<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/x/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Shurgard Storage Centers, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
March 31, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of Shurgard Storage Centers, Inc. at 2:00 p.m. on Tuesday, May 13,
1997, at the Sheraton Seattle Hotel, Metropolitan Room, 1400 Sixth Avenue,
Seattle, Washington.
The Notice of Annual Meeting of Stockholders and the Proxy Statement
that follow provide details of the business to be conducted at the Annual
Meeting.
Whether or not you plan to attend the Annual Meeting, we hope that you
will have your stock represented by completing, signing, dating and returning
your proxy card in the enclosed envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in your proxy.
Sincerely,
Charles K. Barbo
Chairman, President and
Chief Executive Officer
IMPORTANT
A proxy card is enclosed. All stockholders are urged to complete and mail the
proxy card promptly. The enclosed envelope for return of the proxy card requires
no postage. Any stockholder attending the Annual Meeting may personally vote on
all matters that are considered, in which event the signed proxy will be
revoked.
<PAGE> 3
SHURGARD STORAGE CENTERS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
To the Stockholders:
The 1997 Annual Meeting of Stockholders of Shurgard Storage Centers,
Inc. will be held at the Sheraton Seattle Hotel, Metropolitan Room, 1400 Sixth
Avenue, Seattle, Washington on Tuesday, May 13, 1997, at 2:00 p.m.
for the following purposes:
1. To elect two directors to the Company's Board of Directors;
2. To approve a proposal to change the Company's state of
incorporation from Delaware to Washington through a merger of
the Company with a newly formed, wholly owned Washington
subsidiary; and
3. To transact such other business as may properly come before
the Annual Meeting or any postponement or adjournment thereof.
The record date for the Annual Meeting is March 21, 1997. Only
stockholders of record at the close of business on that date are entitled to
notice of and to vote at the Annual Meeting. The list of stockholders entitled
to vote at the meeting will be available at the Company's office at 1201 Third
Avenue, Suite 2200, Seattle, Washington for the ten days immediately prior to
the meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
EVEN IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION.
STOCKHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE
PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors,
Kristin H. Stred
Secretary
Seattle, Washington
March 31, 1997
<PAGE> 4
SHURGARD STORAGE CENTERS, INC.
PROXY STATEMENT FOR ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD MAY 13, 1997
GENERAL
The enclosed proxy is solicited by the Board of Directors of Shurgard
Storage Centers, Inc. (the "Company") for use at the 1997 Annual Meeting of
Stockholders to be held at 2:00 p.m. on Tuesday, May 13, 1997 at the Sheraton
Seattle Hotel, Metropolitan Room, 1400 Sixth Avenue, Seattle, Washington and at
any postponement or adjournment thereof (the "1997 Annual Meeting"). Only
holders of record of the Company's Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock") at the close of business on March 21, 1997
will be entitled to vote at the 1997 Annual Meeting. On that date, the Company
had 27,695,978 shares of Class A Common Stock and 154,604 shares of Class B
Common Stock outstanding. Each share of Common Stock outstanding on the record
date is entitled to one vote.
The Company began operations on March 1, 1994 through the consolidation
(the "Consolidation") of 17 publicly held limited partnerships that had been
sponsored by Shurgard Incorporated (the "Management Company"). Following the
Consolidation, the Management Company managed the Company's business affairs and
properties. On March 24, 1995, the Management Company was merged with the
Company (the "Merger"), as a result of which the Company became self-managed and
self-administered. Certain information in this Proxy Statement refers to the
Consolidation, the Merger and the Management Company.
The address of the Company's principal executive offices is 1201 Third
Avenue, Suite 2200, Seattle, Washington 98101. This Proxy Statement and the
accompanying proxy card are being mailed to the Company's stockholders on or
about March 31, 1997.
QUORUM
A quorum for the Annual Meeting shall consist of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the 1997
Annual Meeting, present in person or by proxy.
VOTING
Shares of Common Stock for which proxies are properly executed and
returned will be voted at the 1997 Annual Meeting in accordance with the
directions noted thereon or, in the absence of directions, will be voted "FOR"
the election of the nominees for the Board of Directors named herein, provided
that if either nominee should become unavailable for election for any reason,
such shares will be voted for the election of such substitute nominee as the
Board of Directors may propose, and "FOR" the reincorporation of the Company in
the state of Washington. The nominees for election to the Board of Directors who
receive the greatest number of votes cast for the election of directors by the
shares present in person or represented by proxy, and entitled to vote, shall be
elected as directors. Abstention from voting and broker nonvotes on the election
of directors will have no impact on the outcome of this proposal since they have
not been cast in favor of any nominee. The affirmative vote of holders of a
majority of the outstanding shares of Common Stock is required for approval of
the change in the Company's state of incorporation from Delaware to Washington
by merger with and into a wholly owned subsidiary. Abstention from voting and
broker nonvotes will have the practical effect of voting against the
reincorporation since they represent one less vote for approval.
<PAGE> 5
REVOCATION
Any stockholder giving a proxy may revoke it at any time before it is
voted by delivering to the Company's Secretary a written notice of revocation or
a duly executed proxy bearing a later date, or by attending the 1997 Annual
Meeting and voting in person.
ELECTION OF DIRECTORS AND DIRECTOR INFORMATION
The Board of Directors is divided into three classes. Each class is
elected for a three-year term and directors in the other classes remain in
office until their respective three-year terms expire. The Company's Board of
Directors presently consists of six members, with two members in each of Class
1, Class 2 and Class 3. Mr. Beck has served as director of the Company since
1993 and Mr. Smith has served since 1994. Their terms as directors will conclude
at the 1997 Annual Meeting, unless they are elected to another three-year term.
INFORMATION ABOUT THE DIRECTORS NOMINATED FOR ELECTION
TERMS TO EXPIRE IN 2000 (CLASS 3)
Wendell J. Smith (age 64) has served as a director of the Company since
March 1994. Mr. Smith is also currently a director of Franchise Finance
Corporation of America and PGA Tour Properties. He has previously served on the
Western and National Advisory Boards for Federal National Mortgage Association
and the Advisory Board of the Center for Real Estate Research at the University
of California. He retired in 1991 from the State of California Public Employees
Retirement System ("Calpers") after 27 years of employment, the last 21 in
charge of all real estate equities and mortgage acquisitions for Calpers. During
those 21 years, Calpers invested over $8 billion in real estate and mortgages.
In 1991, Mr. Smith established W.J.S. & Associates, which provides advisory and
consulting services for pension funds and pension fund advisors.
Harrell L. Beck (age 40) has served as a director of the Company and as
its Chief Financial Officer and Treasurer since July 1993. Prior to the closing
of the Merger, Mr. Beck also served as the Company's President. He was named
Senior Vice President of the Company upon the closing of the Merger. He joined
the Management Company in April 1986 as the Eastern Regional Vice President and,
in 1990, became its Chief Financial Officer and, in 1992, its Treasurer. Prior
to joining the Management Company, Mr. Beck was a manager with Touche Ross &
Co., where he was employed for approximately six years, during which time he
provided services primarily to clients in the real estate and aerospace
industries. Mr. Beck has a Bachelor of Arts degree in Business Administration
from Washington State University and is a member of the American Institute of
Certified Public Accountants.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR BOTH
NOMINEES FOR DIRECTOR.
-2-
<PAGE> 6
INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE ANNUAL
MEETING
TERMS EXPIRE IN 1998 (CLASS 1)
Charles K. Barbo (age 55) has been involved as a principal in the real
estate investment industry since 1969. Mr. Barbo is one of the co-founders of
the Management Company, which was organized in 1972 to provide property
management services for self storage facilities and other real estate and
commercial ventures. Prior to the Merger, he served as Chairman of the Board and
President of the Management Company. Upon the closing of the Merger, he was
named Chairman of the Board, President and Chief Executive Officer of the
Company. Mr. Barbo is a graduate of the Owner/President Management Program of
Harvard Business School, has a Bachelor of Arts degree in history from the
University of Washington, and is a licensed real estate broker. He is an alumnus
of the Young Presidents' Organization. Mr. Barbo is a director of Matthew G.
Norton Co., Northwest Building Corp. and Asia-Europe-America's Bank, all of
which are privately held.
Donald W. Lusk (age 69) has served as a director of the Company since
March 1994. Since October 26, 1995, Mr. Lusk has served as the Lead Outside
Director of the Company. He is the President of Lusk Consulting Group, which is
engaged in general management consulting as well as the formation and delivery
of management development programs in the United States and Canada. From 1974 to
1991, Mr. Lusk was Regional Managing Partner of Management Action Programs in
the Pacific Northwest. Mr. Lusk has a Bachelor of Arts degree from Pomona
College. He currently serves as a director of G.T. Development Corporation and
Savolite Corporation. He has previously served as a director of Robert E. Bayley
Construction Company, Management Action Programs, Inc., The Bekins Company,
California Pacific National Bank, I.C.X. Corporation, Laguna Manufacturing
Company, Ormand Industries and Pacific United Services Corporation, and was
Chairman of the School of Business and Economics Advisory Board of Seattle
Pacific University.
TERMS EXPIRE IN 1999 (CLASS 2)
Howard J. Johnson (age 58) has served as a director of the Company
since May 1996. He has since 1965 been the Chairman, President and Chief
Executive Officer of Howard Johnson & Company, an independent consulting and
actuarial firm specializing in employee benefits and compensation. He has also
served as the Chairman and President of Howard Johnson & Company (UK) Limited
and Howard Johnson & Company (Europe) Limited since 1994. Mr. Johnson attended
the University of Washington. Mr. Johnson is a director of Smith Barney
Fundamental Value Fund, Inc. and Northwestern Trust and Investor Advisory
Company.
Greenlaw Grupe, Jr. (age 59) has served as a director of the Company
since May 1996. He founded The Grupe Company in 1979. He is the Chairman and
Executive Officer of The Grupe Company which has developed 50 communities valued
at $2 billion and which actively manages residential and commercial assets in
eight states. Mr. Grupe is a graduate of the University of California at
Berkeley. He is a past president of the Urban Land Institute, Stockton Chamber
of Commerce, and Golden Gate and Northern California Chapters of Young
Presidents' Organization, and is a current member of the Board of Regents of the
University of the Pacific and the Board of Directors for the California Chamber
of Commerce. Mr. Grupe was an indirect general partner in three partnerships
which, in 1994, along with 18 other partnerships, filed a pre-negotiated
uncontested filing under the bankruptcy code as part of a refinancing designed
to enable a lender to be admitted to the partnerships while protecting certain
tax advantages of the partnerships. All creditors of the partnerships involved
in the refinancing were paid in full. Mr. Grupe is a director of the Grupe
Company and some of its affiliates, all of which are privately held.
Eleven Board of Directors meetings were held in 1996. Each of the
directors attended over 75% of the meetings of the Board of Directors and
committees of which they were members.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established four standing committees of its Board of
Directors--an Audit Committee, a Compensation Committee, a Nominating and
Organization Committee and an Executive Committee. Each of these
-3-
<PAGE> 7
committees is responsible to the full Board of Directors, and its activities are
therefore subject to approval of the Board of Directors. The functions performed
by these committees are summarized as follows:
Audit Committee. The Audit Committee recommends to the Board of
Directors the independent public accountants to be selected to audit the
Company's annual financial statements and approves any special assignments given
to such accountants. The Audit Committee also reviews the planned scope of the
annual audit and the independent accountants' letter of comments and
management's responses thereto, any major accounting changes made or
contemplated and the effectiveness and efficiency of the Company's internal
accounting staff. The members of the Audit Committee are Messrs. Lusk
(Chairman), Grupe and Smith. The Audit Committee met five times in 1996.
Compensation Committee. The Compensation Committee establishes the
remuneration levels for officers of the Company, reviews management organization
and development, reviews significant employee benefits programs and recommends
and administers executive compensation programs, including bonus plans, stock
option and other equity-based programs, deferred compensation plans and any
other cash or stock incentive programs. The members of the Compensation
Committee are Messrs. Lusk (Chairman), Grupe, Johnson and Smith. The
Compensation Committee met seven times in 1996.
Nominating and Organization Committee. The Nominating and Organization
Committee makes recommendations to the Board of Directors on the size and
composition of the Board of Directors and nominees for directors and on the
organization of the Company, as well as performing other duties as may be
assigned by the Board. The committee will consider nominees recommended by
stockholders in accordance with the procedures governing such nominations set
forth in the Company's Bylaws. The members of the Nominating and Organization
Committee are Messrs. Barbo (Chairman), Lusk, Grupe, Johnson, Smith and Beck.
The Nominating and Organization Committee met twice in 1996.
Executive Committee. The Executive Committee consults with and makes
recommendations to management with respect to long-range planning,
organizational development, operational strategies and other matters concerning
the Company. The Executive Committee reports to the Board of Directors on such
matters when appropriate. The members of the Executive Committee are Messrs.
Barbo (Chairman) and Lusk. The Executive Committee met three times in 1996.
Special Committee. On March 19, 1996, the Board of Directors created a
Special Committee comprised of two of the Company's independent Directors for
the purpose of evaluating on behalf of the Company possible transactions between
the Company and IDS/Shurgard Income Growth Partners L.P., IDS/Shurgard Income
Growth Partners L.P. II, and IDS/Shurgard Income Growth Partners L.P. III (the
"Special Committee"). The Board of Directors appointed Mr. Lusk to serve as
Chairman of the Special Committee and Mr. Smith to serve as a member.
In 1996, the Special Committee met six times.
DIRECTOR COMPENSATION
Fees. Directors who are employees of the Company do not receive any
fees for their services as directors. In 1996, Directors who are not employees
of the Company were paid an annual retainer of $15,000 for serving on the Board
of Directors and an additional fee of $1,000 for each meeting of the Board of
Directors attended and $500 for each meeting of a committee of the Board of
Directors attended. Mr. Lusk (Chairman of the Special Committee) and Mr. Smith
were paid $750 and $500, respectively, for each meeting of the Special Committee
attended. The Company reimburses each nonemployee director for travel expenses
incurred in connection with his or her activities on behalf of the Company.
Options. At the 1996 Annual Meeting, nonemployee directors also
received stock option grants to purchase 9,000 shares of Class A Common Stock
under the Company's Nonemployee Director Plan. Such options will vest in 3,000
share increments over a three-year period, with one increment vesting on the
date of the Company's Annual Meeting in each of 1997, 1998 and 1999, assuming
each director continues to serve until such Annual Meeting. The exercise price
of the options is $25.50 per share.
-4-
<PAGE> 8
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Officers, directors and greater than 10%
beneficial owner are required by Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the 1996 fiscal
year all filing requirements applicable to its officers and directors were
complied with by such persons.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 3, 1997, certain
information with respect to the beneficial ownership of shares of Class A Common
Stock and Class B Common Stock by each director and executive officer of the
Company and all directors and executive officers of the Company as a group. It
also sets forth, as of March 3, 1997, certain information with respect to
stockholders who beneficially own more than 5% of the shares of Class A Common
Stock or Class B Common Stock. Except as otherwise noted, the Company believes
that the beneficial owners of the shares of Common Stock listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP CLASS
------------------------ -------------- -------------------- ----------
<S> <C> <C>
Charles K. Barbo Class A Common Stock 677,715(1) 2.4%
1201 Third Avenue, Suite 2200 Class B Common Stock 78,075(2) 50.5%
Seattle, WA 98101
Arthur W. Buerk Class A Common Stock 382,922 1.4%
1201 Third Avenue, Suite 2000 Class B Common Stock 76,529(2) 49.5%
Seattle, WA 98101
Michael Rowe Class A Common Stock 80,884(3) *
David K. Grant Class A Common Stock 63,879(4) *
Harrell L. Beck Class A Common Stock 27,563(5) *
Kristin H. Stred Class A Common Stock 8,050(6) *
Greenlaw Grupe, Jr. Class A Common Stock 40,000 *
Howard J. Johnson Class A Common Stock 0 *
Donald W. Lusk Class A Common Stock 6,600(7) *
Wendell J. Smith Class A Common Stock 7,017(7) *
All directors and executive officers as a Class A Common Stock 911,708 3.3%
group (9 persons) Class B Common Stock 78,075 50.5%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 3,879 shares held for Mr. Barbo's individual account under the
Company's Employee Retirement Savings Plan and Trust, 3,900 shares held by
trusts of which Mr. Barbo is a trustee, 2,500 shares over which Mr. Barbo's
wife has voting and investment power and 13,712 shares issuable on exercise
of stock options currently exercisable or exercisable within 60 days.
(2) Class B Common Stock entitled each of Messrs. Barbo and Buerk to a loan in
an amount necessary to satisfy his general partner capital obligations
resulting from the Consolidation. Class B Common Stock is convertible into
-5-
<PAGE> 9
Class A Common Stock at a one-to-one ratio upon repayment of the loan.
With respect to Mr. Barbo, includes 1% of Class B Common Stock held by a
corporation wholly owned by Mr. Barbo.
(3) Includes 8,113 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 3,646 shares held for Mr.
Rowe's individual account under the Company's Employee Retirement Savings
Plan and Trust and 266 shares directly owned by Mr. Rowe's wife and
children.
(4) Includes 8,113 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 2,917 shares held for Mr.
Grant's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(5) Includes 7,657 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 2,649 shares held for Mr.
Beck's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(6) Includes 4,457 shares issuable on exercise of stock options currently
exercisable or exercisable within 60 days and 303 shares held for Ms.
Stred's individual account under the Company's Employee Retirement Savings
Plan and Trust.
(7) Includes 6,000 shares issuable on exercise of stock options currently
exercisable.
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of all of the independent
non-employee directors. The Committee is responsible for recommending to the
Board of Directors the compensation philosophy, for setting the Chief Executive
Officer's salary and bonus, and for administering the long term incentive plans
for all executives and key employees.
Compensation Philosophy and History
The Company's compensation system is structured to attract and retain
executives who are entrepreneurial and agree to be compensated, in significant
part, by creating value for stockholders. The Company believes that this
structure is advantageous to stockholders because the fixed costs of salaries
are minimized and executives' and stockholders' interests are aligned.
Compensation Policies
For 1996, the Company's compensation policy reflected the continuation of
below-market base salaries, and incentivizing executives to earn total
compensation at or above median levels through the use of bonus and equity
incentives that are performance based.
Salaries. The Committee reviewed summary updates to data provided in
previous years by an independent Compensation Consultant, which original data
included six service industry indexes covering hundreds of companies, the NAREIT
compensation index and a review of proxies of 15 publicly traded REITs with 1993
assets of between $141 million and $702 million. Some but not all of the
companies included in the NAREIT Equity REIT Index, included in the Cumulative
Total Return Table, were included in this data. These indexes were not matched
geographically with the Company, but do cover some of the industries from which
the Company recruits employees, such as retail, fast food, restaurant, leisure
and hospitality. In 1995, compared to the average of this market data, salaries
for Company Executives were below the 25th percentile. For 1996, it was the
Committee's intention to move base salaries to at least the 35th percentile.
The Compensation Committee reviewed and approved the salaries for the CEO
and each of the named executive officers. The Committee established Mr. Barbo's
annual salary of $190,000, after considering: a) Mr. Barbo's knowledge of the
company's properties and the self storage industry, b) his leadership in
infusing the entire
-6-
<PAGE> 10
Company with strong corporate values and a common mission, and c) the continued
improvement of operating results from the Company properties.
Annual Incentive Bonus. The Company established target bonuses and specific
performance criteria, based on the Company's funds from operations for 1996,
except in the case of Mr. Grant, where performance criteria established related
to European developments and budget-to-date actual performance. Based on the
Company's performance of 98.4% of its target, the bonus paid to Mr. Barbo for
1996 was $42,200, approximately 84% of the target amount established for him.
Long Term Equity Incentive. The long term equity compensation is the
linchpin of the Company's compensation policy of incentivizing entrepreneurial
interest in the creation of stockholder wealth. For 1996, the executives in the
Company, other than Mr. Grant, were granted stock options at fair market value
on January 2, 1996, and performance awards tied to three-year Company
performance. The options vest in three equal annual installments, beginning on
the first anniversary of the grant. Mr. Barbo was granted options on 5,137
shares, and performance awards targeted at 2,791 shares, but which may be
anywhere between 0 to 8,373, based on the three-year Company performance. Mr.
Grant's stock options were granted on January 30, 1996 at fair market value, and
his performance awards are based on value created in the Company's European
subsidiary.
Generally, the number of stock options and performance awards granted
increases in relation to the level of responsibility in the Company and ability
to directly impact the profitability of the Company. The number of options
previously granted and other stockholdings by the named executive officers were
not considered in making the awards.
Policy with Respect to Section 162(m) Limitations. The Company has no
officer whose compensation approaches $1 million per year. It therefore has been
determined that it is not necessary to take any further action or incur any
additional costs to comply with the Section 162(m) limitations.
Respectfully submitted,
Donald W. Lusk, Chairman
W.J. Smith
Greenlaw Grupe, Jr.
Howard J. Johnson
STOCK PRICE PERFORMANCE
Set forth below are line graphs comparing the cumulative total return on
the Class A Common Stock during the period beginning on March 28, 1994 and
ending on December 31, 1996, the last day of the Company's 1996 fiscal year,
with the cumulative total return on the Standard & Poor's 500 Index and the
Equity REIT Index prepared by the National Association of Real Estate Investment
Trusts ("NAREIT"). The comparison assumes $100 was invested on March 28, 1994
and assumes reinvestment of dividends. The stock price performance shown on the
graphs is not necessarily indicative of future price performance.
The first line graph assumes that the shares of Class A Common Stock were
bought at the Net Asset Value per share of $18.90 contemplated in the
Consolidation. The "Net Asset Value" was the value of the assets, determined by
independent appraisal, less the liabilities (including transaction costs and
liabilities) of the 17 limited partnerships participating in the Consolidation.
Because this was the economic basis for the Consolidation, the Company believes
that this represents the most appropriate starting point for a line graph
comparison. The second line graph assumes that the shares of Class A Common
Stock were bought at the initial trading price on March 28, 1994, the first day
that the Class A Common Stock was publicly traded. On that day, the stock
initially traded at $23.25 per share.
-7-
<PAGE> 11
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
SHURGARD STORAGE CENTERS, INC.,
STANDARD & POOR'S 500 STOCK INDEX AND NAREIT EQUITY REIT INDEX
(Based on the Initial Net Asset Value)
[GRAPH]
<TABLE>
<CAPTION>
Date SHU @ $18.90 S&P 500 NAREIT Equity
---- ------------ ------- -------------
<S> <C> <C> <C>
3/28/94 100.00 100.00 100.00
12/31/94 115.22 105.30 99.77
12/31/95 163.75 144.83 115.01
12/31/96 190.79 178.06 155.56
</TABLE>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
SHURGARD STORAGE CENTERS, INC.,
STANDARD & POOR'S 500 STOCK INDEX AND NAREIT EQUITY REIT INDEX
(Based on Initial Trading Price)
[GRAPH]
<TABLE>
<CAPTION>
Date SHU @ $23.25 S&P 500 NAREIT Equity
---- ------------ ------- -------------
<S> <C> <C> <C>
3/28/94 100.00 100.00 100.00
12/31/94 93.66 105.30 99.77
12/31/95 133.11 144.83 115.01
12/31/96 155.10 178.06 155.56
</TABLE>
-8-
<PAGE> 12
COMPENSATION OF EXECUTIVES
The following table sets forth the compensation for services rendered
during the fiscal years ended December 31, 1996, 1995, and 1994 for the
Company's Chief Executive Officer and for the four other most highly compensated
executive officers of the Company. Although certain of the individuals named
below served as directors or officers of the Company prior to the Merger, they
did not receive any cash compensation for such services from the Company but
instead were compensated by the Management Company. Accordingly, all dollar
amounts shown prior to March 24, 1995 were paid by the Management Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SHARES
UNDERLYING
OPTIONS/ ALL OTHER
STOCK OPTION LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS(#) PAYOUTS(2) ($)
--------------------------- ---- --------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo 1996 190,000 42,200 5,137 5,731(3)
Chairman, President and Chief 1995 160,000 35,000 30,000 $250,000 375
Executive Officer 1994 155,000 30,000 200
Michael Rowe 1996 140,000 33,760 2,740 19,931(3)
Executive Vice President and 1995 107,000 35,000 15,000 $177,300 11,337
Chief Operating Officer 1994 103,000 24,000 2,000 7,043
David K. Grant 1996 151,460 30,000 2,740 78,674(4)
Executive Vice President and 1995 107,000 30,000 15,000 $141,840 9,592
Director of European Operations 1994 103,000 24,000 2,000 5,888
Harrell L. Beck 1996 105,000 25,320 1,370 7,554(3)
Director, Senior Vice President, 1995 84,000 25,000 15,000 $141,840 1,516
Chief Financial Officer, Principal 1994 80,000 24,000 2,000 1,217
Accounting Officer and Treasurer
Kristin H. Stred 1996 105,000 25,320 1,370 7,095(3)
Senior Vice President, General 1995 84,000 25,000 15,000 $88,650 3,978
Counsel and Secretary 1994 80,000 24,000 2,000 1,087
</TABLE>
- ---------------
(1) Includes bonus awards earned pursuant to the terms of discretionary bonus,
incentive compensation and profit-sharing arrangements.
(2) Immediately prior to the Merger, the Management Company made distributions
of Management Company Common Stock to certain of its executive officers and
Employees under a long-term incentive plan (except with respect to Mr.
Barbo, whose distribution under the plan was made in cash instead of
Management Company Common Stock). The amounts shown in this column
represents the value of the Class A Common Stock into which such Management
Company shares were converted in the Merger, based on the market price of
the Class A Common Stock at the time of the Merger (with respect to Mr.
Barbo, the amount shown in the column is the amount of cash paid to him
under the plan).
(3) For the year ended December 31, 1996, with respect to Messrs. Barbo, Rowe
and Beck and Ms. Stred, includes; $5,231, $5,231, $4,534 and $4,559
contributed respectively, by the Company under its Employee Retirement
Savings Plan (ESOP); employer-matching contributions made by the Company
under its Employee Retirement
-9-
<PAGE> 13
Savings Plan (401(k)) of $500 per person; with respect to Mr. Rowe includes
$10,936 relating to interests in cash distributions from investments in
certain partnerships, and, with respect to Messrs. Rowe and Beck and Ms.
Stred, includes payments of $3,264, $2,520 and $2,036, respectively, paid
annually towards insurance premiums on an executive disability plan.
(4) For the year ended December 31, 1996, with respect to Mr. Grant, includes;
employer-matching contributions made by the Company under its Employee
Retirement Savings Plan (401(k)) of $500, $5,231 contributed by the Company
under its Employee Retirement Savings Plan (ESOP) and $10,936 relating to
interests in cash distributions from investments in certain partnerships.
Other compensation also includes amounts relating to Mr. Grant's relocation
in connection with the Company's European joint venture include: $32,207
moving and housing adjustment expenses; and $29,800 school expenses.
LONG-TERM INCENTIVE PLANS - PERFORMANCE AWARDS IN LAST FISCAL YEAR
The following table sets forth certain information regarding
performance stock awards of Class A Common Stock to the Company's executive
officers during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD
UNTIL THRESHOLD TARGET MAXIMUM
NAME MATURATION (#) (#) (#)
---- -------------- --------- ------ -------
<S> <C> <C> <C> <C>
Charles K. Barbo(1) 3 years 1,395 2,791 8,373
Michael Rowe(1) 3 years 744 1,488 4,464
Harrell L. Beck(1) 3 years 372 744 2,232
Kristin H. Stred(1) 3 years 372 744 2,232
David K. Grant 3 years (2) (2) (2)
</TABLE>
- ---------------------
(1) Payout amount, if any, for Messrs. Barbo, Beck, Rowe and Ms. Stred, will be
based on achievement of specified financial performance goals during the
three year period ending December 31, 1998. Such performance goals are
based on FFO per share, among other factors.
(2) Payout amount, if any, for Mr. Grant is not currently determinable. The
amount will be determined on December 31, 1998 or soon thereafter, based on
achievement of specified performance goals relating to development and
operations results of the Company's European joint venture, and on the
appraised value of interests in such joint venture at that time. Mr.
Grant's performance award will be payable in cash or shares of Class A
Common Stock, at the Company's election, in three equal installments on
December 31, 1998, 1999 and 2000.
-10-
<PAGE> 14
OPTION GRANTS
The following table sets forth certain information regarding options to
purchase shares of Class A Common Stock granted to the Company's executive
officers during the fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF VALUE AT ASSUMED ANNUAL
SHARES TOTAL OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN PRICE EXPIRATION TERM(2)
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ------------- ------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo 5,137 11.52% $26.875 1/02/2006 86,823 220,027
Michael Rowe 2,740 6.14% $26.875 1/02/2006 46,310 117,359
David K. Grant 2,740 6.14% $27.00 1/30/2006 46,526 117,905
Harrell L. Beck 1,370 3.07% $26.875 1/02/2006 23,155 58,680
Kristin H. Stred 1,370 3.07% $26.875 1/02/2006 23,155 58,680
All Stockholders N/A N/A N/A N/A 475,264,747 1,204,414,182
</TABLE>
- ---------------
(1) Options were granted at the fair market value on the date of grant. Each
option vests in annual installments of 33.33% commencing on the first
anniversary of the date of grant. Upon exercise of each of these options,
the holder is entitled to a cash payment equivalent to the number of
options exercised multiplied by the aggregate amount of dividends declared
per share since the grant date. In the event of certain business
combinations, the vesting of outstanding options will be accelerated. See
"Executive Compensation-Employment Agreements; Change-in-Control
Arrangements."
(2) The actual value, if any, the named executive officer or any other
individual may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised. The gain for "All
Stockholders" is calculated by using ($29.625) the closing price per share
of Class A Common Stock as reported by the New York Stock Exchange on
December 31, 1996, and 25,509,348 shares, the number of shares of Class
A Common Stock outstanding as of the Company's fiscal year-end. There can
be no assurance that the actual value per share realized by the named
executive officer or by all stockholders will approximate the potential
realizable values set forth in the table.
-11-
<PAGE> 15
OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)(2)
EXERCISE REALIZED ------------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles K. Barbo(3) -- -- 13,712 21,425 113,623 173,997
Michael Rowe -- -- 7,713 12,027 65,629 100,344
David K. Grant -- -- 7,713 12,027 65,515 100,116
Harrell L. Beck -- -- 7,257 11,113 63,730 96,544
Kristin H. Stred 3,200 19,590 4,057 11,113 34,960 96,544
</TABLE>
- ---------------
(1) This amount is the aggregate number of outstanding options multiplied by
the difference between $29.625 (the closing price of Class A Common Stock
as of December 31, 1996) and the exercise price of such options.
(2) This amount includes dividend equivalents of $1.41/share as of December 31,
1996, payable to the option holder upon exercise of the following total
number of exercisable stock options: Mr. Barbo, 1,712, Mr. Rowe, 913; Mr.
Grant, 913, Mr. Beck, 457; Ms. Stred, 457. The following total number of
unexercisable stock options carry a dividend equivalent: Mr. Barbo, 3,425;
Mr. Rowe, 1,827, Mr. Beck, 913 and Ms. Stred, 913.
(3) 30,000 stock option shares held by Mr. Barbo include a bonus of $2.25 per
share, payable in cash upon exercise. Such bonus amount is included in the
value of the options at fiscal year end.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOAN RELATING TO CLASS B COMMON STOCK
On March 1, 1994, as a part of the Consolidation, the Company made a
$1,981,000 interest-free loan to Mr. Barbo to enable him to make certain capital
contributions that were required in connection with the Consolidation. Mr.
Barbo's shares of Class B Common Stock have been pledged as collateral for the
loan. Upon repayment of the loan, a percentage of the Class B Common Stock equal
to the percentage of the loan principal being repaid will be released from the
pledge and Mr. Barbo will then have the option to convert his Class B Common
Stock, on a share-for-share basis, into Class A Common Stock. As of December 31,
1995, the entire principal amount of the loan remained outstanding.
SHURGARD'S STORAGE TO GO, INC.
In 1996, the Board of Directors approved an investment of $3,000,000 in
Shurgard's Storage To Go, Inc., a Delaware corporation ("Shurgard To Go") whose
business is to provide services ancillary to self storage, including but not
limited to containerized storage services involving picking up and delivering
customer goods to storage. The following officers of the Company have committed
to invest the following amounts in Shurgard's Storage To Go, Inc.: Charles K.
Barbo, $18,750; Michael Rowe, $18,750, Harrell L. Beck, $9,375, Kristin H.
Stred, $9,375. These four officers own an aggregate of 25% of Shurgard To Go's
outstanding shares of voting, Series A Common Stock. Another 25% of the Series A
shares are owned by a non-affiliated third party, and the remaining voting
shares are owned by other individuals who are key employees of the Company.
The Company owns 75% of Shurgard To Go's outstanding shares of
non-voting, Series B Common Stock. The remaining 25% of the outstanding Series B
Common Stock are owned by a non-affiliated third party.
-12-
<PAGE> 16
MERGER WITH IDS PARTNERSHIPS
In September, 1996, the Company completed a cash tender offer for units
of limited partnership interest (the "Units") in IDS/Shurgard Income Growth
Partners L.P. ("IDS1"), IDS/Shurgard Income Growth Partners L.P. II ("IDS2") and
IDS/Shurgard Income Growth Partners L.P. III ("IDS3" and, together with IDS1 and
IDS2, the "IDS Partnerships"). The Company acquired 63,234 or 43% of the
outstanding IDS1 Units, 37,164 or 32% of the outstanding IDS2 Units and 50,469
or 42% of the outstanding IDS3 Units for an aggregate purchase price of
$40,051,174. In November 1996, the IDS Partnerships were merged into the
Company. The limited partners of the IDS Partnerships (excluding the Company)
received in the aggregate 2,269,254 shares of Class A Common Stock and $124,855
(payment of fractional shares) in exchange for their interests in the IDS
Partnerships in the mergers. The IDS Partnerships were sponsored by the
Management Company in 1987 through 1991 and, as a result of the Management
Company Merger, the Company served as a limited partner of the general partner
of each IDS Partnership. In addition, Charles K. Barbo and a corporation wholly
owned by Mr. Barbo served as general partners of the general partner of each IDS
Partnership. As a result of the mergers of the IDS Partnerships, Mr. Barbo and
his wholly owned corporation received shares of the Company's Class A Common
Stock with an aggregate value of approximately $538,300 in exchange for their
general partner interests.
In connection with the Management Company Merger, the Company and the
former shareholders of the Management Company executed a Contingent Shares
Agreement dated as of March 24, 1995 (the "Contingent Shares Agreement") whereby
the former Management Company shareholders are entitled to receive shares of
Common Stock upon the sale or transfer of, or the occurrence of certain other
events with respect to, the Company's interest in certain limited partnerships
formerly owned by the Management Company, including the Partnerships. The
Company entered into the Contingent Shares Agreement because the Company
concluded that it was difficult at the time of the Management Company merger to
value the Management Company's interests in certain limited partnerships
(including the Partnerships). Accordingly, the Management Company shareholders
did not receive full value with respect to such interest at the time of the
Management Company Merger, but instead are entitled to receive additional
consideration at a future valuation date or when the Company receives proceeds
from the sale of these interests. Pursuant to the Contingent Shares Agreement,
Mr. Barbo and the executive officers of the Company, as former stockholders of
the Management Company received shares of Class A Common Stock with a value of
approximately $475,600 and $77,900, respectively.
InterMation, Inc.
Messrs. Barbo and Rowe are directors of InterMation, Inc. and Mr. Barbo
is the beneficial owner of 41% of the outstanding common stock of InterMation.
The Company leases a facility to InterMation at a monthly rental of
approximately $23,000. The aggregate amount paid to the Company under this lease
in the year ended December 31, 1996 was $275,000. The lease term is for three
years, with two five-year options, although either party may terminate the lease
on 18 months' notice. On September 11, 1996, InterMation gave the Company notice
that it intends to terminate the lease, effective March 1, 1998.
EMPLOYMENT AGREEMENTS; CHANGE-IN CONTROL ARRANGEMENTS
1993 Stock Option Plan. The 1993 Stock Option Plan (the "1993 Plan")
provides that, upon the occurrence of certain transactions, including certain
mergers and other business combinations involving the Company, outstanding
options will become fully exercisable. Such options, if not exercised, will then
terminate upon consummation of such transaction. In the alternative, at the
discretion of the Company and the corporation(s) participating in such
transactions, such options may be assumed by the acquiring or surviving
corporation.
1995 Long-Term Incentive Plan. In the event of certain mergers or
consolidations involving the Company, a sale, lease, exchange or other transfer
of all or substantially all of the Company's assets or a liquidation or
dissolution of the Company, outstanding options, stock appreciation rights and
restricted stock under the 1995 Incentive Plan will become fully exercisable,
subject to certain exceptions. In addition, the Committee may take such further
action as it deems necessary or advisable, and fair to participants, with
respect to outstanding awards under the 1995 Incentive Plan.
-13-
<PAGE> 17
Business Combination Agreements. In 1996, the Company entered into
agreements with each of its officers that provide for payments in the event that
the employee's employment is terminated by the Company other than for cause or
by the employee for good reason within two years after certain business
combination transactions, including but not limited to changes of control. The
agreements provide for the continuation of benefits and continued employment or
pay for two and one-half years of annual salary and average bonus, and, in the
event of certain taxation of payments made under these agreements, additional
payments necessary for the officers to receive the benefits contemplated by the
agreements.
PROPOSAL FOR REINCORPORATION IN THE STATE OF WASHINGTON
For the reasons set forth below, the Board of Directors believes that
the best interests of the Company and its stockholders will be served by
changing the Company's state of incorporation from Delaware to Washington (the
"Reincorporation"). The Board of Directors has approved the Reincorporation,
which would be accomplished by merging the Company with and into its newly
formed Washington subsidiary, Shurgard Washington Corporation ("Shurgard
Washington"). Upon effectiveness of the merger, Shurgard Washington's name will
be changed to Shurgard Storage Centers, Inc., the name under which the Company
has operated since its initial incorporation. The stockholders will be asked to
approve the Reincorporation at the Annual Meeting.
The sole factor in the Board of Directors' recommendation to
reincorporate in Washington was that the Company's franchise fees will be
substantially less in Washington than in Delaware. The Company expects to save
approximately $150,000 annually on state franchise tax fees by reincorporating
in Washington. Furthermore, the Company's headquarters are located in
Washington.
PLAN OF MERGER
The Company will be merged with and into Shurgard Washington pursuant
to the terms of the proposed Agreement and Plan of Merger (the "Merger
Agreement"), a copy of which is attached as Exhibit A to this Proxy Statement.
Upon the completion of the merger, the owner of each outstanding share of the
Company's Class A Common Stock will automatically own one share of Shurgard
Washington Class A Common Stock and the owner of each outstanding share of the
Company's Class B Common Stock will automatically own one share of Shurgard
Washington Class B Common Stock. Each outstanding certificate representing a
share or shares of the Company's securities will continue to represent the same
number of shares in Shurgard Washington (i.e., a certificate representing one
share of the Company's Class A Common Stock will then equal one share of
Shurgard Washington Class A Common Stock). It will not be necessary for
stockholders of the Company to exchange their existing stock certificates. The
Company's Class A Common Stock will continue to be traded on the publicly-traded
market and reported on the NYSE under the symbol "SHU" subsequent to the merger.
Shurgard Washington's Articles of Incorporation and Bylaws will be the
Articles of Incorporation and Bylaws of the surviving corporation, except that,
upon the effectiveness of the merger, Shurgard Washington's name will be changed
to Shurgard Storage Centers, Inc. Shurgard Washington's Articles of
Incorporation are attached hereto as Exhibit B. The discussion contained in this
Proxy Statement is qualified in its entirety by reference to Exhibits A and B.
EFFECT OF REINCORPORATION AND MERGER
The Reincorporation and the merger will effect a change in the legal
domicile of the Company and other changes of a legal nature, the most
significant of which are described in this Proxy Statement. The Reincorporation
and merger will not result in any change in the name, business, management,
location of the Company's principal executive offices, assets, liabilities, net
worth or accounting practices. Moreover, as noted above, the shares of Class A
Common Stock will continue to be publicly traded and reported on the NYSE. The
merger will not give rise to any appraisal or dissenters' rights.
-14-
<PAGE> 18
PRINCIPAL DIFFERENCES IN CORPORATE CHARTERS
Shurgard Washington's Articles of Incorporation differs from the
Company's Certificate of Incorporation in certain technical aspects. Specific
articles have been included so as to minimize differences in corporate
governance before and after the Reincorporation. A majority vote requirement in
the case of mergers is provided for (which is the same as the Delaware General
Corporation Law ("DGCL") requirement for mergers). Although Shurgard
Washington's Articles of Incorporation and the Company's Certificate of
Incorporation contain similar language to the effect that a director will not be
liable for monetary damages for conduct as a director to the full extent that
each entity's respective state's law permits, the Washington Business
Corporation Act ("WBCA") and the DGCL have different director and officer
indemnification and director liability provisions. Various differences also
exist between Shurgard Washington's Bylaws and the Company's Bylaws, but none
of these provisions are expected to have a material effect on the Company's
governance.
CERTAIN DIFFERENCES IN CORPORATE LAWS
The DGCL currently governs the rights of the Company's stockholders.
After the merger, the rights of stockholders will be governed by the WBCA. The
following discussion summarizes certain significant differences between the
provisions of the DGCL and the WBCA, as applicable to a public company.
Amendment of Articles/Certificate of Incorporation. The WBCA authorizes
a corporation's board of directors to make various changes of an administrative
nature to its articles of incorporation including changes of corporate name,
changes to the number of outstanding shares in order to effectuate a stock split
or stock dividend in the corporation's own shares, and changes to or elimination
of provisions with respect to par value of its stock. Other amendments to a
corporation's articles of incorporation must be recommended to the shareholders
by the board of directors, unless the board determines that because of a
conflict of interest or other special circumstances, it should make no
recommendation, and must be approved by a majority of all votes entitled to be
cast by each voting group which has a right to vote on the amendment. Under the
DGCL, all amendments to a corporation's certificate of incorporation require the
approval of stockholders holding a majority of the voting power of the
corporation unless a greater proportion is specified in the certificate of
incorporation.
Provisions Affecting Acquisitions and Business Combinations. The WBCA
imposes restrictions on certain transactions between a corporation and certain
significant shareholders. Chapter 23B.19 of the WBCA prohibits a "target
corporation," with certain exceptions, from engaging in certain "significant
business transactions" with an "Acquiring Person" who acquires 10% or more of
the voting securities of a target corporation for a period of five years after
such acquisition, unless the transaction or acquisition of shares is approved by
a majority of the members of the target corporation's board of directors prior
to the date of the acquisition. The prohibited transactions include, among
others, merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the Acquiring Person, termination of 5% or more
of the employees of the target corporation as a result of the Acquiring Person's
acquisition of 10% or more of the shares, or allowing the Acquiring Person to
receive any disproportionate benefit as a shareholder. After the five-year
period during which significant business transactions are prohibited, a
transaction may occur if certain "fair price" criteria are met. The holders of
shares must receive a value per share at least equal to the higher of (i) within
the last five years prior to the announcement of the significant business
transaction, the highest per share price paid by the Acquiring Person at a time
when it owned five percent or more of the target corporation (or, if higher,
within the five-year period before the Acquiring Person became one) and (ii) the
market value of the shares on the date a significant business transaction is
announced, plus annual interest in either case. Target corporations include all
publicly-traded domestic corporations, as well as foreign corporations that meet
certain requirements. A corporation may not "opt out" of this statute.
Delaware has enacted a business combination statute that is contained
in Section 203 of the DGCL providing that any person who acquires 15% or more of
a corporation's voting stock (thereby becoming an "interested stockholder") may
not engage in certain "business combinations" with the target corporation for a
period of three years following the time the person became an interested
stockholder, unless (i) the board of directors of the corporation has approved,
prior to that acquisition time, either the business combination or the
transaction that resulted in the person becoming an
-15-
<PAGE> 19
interested stockholder, (ii) upon consummation of the transaction that resulted
in the person becoming an interested stockholder, that person owns at least 85%
of the corporation's voting stock outstanding at the time the transaction is
commenced (excluding shares owned by persons who are both directors and officers
and shares owned by employee stock plans in which participants do not have the
right to determine confidentially whether shares will be tendered in a tender or
exchange offer), or (iii) the business combination is approved by the board of
directors and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) of at least 66% of the outstanding voting
stock not owned by the interested stockholder.
For purposes of determining whether a person is the "owner" of 15% or
more of a corporation's voting stock for purposes of Section 203, ownership is
defined broadly to include the right, directly or indirectly, to acquire the
stock or to control the voting or disposition of the stock. A business
combination is also defined broadly to include (i) mergers and sales or other
dispositions of 10% or more of the assets of a corporation with or to an
interested stockholder, (ii) certain transactions resulting in the issuance or
transfer to the interested stockholder of any stock of the corporation or its
subsidiaries, (iii) certain transactions which would result in increasing the
proportionate share of the stock of a corporation or its subsidiaries owned by
the interested stockholder, and (iv) receipt by the interested stockholder of
the benefit (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits.
These restrictions placed on interested stockholders by Section 203 do
not apply under certain circumstances, including, but not limited to, the
following: (i) if the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or
(ii) if the corporation, by action of its stockholders, adopts an amendment to
its bylaws or certificate of incorporation expressly electing not to be governed
by Section 203, provided that such an amendment is approved by the affirmative
vote of not less than a majority of the outstanding shares entitled to vote and
that such an amendment will not be effective until 12 months after its adoption
(except for limited circumstances where effectiveness will occur immediately)
and will not apply to any business combination with a person who became an
interested stockholder at or prior to such adoption. The Company has elected to
take itself outside of the coverage of Section 203.
Mergers, Acquisitions and Other Transactions. Under the WBCA, a merger,
consolidation, sale of all or substantially all of a corporation's assets other
than in the regular course of business, or dissolution of a public corporation
must be approved by the affirmative vote of a majority of directors when a
quorum is present, and by two-thirds of all votes entitled to be cast by each
voting group entitled to vote as a separate group, unless another proportion is
specified in the articles of incorporation. Shurgard Washington's Articles of
Incorporation provide that the corporate transactions specified above may be
approved by a majority of the outstanding shares entitled to vote. Under the
DGCL, a merger, consolidation, sale of all or substantially all of a
corporation's assets other than in the regular course of business or dissolution
of a corporation must be approved by a majority of the outstanding shares
entitled to vote.
Action Without a Meeting. Under the WBCA, shareholder action may be
taken without a meeting if written consents setting forth such action are signed
by all holders of outstanding shares entitled to vote thereon. The DGCL
authorizes stockholder action without a meeting if consents are received from
holders of a majority of the outstanding shares. The Company's Certificate of
Incorporation, however, requires written consent from all holders of outstanding
shares entitled to vote thereon. Although Shurgard Washington's Bylaws do not
restrict the ability of shareholders to act by written consent, because such a
consent must be signed by all holders of outstanding shares entitled to vote on
the action, it is highly unlikely that any shareholder action would be taken by
written consent.
Class Voting. Under the WBCA, the articles of incorporation may
authorize one or more classes of shares that have special, conditional or
limited voting rights, including the right to vote on certain matters as a
group. The articles of incorporation may not limit the rights of holders of a
class to vote as a group with respect to certain amendments to the articles of
incorporation and certain mergers that adversely affect the rights of holders of
that class. The DGCL requires voting by separate classes only with respect to
amendments to the certificate of incorporation that adversely affect the holders
of those classes or that increase or decrease the aggregate number of authorized
shares or the par value of the shares of any of those classes.
-16-
<PAGE> 20
Transactions With Officers or Directors. The WBCA sets forth a safe
harbor for transactions between a corporation and one or more of its directors.
A conflicting interest transaction may not be enjoined, set aside or give rise
to damages if: (i) it is approved by a majority of qualified directors; (ii) it
is approved by the affirmative vote of a majority of all qualified shares; or
(iii) at the time of commitment, the transaction was fair to the corporation.
For purposes of this provision, a "qualified director" is one who does not have
(a) a conflicting interest respecting the transaction or (b) a familial,
financial, professional or employment relationship with a second director who
does have such a conflict and which relationship would reasonably be expected to
exert an influence on the first director's judgment when voting on the
transaction. "Qualified Shares" are defined generally as shares other than those
beneficially owned, or the voting of which is controlled, by a director who has
a conflicting interest respecting the transaction.
The DGCL provides that contracts or transactions between a corporation
and one or more of its officers or directors or an entity in which they have an
interest is not void or voidable solely because of such interest or the
participation of the director or officer in a meeting of the board or a
committee which authorizes the contract or transaction if: (i) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the board or the committee, and the board or the
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of disinterested directors; (ii) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a vote of the
stockholders; or (iii) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee thereof, or the stockholders.
Appraisal or Dissenters' Rights. Under the WBCA a shareholder is
entitled to dissent from and, upon perfection of his or her appraisal right, to
obtain fair value of his or her shares in the event of certain corporate
actions, including certain mergers, consolidations, share exchanges, sales of
substantially all assets of the corporation, and amendments to the corporation's
articles of incorporation that materially and adversely affect shareholder
rights.
Under the DGCL, appraisal rights are available only in connection with
certain mergers or consolidations, unless otherwise provided in the
corporation's certificate of incorporation. Even in the event of those mergers
or consolidations, unless the certificate of incorporation otherwise provides,
the DGCL does not provide appraisal rights (i) if the shares of the corporation
are listed on a national securities exchange, designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 stockholders
(as long as in the merger the stockholders receive shares of the surviving
corporation or any other corporation the shares of which are listed on a
national securities exchange or held of record by more than 2,000 stockholders)
or (ii) if the corporation is the surviving corporation and no vote of its
stockholders is required for the merger. Because the Company is listed on the
NYSE (and currently has over 2,000 stockholders of record), stockholders
currently would not have statutory appraisal rights under the DGCL in such
mergers.
Indemnification of Directors and Officers. Under the WBCA, if
authorized by the articles of incorporation, a bylaw adopted or ratified by
shareholders, or a resolution adopted or ratified, before or after the event, by
the shareholders, a corporation has the power to indemnify a director or officer
made a party to a proceeding, or advance or reimburse expenses incurred in a
proceeding, under any circumstances, except that no such indemnification shall
be allowed on account of: (i) acts or omissions of a director or officer finally
adjudged to be intentional misconduct or a knowing violation of the law; (ii)
conduct of a director or officer finally adjudged to be an unlawful
distribution; or (iii) any transaction with respect to which it was finally
adjudged that such director or officer personally received a benefit in money,
property or services to which the director or officer was not legally entitled.
Unless limited by the corporation's articles of incorporation, Washington law
requires indemnification if the director or officer is wholly successful on the
merits of the action. Any indemnification of a director in a derivative action
must be reported to shareholders in writing. Written commentary by the drafters
of the WBCA, which has the status of legislative history, specifically indicates
that a corporation may indemnify its directors and officers for amounts paid in
settlement of derivative actions, provided that the director's or officer's
conduct does not fall within one of the categories set forth above. Shurgard
Washington's Articles of Incorporation provide that Shurgard Washington shall
indemnify its directors and officers to the fullest extent not prohibited by
law, including indemnification for payments in settlement
-17-
<PAGE> 21
of actions brought against a director or officer in the name of the corporation,
commonly referred to as a derivative action.
Under the DGCL, indemnification of directors an officers is authorized
to cover judgments, amounts paid in settlement, and expenses arising out of
nonderivative actions where the director or officer acted in good faith and in
or not opposed to the best interests of the corporation. Indemnification is
required to the extent of a director's or officer's successful defense.
Additionally, under the DGCL, a corporation may reimburse directors and officers
for expenses incurred in a derivative action. While the DGCL provides that these
indemnification provisions are not exclusive, which, in the Company's opinion,
indicates that a corporation may provide for broad indemnification in its
charter documents, including circumstances not specifically authorized under the
DGCL, there is some uncertainty as to the extent to which a corporation may
indemnify its directors and officers for judgments and amounts paid in
settlement of derivative actions. There are no definitive decisions and this
uncertainty exists because certain legal commentators have argued that such
indemnification would be circular and thus against public policy. Also, a
proposal to permit such indemnification was specifically rejected by the General
Corporation Law Section of the Delaware Bar Association. This uncertainty may
adversely affect the Company's ability to recruit and retain highly qualified
directors and officers in the future.
The Company has included undertakings in various registration
statements filed with the Securities and Exchange Commission (the "Commission")
that in the event a claim for indemnification is asserted by a director or
officer relating to liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether indemnification would be
against public policy and will be governed by any final adjudication of such
issue.
Filing Fees. Delaware imposes annual franchise tax fees on all
corporations incorporated in Delaware. The annual fee ranges from a nominal fee
to a maximum of $150,000, based on an equation consisting of the number of
shares authorized, the number of shares outstanding and the net assets of the
corporation. The Company has been subject to the maximum annual fee of $150,000
for several years. Washington charges corporations incorporated in Washington
nominal annual corporate license renewal fees, and does not impose any franchise
tax fee.
FEDERAL INCOME TAX CONSEQUENCES
In connection with the Reincorporation, Perkins Coie, counsel to the
Company, will issue an opinion to the effect that, for federal income tax
purposes:
1. The merger of the Company with and into Shurgard Washington
(the "Merger") will qualify as a reorganization under section
368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code");
2. The Company will recognize no gain or loss as a result of the
Merger;
3. A stockholder of the Company will recognize no gain or loss
upon the deemed exchange of shares of Company Class A Common
Stock for shares of Shurgard Washington Class A Common Stock
or upon the deemed exchange of shares of Company Class B
Common Stock for shares of Shurgard Washington Class B Common
Stock;
4. The aggregate basis of the shares of Shurgard Washington
securities deemed received by a stockholder as a result of the
Merger will equal the aggregate basis of the shares of Company
securities deemed exchanged therefor;
5. The holding period of the shares of Shurgard Washington Class
A and Class B Common Stock deemed received by a stockholder in
the Merger will include the holding period of the shares of
Company Class A and Class B Common Stock deemed exchanged
therefor, provided that such Company securities are held as a
capital asset by the stockholder at the Effective Time; and
-18-
<PAGE> 22
6. The taxable year and carry forward of net operating losses and
certain other tax attributes of the Company will be unaffected
by the Merger.
The opinion of Perkins Coie is subject to certain assumptions and
qualifications and will be based upon the accuracy of certain representations
contained in the officers' certificates delivered to Perkins Coie by the parties
to the Reincorporation (the "Officers' Certificates") in connection with the
delivery of the tax opinion by Perkins Coie. Of particular importance to the
general tax-free character of the Merger will be representations contained in
the Officers' Certificates and assumptions relating to the "continuity of
interest" requirement that the shareholders of the Company retain, through
ownership of Shurgard Washington securities, a significant equity interest in
the Company's business after the Reincorporation. If any such representation or
assumption is proved inaccurate, the Reincorporation may not be a tax-free
reorganization, in which case it could result in a taxable event for both the
Company and its stockholders. Of particular importance with respect to the
effect of the Reincorporation on the taxable year, net operating losses and
other tax attributes of the Company, as discussed in Item 6 above, are certain
assumptions and representations that the ownership of Shurgard Washington will
be the same as the ownership of the Company and that Shurgard Washington will
possess the same assets and liabilities, except for assets used to pay expenses
incurred in connection with the Merger, as the Company. No ruling from the IRS
will be applied for with respect to the federal income consequences of the
Reincorporation. Thus, there can be no assurance that the IRS will agree with
the conclusions set forth herein regarding the federal income tax consequences
of the Reincorporation.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW. ALTHOUGH THIS DISCUSSION IS INTENDED TO COVER THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE REINCORPORATION, IT MAY NOT ADDRESS ISSUES THAT ARE
MATERIAL TO A STOCKHOLDER BECAUSE OF HIS OR HER PARTICULAR TAX SITUATION. IT
DOES NOT ADDRESS FOREIGN, STATE OR LOCAL TAX CONSEQUENCES. EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Class A
Common Stock and Class B Common Stock of the Company is required to approve the
Reincorporation. Abstention from voting and broker nonvotes will have the
practical effect of voting against the Reincorporation since they represent one
less vote for approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF THE REINCORPORATION FROM DELAWARE TO WASHINGTON BY MEANS OF A MERGER OF THE
COMPANY WITH AND INTO SHURGARD WASHINGTON CORPORATION, A NEWLY FORMED, WHOLLY
OWNED WASHINGTON CORPORATION.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, which audited the Company's accounts for the
last fiscal year, has been the Company's independent auditor since the Company's
inception. Representatives of Deloitte & Touche LLP are expected to attend the
1997 Annual Meeting and have an opportunity to make a statement and respond to
appropriate questions from stockholders.
SOLICITATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited by the
Board of Directors. Proxies may be solicited by officers, directors and regular
supervisory and executive employees of the Company, none of whom will receive
any additional compensation for their services. D. F. King & Co., Inc. may
solicit proxies at an approximate cost of $10,000, plus reasonable expenses.
Such solicitations may be made personally, or by mail, facsimile, telephone,
telegraph or messenger. The Company will reimburse persons holding shares of
Common Stock in their
-19-
<PAGE> 23
names or in the names of nominees, but not owning such shares beneficially, such
as brokerage houses, banks and other fiduciaries, for the expense of forwarding
solicitation materials to their principals. All the costs of soliciting proxies
will be paid by the Company.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought
before the 1997 Annual Meeting. If, however, other matters not now known or
determined come before the 1997 Annual Meeting, the persons named in the
enclosed proxy or their substitutes will vote such proxy in accordance with
their judgment in such matters.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the Company's 1998 Annual Meeting of Stockholders
must be received by the Secretary of the Company by December 1, 1997.
ANNUAL REPORT
A copy of the Company's 1996 Annual Report has been mailed to each
stockholder of record. Additional copies of such annual report may be obtained
without charge by writing or calling Investor Relations at (800) 955-2235.
By Order of the Board of Directors
Kristin H. Stred
Secretary
Seattle, Washington
March 31, 1997
-20-
<PAGE> 24
SHURGARD STORAGE CENTERS, INC.
PROXY FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 13, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles K. Barbo and Harrell L. Beck, and each
of them, as Proxies with full power of substitution and hereby authorizes them
to represent and to vote as designated below all the shares of Class A Common
Stock and Class B Common Stock, par value $.001 per share (collectively, the
"Common Stock"), of Shurgard Storage Centers, Inc. held of record by the
undersigned on March 21, 1997, at the 1997 Annual Meeting of Stockholders to be
held on May 13, 1997, or any adjournment or postponement thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES IN ITEM 1 AND FOR
ITEM 2.
1. ELECTION OF DIRECTORS
Election of the following two nominees to serve as directors for three-year
terms or until their successors are elected and qualified:
<TABLE>
<S> <C> <C>
HARRELL L. BECK WENDELL J. SMITH
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY to [ ] WITHHOLD AUTHORITY to vote for the
vote for all nominees following only: (write the name(s) of the
nominee(s) in this space)
-----------------------------------------
</TABLE>
2. APPROVAL OF THE REINCORPORATION OF THE COMPANY IN THE STATE OF WASHINGTON
THROUGH A MERGER OF THE COMPANY WITH A WHOLLY OWNED WASHINGTON SUBSIDIARY
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IMPORTANT - PLEASE DATE AND SIGN ON THE OTHER SIDE
<PAGE> 25
In their discretion, the Proxies are authorized to vote upon such other
business as may properly be brought before the meeting or any adjournment or
postponement thereof. This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEM 2.
The undersigned acknowledges receipt from the Company prior to the execution of
this Proxy of a Notice of Annual Meeting of Stockholders and a Proxy Statement
dated March 21, 1997.
Please sign below exactly as your name
appears on the label affixed. When shares
are held jointly, each person must sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. An authorized
person should sign on behalf of
corporations, partnerships and associations
and give his or her title.
Dated:________________________________, 1997
____________________________________________
Signature
____________________________________________
Signature if held jointly
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS PROXY CARD WILL
HELP SAVE THE EXPENSE OF ADDITIONAL SOLICITATION EFFORTS.
