective at such time, on such basis and with such
conditions as the Company's Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Company's Board of Directors
without the consent of the holders of the Rights, including an amendment to
lower certain 10% thresholds described above to not less than the greater of (a)
the sum of .001% and the largest percentage of the outstanding Common Stock and
Class B Common Stock then known to the Company to be beneficially owned by any
person or group of affiliated persons and (b) 9.8%, except that, from and after
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on substantially all the Rights being acquired.
The Rights will not interfere with any merger or other business combination
approved by the Company's Board of Directors since the Company's Board of
Directors may, at its option, at any time prior to any person or group becoming
an Acquiring Person, redeem all, but not less than all, the then-outstanding
Rights at the Redemption Price.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 40,000,000 shares of Preferred Stock, par
value $.001 per share, of which no shares were outstanding as of April 14, 1995.
The Company has designated 2,800,000 shares of the Preferred Stock as the Junior
Preferred Shares issuable in connection with the Rights Agreement discussed
under "Description of Common Stock and Class B Common Stock -- Shareholder
Rights Plan."
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GENERAL
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Certificate of Incorporation (including the
applicable Certificate of Designations) and By-Laws.
Shares of Preferred Stock may be issued from time to time in one or more
series as authorized by the Company's Board of Directors. Subject to limitations
prescribed by the Delaware General Corporation Law and the Certificate of
Incorporation, the Company's Board of Directors is authorized to fix the number
of shares constituting each series of Preferred Stock and the designations and
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution by the Board of
Directors or a duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) whether such Preferred Stock is cumulative or not and, if cumulative, the
date from which dividends on such Preferred Stock shall accumulate;
(5) the procedures for any auction and remarketing, if any, for such Preferred
Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) any voting rights of such Preferred Stock;
(8) the provision for redemption, if applicable, of such Preferred Stock;
(9) any listing of such Preferred Stock on any securities exchange;
(10) the terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof);
(11) a discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) any limitations on actual, beneficial or constructive ownership and
restrictions on transfer, in each case as may be appropriate to preserve the
Company's REIT status;
(13) the relative ranking and preferences of such Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs
of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking senior
to or on a parity with such series of Preferred Stock as to dividend rights
and rights upon liquidation, dissolution or winding up of the affairs of the
Company; and
(15) any other specific terms, preferences, rights, limitations or restrictions
of such Preferred Stock.
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RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company, rank (a)
senior to all classes or series of Common Stock, Class B Common Stock and Excess
Stock of the Company, to the Junior Preferred Shares and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Company; (b)
on a parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the affairs of the Company; and (c) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
affairs of the Company. As used in the Certificate of Incorporation for these
purposes, the term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared by the Company's Board of Directors, out of
the Company's assets legally available for payment, cash dividends at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
Company's stock transfer books on such record dates as shall be fixed by the
Company's Board of Directors.
Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Company's Board of Directors fails to
declare a dividend payable on a dividend payment date on any series of Preferred
Stock for which dividends are noncumulative, then the holders of such series of
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If any shares of Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of any other series ranking, as to dividends, on a parity with or junior
to the Preferred Stock of such series for any period unless (a) if such series
of Preferred Stock has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for such payment on the Preferred Stock of
such series for all past dividend periods and the then current dividend period
or (b) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of Preferred Stock of any series
and the shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared on
shares of Preferred Stock of such series and any other series of Preferred Stock
ranking on a parity as to dividends of such Preferred Stock shall be declared
pro rata so that the amount of dividends declared per share on the Preferred
Stock of such series and such other series of Preferred Stock shall in all cases
bear to each other the same ratio that accrued dividends per share on the shares
of Preferred Stock of such series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Stock
does not have a cumulative dividend) and such other series of Preferred Stock
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Stock of
such series that may be in arrears.
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Except as provided in the immediately preceding paragraph, unless (a) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period and (b) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in the Common Stock, the Class B Common Stock
or other capital stock of the Company ranking junior to the Preferred Stock of
such series as to dividends and upon liquidation) shall be declared or paid or
set aside for payment nor shall any other distribution be declared or made on
the Common Stock, the Class B Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
as to dividends or upon liquidation, nor shall the Common Stock, the Class B
Common Stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any amounts be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by conversion
into or exchange for other capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series that remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
Company's option, as a whole or in part, in each case on the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (a) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof is set apart for
payment for all past dividend periods and the then current dividend period and
(b) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for the then current dividend period, no shares of such
series of Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock of such series are simultaneously redeemed; PROVIDED, HOWEVER,
that the foregoing shall not prevent the purchase or acquisition of shares of
Preferred Stock of such series to preserve the Company's REIT
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status or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof is set apart for payment for all
past dividend periods and the then current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends on
the Preferred Stock of such series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof is set apart
for payment for the then current dividend period, the Company shall not purchase
or otherwise acquire directly or indirectly any shares of Preferred Stock of
such series (except by conversion into or exchange for capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock of such series to preserve
the Company's REIT status or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
series.
If fewer than all the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company that will not result in the issuance
of any Excess Stock.
Notice of redemption will be mailed at least 30, but not more than 60, days
before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the Company's stock
transfer books. Each notice shall state: (a) the redemption date; (b) the number
of shares and series of the Preferred Stock to be redeemed; (c) the redemption
price; (d) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (e) that dividends on the
shares to be redeemed will cease to accumulate on such redemption date; and (f)
the date on which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer than all the shares of Preferred Stock of any series
are to be redeemed, the notice mailed to each such holder thereof shall also
specify the number of shares of Preferred Stock to be redeemed from each such
holder and, upon redemption, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof. If notice of redemption of
any shares of Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any shares of Preferred Stock so called for redemption, then from and
after the redemption date dividends will cease to accrue on such shares of
Preferred Stock, such shares of Preferred Stock shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price. In order to facilitate the redemption
of shares of Preferred Stock of any series, the Board of Directors may fix a
record date for the determination of shares of such series of Preferred Stock to
be redeemed.
Subject to applicable law and the limitation on purchases when dividends on
a series of Preferred Stock are in arrears, the Company may, at any time and
from time to time, purchase any shares of such series of Preferred Stock in the
open market, by tender or by private agreement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of the Common Stock, the Class B Common Stock or any other
class or series of capital stock of the Company ranking junior to any series of
the Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding up of the affairs of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the
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liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the Company.
If, upon any such voluntary or involuntary liquidation, dissolution or winding
up, the legally available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding shares of any series
of Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with such
series of Preferred Stock in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of such series of Preferred Stock
and all other such classes or series of capital stock shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
any series of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such series of Preferred Stock upon liquidation, dissolution
or winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other entity, or the
sale, lease, transfer or conveyance of all or substantially all of the Company's
property or business, shall not be deemed to constitute a liquidation,
dissolution or winding up of the affairs of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company shall not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (b) amend, alter or repeal the provisions
of the Certificate of Incorporation or the Certificate of Designations for such
series of Preferred Stock, whether by merger, consolidation or otherwise, so as
to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; PROVIDED,
HOWEVER, that any increase in the amount of the authorized Preferred Stock or
the creation or issuance of any other series of Preferred Stock, or any increase
in the amount of authorized shares of such series or any other series of
Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
Under Delaware law, notwithstanding anything to the contrary set forth
above, holders of each series of Preferred Stock will be entitled to vote as a
class upon a proposed amendment to the Certificate of Incorporation, whether or
not entitled to vote thereon by the Certificate of Incorporation, if the
amendment would increase or decrease the aggregate number of authorized shares
of such series, increase or decrease the par value of the shares of such series,
or alter or change the powers, preferences or special rights of the shares of
such series so as to affect them adversely.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, actually or constructively,
by five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, actually or constructively, by a single person or entity of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Capital Stock; Excess Stock."
TRANSFER AGENT
The transfer agent and registrar for any series of Preferred Stock will be
set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; EXCESS STOCK
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, actually
or constructively, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year, and such capital stock
must be beneficially owned by 100 or more persons during at least 355 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year. To ensure that the Company remains qualified as a REIT, the Certificate of
Incorporation, subject to certain exceptions, provides that the Company may
prevent the transfer and/or call for redemption of shares of the Company
(whether Common Stock, Class B Common Stock or Preferred Stock) if more than 50%
of the outstanding shares would be owned, actually or constructively, by five or
fewer persons (defined to include individuals, corporations, partnerships, joint
ventures and similar entities) or if one person would own, actually or
constructively, more than 9.8% of the total outstanding shares (or such higher
percentage as may be determined by the Company's Board of Directors (the
"Ownership Limit")). In addition, the Company may prevent such transfers and/or
call for redemption of such shares if the Company's Board of Directors
determines in good faith that the shares have or may become concentrated to the
extent that may prevent the Company from qualifying as a REIT. See "Certain
Federal Income Tax Considerations -- Overview of REIT Qualification Rules --
Share Ownership." Any class or series of Preferred Stock may be subject to these
restrictions if so stated in the resolutions providing for the issuance of such
Preferred Stock. Any corporate investor wishing to acquire or own more than 9.8%
of the total outstanding shares may petition the Company's Board of Directors in
writing for approval. The Company's Board will grant such request unless it
determines in good faith that the acquisition or ownership of such shares would
jeopardize the Company's qualification as a REIT under existing federal tax laws
and regulations. Any corporate investor intending to acquire shares in excess of
the Ownership Limit must give written notice to the Company of the proposed
acquisition no later than the date on which the transaction occurs and must
furnish such opinions of counsel, affidavits, undertakings, agreements and
information as may be required by the Company's Board of Directors to evaluate
or to protect against any adverse effect of the transfer. Notwithstanding the
foregoing, the Company's Board of Directors is not required to grant a request
to adjust the Ownership Limit if the Company's Board of Directors believes,
based on advice of legal counsel, that the granting of such request would cause
the Company's Board of Directors to breach its fiduciary duties to the
shareholders of the Company.
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If, despite the restrictions noted above, any person acquires shares of the
Company's Common Stock and Class B Common Stock in excess of the Ownership Limit
(applying certain constructive ownership provisions), the shares most recently
acquired by such person in excess of the Ownership Limit will be automatically
exchanged for an equal number of shares of Excess Stock. The Company is
authorized to issue 160,000,000 shares of Excess Stock, par value $.001 per
share. Pursuant to the Company's Certificate of Incorporation, shares of Excess
Stock have the following characteristics: (a) owners of Excess Stock are not
entitled to exercise voting rights with respect to the Excess Stock; (b) Excess
Stock shall not be deemed outstanding for purposes of determining a quorum at
any annual or special meeting of shareholders; and (c) Excess Stock will not be
entitled to any dividends or other distributions. Any person who becomes an
owner of Excess Stock is obligated to immediately give the Company written
notice of such fact and certain information required by the Certificate of
Incorporation. Excess Stock is also deemed to have been offered for sale to the
Company or its designee for a period of 120 days from the later of (i) the date
of the transfer that created the Excess Stock if the Company has actual notice
that such transfer created the Excess Stock and (ii) the date on which the
Company's Board of Directors determines in good faith that the transfer creating
the Excess Stock has occurred. The Company has the right during such time period
to accept the deemed offer or, in the Board of Directors' discretion, the
Company may acquire and sell, or cause the owner to sell, the Excess Stock. The
price for the Excess Stock will be the lesser of (y) the closing price of the
shares exchanged into Excess Stock on the national stock exchange on which the
shares are listed as of the date the Company or its designee acquires the Excess
Stock or, if no such price is available, as determined in good faith by the
Company's Board of Directors and (z) the price per share paid by the owner of
the shares that were exchanged into Excess Stock or, if no purchase price was
paid, the fair market value of such shares on the date of acquisition as
determined in good faith by the Company's Board of Directors. Upon such transfer
or sale, the Excess Stock will automatically convert to Common Stock with all
voting and dividend rights effective as of the date of such conversion;
PROVIDED, HOWEVER, that the owner will not be entitled to receive dividends
payable with respect to Common Stock for the period during which the shares were
Excess Stock.
All certificates of Common Stock and Class B Common Stock, any other series
of the Company's Common Stock or Class B Common Stock and any class or series of
Preferred Stock will bear a legend referring to the restrictions described
above. All persons who own a specified percentage (or more) of the outstanding
capital stock of the Company must file an affidavit with the Company containing
information regarding their ownership of stock as set forth in the Treasury
Regulations. Under current Treasury Regulations, the percentage is set between
.5% and 5%, depending on the number of record holders of capital stock. In
addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares of capital stock of the Company as the Board of
Directors deems necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
This ownership limitation may have the effect of precluding acquisition of
control of the Company by a third party unless the Board of Directors determines
that maintenance of REIT status is no longer in the best interests of the
Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Securities will vary
depending on the terms of the specific Securities acquired by such holder, as
well as his or her particular situation. This discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities. Certain federal income tax considerations relevant to a holder of
Securities will be provided in the Prospectus Supplement relating thereto.
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EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR HER
OF THE ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE LAWS.
QUALIFICATION OF THE COMPANY AS A REIT; OPINION OF COUNSEL
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its fiscal year ended December 31,
1994. The election to be taxed as a REIT will continue until it is revoked or
otherwise terminated. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that it will not be subject
to federal corporate income taxes on net income that is currently distributed to
its shareholders. This treatment substantially eliminates the "double taxation"
(at the corporate and shareholder levels) that typically results when a
corporation earns income and distributes that income to shareholders in the form
of a dividend. Accordingly, if the Company at any time fails to qualify as a
REIT, the Company will be taxed on its distributed income, thereby reducing the
amount of cash available for distribution to its shareholders.
In the opinion of Perkins Coie, counsel to the Company, commencing with the
taxable year ended December 31, 1994, the Company has been organized in
conformity with the requirements for qualification as a REIT and its proposed
method of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon the representations of the Company
as to factual matters. Moreover, continued qualification and taxation as a REIT
will depend on the Company's ability to satisfy on a continuing basis certain
distribution levels, diversity of stock ownership and various qualification
tests imposed by the Code as summarized below. While the Company intends to
operate so that it will continue to qualify as a REIT, given the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in the circumstances of
the Company, no assurance can be given by counsel or the Company that the
Company will so qualify for any particular year. Perkins Coie will not review
compliance with these tests on a continuing basis, and has not undertaken to
update its opinion subsequent to the date hereof.
TAXATION OF THE COMPANY AS A REIT
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal income tax on net income that is currently distributed to its
shareholders. The Company may, however, be subject to certain federal taxes
based on the amount of its distributions or its inability to meet certain REIT
qualification requirements. These taxes are the following:
TAX ON UNDISTRIBUTED INCOME. First, if the Company does not distribute all
of its net taxable income, including any net capital gain, the Company would be
taxed at regular corporate rates on the undistributed income or gains.
TAX ON PROHIBITED TRANSACTIONS. Second, if the Company has net income from
certain prohibited transactions, including sales or dispositions of property
held primarily for sale to customers in the ordinary course of business, such
net income would be subject to a 100% confiscatory tax.
TAX ON FAILURE TO MEET GROSS INCOME REQUIREMENTS. Third, if the Company
should fail to meet either the 75% or 95% gross income test as described below
but still qualify for REIT status because, among other requirements, it was able
to show that such failure was due to reasonable cause, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount, if any, by which the Company failed either the 75% or the 95%
gross income test, multiplied by (b) a fraction intended to reflect the
Company's profitability.
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TAX ON FAILURE TO MEET DISTRIBUTION REQUIREMENTS. Fourth, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net
income for such year, and (c) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
TAX ON BUILT-IN GAIN. Fifth, if during the 10-year period (the "Recognition
Period") beginning on the date that the Management Company merged with and into
the Company, the Company recognizes gain on the disposition of any asset
acquired by the Company from the Management Company, then to the extent of the
excess of (a) the fair market value of such asset as of the beginning of such
Recognition Period over (b) the Company's adjusted basis in such asset as of the
beginning of such Recognition Period, such gain will be subject to tax at the
highest regular corporate rate pursuant to IRS regulations that have not yet
been promulgated.
ALTERNATIVE MINIMUM TAX. Sixth, the Company may be subject to alternative
minimum tax on certain items of tax preference.
TAX ON FORECLOSURE PROPERTY. Seventh, if the Company has (a) net income
from the sale or other disposition of foreclosure property that is held
primarily for sale to customers in the ordinary course of business or (b) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income.
OVERVIEW OF REIT QUALIFICATION RULES
The following summarizes the basic requirements for REIT status:
(a) The Company must be a corporation, trust or association that is managed
by one or more trustees or directors.
(b) The Company's stock or beneficial interests must be transferable and
held by more than 100 shareholders, and no more than 50% of the value of the
Company's stock may be held, actually or constructively, by five or fewer
individuals.
(c) Generally, 75% (by value) of the Company's investments must be in real
estate, mortgages secured by real estate, cash or government securities.
(d) The Company must meet three gross income tests:
(i) First, at least 75% of the gross income must be derived from
specific real estate sources;
(ii) Second, at least 95% of the gross income must be from the real
estate sources includable in the 75% test, or from dividends,
interest or gains from the sale or disposition of stock and
securities; and
(iii) Third, less than 30% of the gross income may be derived from the
sale of real estate assets held for less than four years, from the
sale of certain "dealer" properties or from the sale of stock or
securities having a short-term holding period.
(e) The Company must distribute to its shareholders in each taxable year an
amount at least equal to 95% of the Company's "REIT taxable income" (which is
generally equivalent to taxable ordinary income and is defined below).
The discussion set forth below explains these REIT qualification
requirements in greater detail. It also addresses how these highly technical
rules may be expected to impact the Company in its operations, noting areas of
uncertainty that perhaps could lead to adverse consequences to the Company and
its shareholders.
SHARE OWNERSHIP. The Company's shares of stock are fully transferable, with
the exception of certain shares that are subject to contractual transfer
restrictions. Furthermore, the Company has more than 100 shareholders and its
Certificate of Incorporation provides, to decrease the possibility
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that the Company will ever be closely held, that no individual, corporation or
partnership is permitted to actually or constructively acquire more than 9.8% of
the number of outstanding shares of Common Stock. The Ownership Limit may be
adjusted, however, by the Company's Board of Directors in certain circumstances.
Shares acquired in excess of the Ownership Limit may be redeemed by the Company.
In addition, the Certificate of Incorporation provides that shares acquired in
excess of the Ownership Limit will automatically convert into nondividend-paying
and nonvoting shares of Excess Stock. Contractual or securities law restrictions
on transferability should be disregarded for purposes of determining the
transferability of REIT shares. The ownership and transfer restrictions
pertaining generally to a particular issue of Preferred Stock will be described
in the Prospectus Supplement relating to such issue.
NATURE OF ASSETS. On the last day of each calendar quarter, at least 75% of
the value of the Company's total assets must consist of (a) real estate assets
(including interests in real property and mortgages on loans secured by real
property), (b) cash and cash items (including receivables), and (c) government
securities (collectively, the "real estate assets"). In addition, no more than
25% of the value of the Company's assets may consist of securities (other than
government securities). Finally, except for certain "qualified REIT
subsidiaries," as described below, the securities of any issuer, other than the
United States government, may not represent more than 5% of the value of the
Company's total assets or 10% of the outstanding voting securities of any one
issuer.
While, as noted above, a REIT cannot own more than 10% of the outstanding
voting securities of any single issuer, an exception to this rule permits REITs
to own "qualified REIT subsidiaries." A "qualified REIT subsidiary" is any
corporation in which 100% of its stock is owned by the REIT at all times during
which the corporation was in existence. The Company currently has three wholly
owned corporate subsidiaries that were formed and owned at all times during
their existence by the Company. These corporations should be treated as
"qualified REIT subsidiaries" and should not adversely affect the Company's
qualification as a REIT.
The Company owns interests in partnerships that directly or indirectly own
and operate self-storage facilities. The Company, for purposes of satisfying its
REIT asset and income tests, will be treated as if it owns a proportionate share
of each of the assets of these partnerships attributable to such interests. For
these purposes, the Company's interest in each of the partnerships will be
determined in accordance with its capital interest in such partnership. The
character of the various assets in the hands of the partnership and the items of
gross income of the partnership will remain the same in the Company's hands for
these purposes. Accordingly, to the extent the partnership receives qualified
real estate rentals and holds real property, a proportionate share of such
qualified income and assets, based on the Company's capital interest in the
partnerships, will be treated as qualified rental income and real estate assets
of the Company for purposes of determining its REIT characterization. It is
expected that substantially all the properties of the partnerships will
constitute real estate assets and generate qualified rental income for these
REIT qualification purposes.
In several partnerships, the Company is entitled to a percentage of profits
in excess of its percentage of total capital contributed to the partnership.
Regulatory authority does not specifically address this situation and, based on
existing authority, the treatment of these profit interests when applying these
gross income and asset rules is uncertain. For example, based on the existing
rules, if the amount of net income allocated to a REIT based on a profit
interest in a partnership is in excess of its capital interest in the
partnership's underlying gross income, the amount of such excess should be
entirely disregarded for these REIT qualification purposes. Furthermore, these
rules do not specifically address the manner in which a REIT is to determine its
capital interest. There is no reference to the capital account or special
allocation rules of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder and these rules do not address acquisitions of
partnership interests for valuable consideration. Based on the fact that the
Company acquired these interests for valuable consideration in connection with
the Merger and at a time when the partnership assets may have some appreciated
capital value, the Company may be treated as having a capital percentage in the
partnerships at the time of the Merger. In the event the IRS determines that the
percentage of capital
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contributed is the proper indicator of a capital interest, however, a portion of
the income recognized by the Company and the real estate treated as owned by the
Company attributable to its interest in these partnerships may be disregarded
when applying these gross income and asset requirements.
This treatment for partnerships is conditioned on the treatment of these
entities as partnerships for federal income tax purposes (as opposed to
associations taxable as corporations). If any of the partnerships is treated as
an association, it would be taxable as a corporation. In such situation, if the
Company's ownership in any of the partnerships exceeded 10% of the partnership's
voting interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, distributions from any of the partnerships to the Company
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described below and which could therefore make it more
difficult for the Company to qualify as a REIT for the taxable year in which
such distribution was received. In addition, in such a situation, the interest
in any of the partnerships held by the Company would not qualify as "real estate
assets," which could make it more difficult for the Company to meet the 75%
asset test described above. Finally, in such a situation, the Company would not
be able to deduct its share of any losses generated by the partnerships in
computing its taxable income. The Company believes that each of the partnerships
will be taxed for tax purposes as a partnership (and not as an association
taxable as a corporation). However, there can be no assurance that the IRS may
not successfully challenge the tax status of any of the partnerships.
INCOME TESTS. To maintain its qualification as a REIT, the Company must
meet three gross income requirements that must be satisfied annually. First, at
least 75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
from the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by the Company on the lease of self-storage facilities will
qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts of sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income test if the Company, or an owner
of 10% or more of the Company, actually or constructively owns 10% or more of
such tenant (a "Related-Party Tenant"). Third, if rent attributable to personal
property leased in connection with the lease of real property is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." The Company does not anticipate charging rent for any portion of any
property that is based in whole or in part on the income or profits of any
person and the Company does not anticipate receiving rents in excess of a de
minimis amount from Related-Party Tenants. Furthermore, the Company does not
lease personal property in connection with its rental of self-storage
facilities.
Finally, for rents to qualify as "rents from real property," the Company
must not operate or manage the property or furnish or render services to tenants
unless the Company furnishes or renders such services through an independent
contractor from whom the Company derives no revenue. The Company need not
utilize an independent contractor to the extent that services provided by the
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Company are usually and customarily rendered in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." The Company has obtained a private letter ruling from the IRS ruling
that the management services provided by the Company for its own properties will
not cause the rents received by the Company to be treated as other than "rents
from real property." The ruling is based on a description of those management
services to be performed by the Company in connection with its own properties,
including maintenance, repair, lease administration and accounting and security.
The ruling also considers certain ancillary services to be directly
performed by the Company such as truck rentals and inventory sales. The ruling
provides that such services do not otherwise adversely affect the
characterization of the rental income received by the Company. Nonetheless,
income from truck rentals and certain other ancillary services does not qualify
under these gross income tests ("Nonqualifying Income"). In addition, the fees,
consideration and certain reimbursements that the Company receives for
performing management and administrative services with respect to properties
that are not owned entirely by the Company will also be treated as Nonqualifying
Income.
As of the date of this Prospectus, the Company anticipates that it will
generate Nonqualifying Income of between approximately 4.1% and 4.3% in 1995 and
between approximately 4.5% and 4.7% in 1996 based on its historical and budgeted
revenues and assuming no substantial change in its current operations.
The Company intends to monitor the percentage of Nonqualifying Income and
reduce the percentage of Nonqualifying Income if necessary. Because the income
tests are based on a percentage of total gross income, increases in qualifying
rents will reduce the percentage of Nonqualifying Income. For example, the
Company may acquire real estate assets that would generate additional qualifying
income, thereby lowering the percentage of total Nonqualifying Income. Increases
in other Nonqualifying Income may similarly affect these calculations. Reference
is made to the applicable Prospectus Supplement for a current discussion, if
any, relating to the amount of Nonqualifying Income expected to be generated by
the Company.
If the Company fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
test was due to reasonable cause and not willful neglect and the Company
attaches a schedule of its income sources to its tax return that does not
fraudulently or intentionally exclude any income sources. As discussed above,
even if these relief provisions apply, a tax would be imposed with respect to
such excess income.
ANNUAL DISTRIBUTION REQUIREMENTS. Each year, the Company must have a
deduction for dividends paid (determined under Section 561 of the Code) to its
shareholders in an amount equal to (a) 95% of the sum of (i) its "REIT taxable
income" as defined below, (ii) any net income from foreclosure property less the
tax on such income, minus (b) any "excess noncash income," as defined below.
"REIT taxable income" is the taxable income of a REIT computed without a
deduction for dividends paid and excluding any net capital gain. REIT taxable
income is further adjusted by certain items, including, without limitation, an
exclusion for net income from foreclosure property, a deduction for the excise
tax on the greater of the amount by which the REIT fails the 75% or the 95%
income test, and an exclusion for an amount equal to any net income derived from
prohibited transactions. "Excess noncash income" means the excess of certain
amounts that the REIT is required to recognize as income in advance of receiving
cash, such as original issue discount on purchase money debt, over 5% of the
REIT taxable income before deduction for dividends paid and excluding any net
capital gain. Such distributions must be made in the taxable year to which they
relate, or in the following taxable year if declared before the REIT timely
files its tax return for such year and is paid on or before the first regular
dividend payment after such declaration.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (a) the actual
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receipt of income and the actual payment of deductible expenses and (b) the
inclusion of such income and deduction of such expenses in arriving at taxable
income of the Company. Furthermore, substantial principal payments on Company
indebtedness, which has the effect of lowering the amount of distributable cash
without an offsetting deduction to Company taxable income, may adversely affect
the Company's ability to meet this distribution requirement. In the event that
such timing differences or reduction to distributable cash occurs, in order to
meet the 95% distribution requirement, the Company may find it necessary to
arrange for short-term, or possible long-term, borrowings or to pay dividends in
the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year that may be included in the Company's deduction for
dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay to the IRS interest based on the amount of any deduction
taken for deficiency dividends.
DISTRIBUTION OF ACQUIRED EARNINGS. In addition to the above annual
distribution requirements, a REIT is not allowed to have accumulated earnings
and profits attributable to non-REIT years. A REIT has until the close of its
first taxable year in which it has non-REIT earnings and profits to distribute
any such accumulated earnings and profits. As a result of the Merger in March
1995, the Company is treated as having acquired the Management Company's
accumulated earnings and profits and must, therefore, distribute these earnings
and profits prior to the close of 1995. Failure to do so would result in loss of
the Company's REIT status. See "-- Failure of the Company to Qualify as a REIT."
The amount of the Management Company's accumulated earnings and profits
acquired by the Company (the "Acquired Earnings") will be determined, in part,
through an earnings and profits study based on the Management Company's
corporate tax returns as filed for the years beginning on the Management
Company's date of incorporation through the date of the Merger. Furthermore, as
a result of the Management Company's spin off of InterMation, Inc.
("InterMation") prior to the Merger, a portion of the Management Company's
consolidated earnings and profits have been allocated to InterMation based on
the relative fair market values of the two separate corporations at the time of
the spin-off. The valuation of these two corporations will be based on the share
consideration paid by the Company for the Management Company in the Merger
(exclusive of contingent consideration) and an independent valuation of
InterMation.
As of the date of this Prospectus the Company estimates that the amount of
the Acquired Earnings is between $4,500,000 and $5,500,000, depending on the
relative values of InterMation assumed for allocating such accumulated earnings
and profits in connection with the spin-off. This estimate is based on, among
other things, (i) a reduction in the accumulated earnings and profits of the
Management Company resulting from the exercise of stock options and the payment
of cash bonuses to pay taxes associated with such exercise during 1995, (ii) a
reduction in the accumulated earnings and profits of the Management Company
resulting from payment of stock and cash bonuses during 1994 and 1995, and (iii)
a reduction in the accumulated earnings and profits of the Management Company
resulting from an InterMation net operating loss for the 1995 period ending on
the date of the spin-off. The amount of these reductions has not been
independently reviewed as of the date of this Prospectus. Because the above
range is based on estimates and other assumptions, the actual amount of Acquired
Earnings may differ from the above range.
Based on its quarterly dividend history during 1994, the Company will be
required to increase its distributions during 1995 to distribute the Acquired
Earnings. The Company may accomplish these additional distributions by
increasing its quarterly distribution, making special distributions during 1995
or making a special year-end distribution. A year-end distribution must be
declared within the last three months of 1995, payable to shareholders of record
on a specified date in any such month and paid prior to January 31, 1996. This
distribution, to the extent it constitutes a dividend, would be treated for all
purposes as a 1995 dividend to the Company's shareholders even though received
by the
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shareholders after year-end. The Company intends to make distributions that are
sufficient to fully distribute the Acquired Earnings prior to the end of 1995.
As a result of these increased distributions, the Company's shareholders will
recognize additional dividend income in 1995.
The calculation of the amount of Acquired Earnings is subject to challenge
by the IRS. The IRS may examine the Management Company's prior tax returns and
propose adjustments to increase its taxable income. Because the earnings and
profits study used to calculate the amount of Acquired Earnings is based on
these returns, such adjustments may increase the amount of Acquired Earnings,
particularly since the IRS may consider all taxable years as open for review for
purposes of determining earnings and profits. Moreover, there can be no
assurance that the IRS will respect the valuations used for purposes of
allocating the consolidated earnings and profits between the Management Company
and InterMation in connection with the spin-off. If the IRS determines that the
Management Company has a proportionately greater value than InterMation at the
time of the InterMation spin-off, the amount of Acquired Earnings would
proportionately increase.
If the IRS determines that the Company has not distributed the Acquired
Earnings prior to the end of 1995, the Company would fail to qualify as a REIT
for 1995. See "-- Failure of the Company to Qualify as a REIT." However, the
Company may make an additional distribution within 90 days of such a
determination by the IRS and would be required to pay the IRS an interest charge
based on 50% of the amount not previously distributed. If such additional
distribution is made, the Company's failure to distribute the Acquired Earnings
would not prevent it from qualifying as a REIT for years subsequent to 1995.
Reference is made to the applicable Prospectus Supplement for a current
discussion, if any, of the amount of Acquired Earnings and the expected timing
and amount of Company distributions.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, thereby reducing the amount of cash available for
distribution to its shareholders. Distributions to shareholders in any year in
which the Company fails to qualify would not be deductible by the Company nor
would they be required to be made. In such an event, to the extent of current
and accumulated earnings and profits, all distributions to shareholders would be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory relief provisions, the
Company would also be disqualified from taxation as a REIT for the four taxable
years following the year during which such qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief.
MANAGEMENT COMPANY MERGER
The Company has obtained an opinion from Perkins Coie that, among other
things, the Merger will be treated as a reorganization under Section 368(a) of
the Code and that no gain or loss will be recognized by the Company or the
Management Company in the Merger. No ruling from the IRS will be applied for
with respect to the federal income tax consequences of the Merger. Thus there
can be no assurance that the IRS will agree with the conclusions set forth in
such opinion. If the Merger does not qualify as a reorganization under Section
368(a) of the Code, the Management Company would recognize gain or loss in an
amount equal to the difference between the fair market value of the Common Stock
issued in the Merger and the adjusted tax basis of the Management Company assets
acquired in the Merger. Although the Company would not directly recognize gain
or loss as a result of the failure of the Merger to qualify as a reorganization
under Section 368(a) of the Code, the Company will be primarily liable as the
successor to the Management Company for the resulting tax liability imposed on
the Management Company. Furthermore, the failure of the Merger to qualify as a
reorganization may cause the InterMation spin-off to fail to qualify as a
tax-free corporate division under Section 355(a)(1) of the Code.
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STATE AND LOCAL TAXES
The Company or its shareholders, or both, may be subject to state or local
taxes in other jurisdictions such as those in which the Company may be deemed to
be engaged in activities or in which shareholders reside or own property or
other interests. Such tax treatment of the Company and its shareholders in
states having taxing jurisdiction over them may differ from the federal income
tax treatment described in the summary. Each shareholder should consult his or
her tax advisor as to the status of the Securities under the respective state
laws applicable to them.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices relating to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Securities, underwriters
may be deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent. Any underwriting
compensation paid by the Company to underwriters or agents in connection with
the offering of Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable Prospectus Supplement. Underwriters, dealers and agents participating
in the distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriter or agent will be
identified, and such compensation received from the Company will be described,
in the applicable Prospectus Supplement.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
Certain of the underwriters, dealers and agents and their affiliates may be
customers of, engage in transactions with and perform services for the Company
and its subsidiaries in the ordinary course of business.
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other than
the Common Stock. The Common Stock is currently quoted on Nasdaq and has been
approved for listing on the NYSE commencing May 5, 1995. Unless otherwise
specified in the related Prospectus Supplement, any shares of Common Stock sold
pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of Debt
Securities or Preferred Stock on an exchange or Nasdaq, but is not obligated to
do so. It is possible that one or more underwriters may make a market in a
series of Securities, but will not be obligated to do so and may discontinue any
market making at any time without notice. Therefore, there can be no assurance
as to the liquidity of, or the trading market for, the Securities.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In
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addition, in certain states Securities may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Perkins Coie, Seattle, Washington.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING
PROSPECTUS CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Available Information.......................... S-2
Incorporation of Certain Documents by
Reference..................................... S-2
The Company.................................... S-3
Recent Developments............................ S-4
The Offering................................... S-5
Risk Factors................................... S-6
Use of Proceeds................................ S-11
Price Range of Common Stock and Distribution
History....................................... S-11
Certain Federal Income Tax Considerations to
Holders of Common Stock....................... S-12
Underwriting................................... S-16
Legal Matters.................................. S-16
PROSPECTUS
Available Information.......................... 2
Incorporation by of Certain Documents by
Reference..................................... 2
The Company.................................... 3
Use of Proceeds................................ 3
Ratios of Earnings to Fixed Charges............ 3
Description of Debt Securities................. 4
Description of Common Stock and Class B Common
Stock......................................... 14
Description of Preferred Stock................. 17
Restrictions on Transfers of Capital Stock;
Excess Stock.................................. 23
Certain Federal Income Tax Considerations...... 24
Plan of Distribution........................... 32
Experts........................................ 33
Legal Matters.................................. 33
</TABLE>
2,100,000 SHARES
[LOGO]
CLASS A COMMON STOCK
-----------------
PROSPECTUS SUPPLEMENT
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SMITH BARNEY INC.
JANUARY 16, 1997
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