<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-21273
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 20, 1997)
LOGO
1,750,000 SHARES
SHURGARD STORAGE CENTERS, INC.
8.70% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK
------------------------
Shurgard Storage Centers, Inc. is a fully integrated, self-administered and
self-managed real estate investment trust that develops, acquires, owns and
manages self storage centers. We are offering to the public shares of 8.70%
Series C Cumulative Redeemable Preferred Stock. The terms of the Series C
Preferred Stock can be summarized as follows:
- We will pay cumulative distributions on the Series C Preferred Stock,
from the date of original issuance, in the amount of $2.175 per share
each year, which is equivalent to 8.70% of the $25.00 liquidation
preference.
- We will pay distributions on the Series C Preferred Stock quarterly,
beginning on December 31, 1998 (with the payment on that date being based
pro rata on the number of days from the original issuance of the Series C
Preferred Stock).
- We are not allowed to redeem the Series C Preferred Stock before December
8, 2003, except in order to preserve our status as a real estate
investment trust.
- On and after December 8, 2003, we may, at our option, redeem the Series C
Preferred Stock by paying holders $25.00 per share, plus any accrued and
unpaid distributions.
- The Series C Preferred Stock has no stated maturity and is not subject to
any sinking fund or mandatory redemption and is not convertible into any
other securities.
- Investors in the Series C Preferred Stock generally have no voting
rights, except if we fail to pay distributions for six or more quarters.
We have applied to list the Series C Preferred Stock on the New York Stock
Exchange (the "NYSE") under the symbol "SHUPrC". If this application is
approved, trading of the Series C Preferred Stock on the NYSE is expected to
begin within 30 days following initial delivery of the Series C Preferred Stock.
INVESTING IN THE SERIES C PREFERRED STOCK INVOLVES CERTAIN RISKS. SEE
"SUPPLEMENTAL RISK FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT
AND "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus Supplement or the accompanying Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ 25.00 $43,750,000
Underwriting Discount....................................... $ .7875 $ 1,378,125
Proceeds to Shurgard (before expenses)...................... $24.2125 $42,371,875
</TABLE>
The underwriters are offering the shares of Series C Preferred Stock
subject to various conditions. The underwriters expect to deliver the shares of
Series C Preferred Stock to investors on or about December 8, 1998.
------------------------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
------------------------
December 3, 1998
<PAGE> 2
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the securities. Such
transactions may include stabilization, the purchase of securities to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Shurgard with the Securities and Exchange
Commission (the "Commission") are incorporated in this Prospectus Supplement by
reference:
a. Shurgard's Annual Report on Form 10-K for the year ended December 31,
1997;
b. Shurgard's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998;
c. Shurgard's Current Reports on Form 8-K, dated May 29, 1998 and December
3, 1998; and
d. the description of the Series C Preferred Stock contained in Shurgard's
Registration Statement on Form 8-A, dated December 3, 1998.
All documents filed by Shurgard with the Commission pursuant to Sections
13(a), 13(d), 14 and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of this Prospectus Supplement and prior to
the termination of this offering are deemed to be incorporated by reference in
this Prospectus Supplement from the date of the filing of such documents.
To the extent the terms set forth in this Prospectus Supplement, the
accompanying Prospectus and any document currently or subsequently incorporated
by reference differ from each other, rely on the terms set forth in the most
recently filed document.
Shurgard will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, copies
of all documents that are incorporated by reference (not including the exhibits
to such documents, unless the exhibits are themselves specifically incorporated
by reference). Requests should be directed to Investor Relations at Shurgard,
1155 Valley Street, Seattle, Washington 98109-4426 (telephone number: (206)
624-8100).
S-2
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS SUPPLEMENT.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents by Reference............. S-2
Prospectus Supplement Summary............................... S-4
Supplemental Risk Factors................................... S-7
Use of Proceeds............................................. S-7
Capitalization.............................................. S-8
Selected Financial Information.............................. S-9
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividend Distributions.............................. S-11
Description of Series C Preferred Stock..................... S-11
Certain Federal Income Tax Considerations................... S-15
Underwriting................................................ S-20
Legal Matters............................................... S-21
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents
by Reference.............................................. 2
Risk Factors................................................ 4
The Company................................................. 8
Use of Proceeds............................................. 8
Ratios of Earnings to Fixed Charges......................... 8
Description of Debt Securities.............................. 9
Description of Common Stock................................. 19
Description of Preferred Stock.............................. 22
Restrictions on Transfers of Capital
Stock; Excess Stock....................................... 27
Certain Federal Income Tax
Considerations............................................ 29
Plan of Distribution........................................ 39
Experts..................................................... 40
Legal Matters............................................... 40
</TABLE>
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights some information in this Prospectus Supplement and
the accompanying Prospectus. Because this is a summary, it may not contain all
of the information that is important to you. You should read this entire
Prospectus Supplement and the accompanying Prospectus carefully before deciding
whether to invest in the Series C Preferred Stock. Unless indicated otherwise,
the information contained in this Prospectus Supplement assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
We are a fully integrated, self-administered and self-managed real estate
investment trust ("REIT") that develops, acquires, owns and manages self storage
centers. We are one of the four largest operators of self storage centers in the
United States, and together with our predecessors have been in the self storage
business since 1972. Our 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 us to
position ourselves as a premium-priced storage provider in our target markets.
We seek to own and operate self storage centers that are located in major
metropolitan areas along retail and high-traffic corridors.
As of September 30, 1998, we owned and operated, directly and through our
subsidiaries and joint ventures, 303 self storage properties and 2 business
parks containing approximately 19.3 million net rentable square feet, which are
located in 19 states and four countries. For the nine months ended September 30,
1998, our domestic self storage centers had a weighted average annual net
rentable square foot occupancy rate of 84% and a weighted average annual rent
per net rentable square foot of $9.80. We also manage, under the "Shurgard"
name, 29 self storage centers and one business park containing approximately 1.6
million net rentable square feet.
We employed approximately 1,000 persons as of September 30, 1998 and are
headquartered in Seattle, Washington, with regional offices in Phoenix, Arizona;
San Francisco, California; Washington, D.C.; Chicago, Illinois; Atlanta,
Georgia; Long Island, New York; Dallas, Texas; and Bellevue, Washington. Our
executive offices are located at 1155 Valley Street, Seattle, Washington
98109-4426, and our telephone number is (206) 624-8100.
RECENT DEVELOPMENTS
On May 29, 1998, we formed a partnership, Shurgard/Fremont Partners I
("SFP1"), with Fremont Realty Capital L.L.C. ("Fremont"). One of our wholly
owned subsidiaries and an affiliate of Fremont are the general partners of SFP1.
We have a 10% equity interest in SFP1 and the Fremont affiliate has the
remaining 90% equity interest. Under the terms of the agreements executed in
connection with the formation of SFP1, we contributed certain self storage
properties to SFP1 shortly after we completed construction of such properties.
We were reimbursed at cost for all expenses incurred in developing the
properties contributed to SFP1.
SFP1 has granted us an option to acquire all of the properties owned by
SFP1. The purchase option is exercisable at certain times between December 15,
2000 and December 31, 2002, depending upon the performance of the properties.
The purchase price for the properties upon exercise of the option will be
determined by dividing the annualized net operating income of the properties for
the three- or four-month period preceding the exercise of the option by .0925.
Initially, we are entitled to 10% of SFP1's cash flow. Our equity interest
increases to 20% after the partners receive a specified priority return.
Under a management services agreement, we act as property manager for the
properties owned by SFP1 and receive a monthly management fee equal to the
greater of $2,000 per property or 5% of gross revenues. Additionally, we receive
other fees relating to accounting and administrative services that we perform on
behalf of SFP1.
We opened 16 domestic storage centers in the first nine months of 1998 and,
when all phases are complete, these 16 projects will total approximately 756,000
net rentable square feet with an estimated
S-4
<PAGE> 5
total cost of $49.8 million. Of the 16 stores opened, six were developed through
our Tennessee and Florida joint ventures, while another eight were contributed
to SFP1. Subsequent to September 30, 1998, we contributed two additional
properties to SFP1. In addition to the above completed developments, we have 22
domestic storage centers currently under construction (five of these are being
developed in California and Florida through joint ventures).
In October 1998, we reached an agreement in principle with an institutional
investor to form a joint venture partnership for the purpose of acquiring up to
$105 million of new self storage properties that we develop. We anticipate that
we will finalize the agreement in the first quarter of 1999.
We amended our domestic credit facility (the "Credit Facility") in October
1998. This $150 million Credit Facility matures in September 1999, but we have
the option to extend it until September 2000. The required spread over the
London Interbank Offering Rate ("LIBOR") is .95%, and this spread will continue
to vary based on the terms of the Credit Facility.
THE OFFERING
Securities Offered........ 1,750,000 shares of 8.70% Series C Cumulative
Redeemable Preferred Stock (the "Series C Preferred
Stock") (2,000,000 shares of Series C Preferred Stock
if the Underwriters' over-allotment option is
exercised in full).
Price per Share........... $25.00.
Use of Proceeds........... To pay down amounts drawn under our revolving credit
facility. See "Use of Proceeds."
Ranking................... With respect to the payment of distributions and
amounts upon liquidation, the Series C Preferred
Stock will rank:
- on a parity with any other preferred shares that
are not by their terms subordinated to Series C
Preferred Stock, including our 8.80% Series B
Cumulative Redeemable Preferred Stock (the "Series
B Preferred Stock"), and
- senior to our Series A Junior Participating
Preferred Stock (the "Series A Junior Preferred
Stock"), our Class A Common Stock (the "Class A
Common Stock"), our Class B Common Stock (the
"Class B Common Stock"), and any other of our
equity securities which by their terms rank junior
to the Series C Preferred Stock.
Distributions............. Distributions on the Series C Preferred Stock are
cumulative from the date of original issue and will
be payable quarterly in arrears on or about the last
day of March, June, September and December of each
year, commencing on December 31, 1998, at the rate of
8.70% of the liquidation preference per annum. The
first distribution will be for less than a full
quarter. Distributions on the Series C Preferred
Stock will accumulate whether or not we have
earnings, whether or not we have funds legally
available for the payment of such distributions and
whether or not we declare distributions. See
"Description of Series C Preferred
Stock -- Distributions."
Liquidation Rights........ The Series C Preferred Stock will have a liquidation
preference of $25.00 per share, plus accumulated and
unpaid distributions, if any. See "Description of
Series C Preferred Stock -- Liquidation Rights."
Redemption................ The shares of Series C Preferred Stock are not
redeemable prior to December 8, 2003. On and after
December 8, 2003, the Series C Preferred Stock will
be redeemable for cash at our option, in whole or in
part, at $25.00 per share, plus distributions
accumulated and unpaid to
S-5
<PAGE> 6
the redemption date. The redemption price is payable
solely out of the sale proceeds of other capital
stock of Shurgard. See "Description of Series C
Preferred Stock -- Redemption."
Voting Rights............. Holders of the Series C Preferred Stock are not
entitled to vote except as expressly provided herein,
by our Articles of Incorporation, as amended (the
"Charter") or by our Designation of Rights and
Preferences of Series C Preferred Stock, or as may be
required by law or by the rules of the NYSE. In any
matter in which holders of the Series C Preferred
Stock are entitled to vote, including any action by
written consent, each share of Series C Preferred
Stock will be entitled to one vote. If distributions
on the Series C Preferred Stock are in arrears for
six or more quarterly periods, whether or not such
quarterly periods are consecutive, holders of Series
C Preferred Stock (voting together with all other
series of preferred shares which have similar voting
rights) will be entitled to vote for the election of
two additional directors to serve on our Board of
Directors until all such arrearages have been paid,
at which time such directors will resign from our
Board of Directors. The approval of holders of
two-thirds of the outstanding Series C Preferred
Stock voting as a single class is required in order
to amend, alter or repeal any provision of the
Designation of Rights and Preferences of Series C
Preferred Stock, whether by merger, consolidation or
otherwise, so as to materially and adversely affect
the rights, preferences, privileges or voting power
of the holders of shares of Series C Preferred Stock
or authorize, reclassify, create, or increase the
authorized or issued amount of any class or series of
stock having rights senior to Series C Preferred
Stock or to create, authorize or issue any obligation
or security convertible into or evidencing the right
to purchase such shares. We may create additional
classes of preferred stock that rank on parity with
or junior to the Series C Preferred Stock, increase
the authorized number of shares of such preferred
stock and issue additional series of such preferred
stock without the consent of any holders of Series C
Preferred Stock or preferred stock with similar
voting rights. See "Description of Series C Preferred
Stock -- Voting Rights."
No Conversion............. The Series C Preferred Stock is not convertible into
or exchangeable for any other property or securities
of Shurgard. See "Description of Series C Preferred
Stock -- Conversion."
Trading................... We have applied to list the Series C Preferred Stock
on the NYSE under the symbol "SHUPrC". If approved,
trading is expected to commence within 30 days after
the initial delivery of the shares of Series C
Preferred Stock. See "Description of Series C
Preferred Stock -- General."
------------------------
This Prospectus Supplement and the accompanying Prospectus, including
documents incorporated by reference, contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (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 "Supplemental Risk Factors" in this Prospectus Supplement and
in "Risk Factors" in the accompanying Prospectus and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our most
recent annual and quarterly reports.
S-6
<PAGE> 7
SUPPLEMENTAL RISK FACTORS
RISKS RELATED TO ISSUANCE OF ADDITIONAL PREFERRED STOCK
The Charter, including the Designation of Rights and Preferences of Series
C Preferred Stock, does not limit the issuance of additional series of preferred
stock ranking on parity with or junior to the Series C Preferred Stock. The
Charter requires approval by holders of two-thirds of the outstanding Series C
Preferred Stock to issue any stock senior to the Series C Preferred Stock. The
issuance of additional preferred stock on parity with the Series C Preferred
Stock could have the effect of diluting the interests of holders of the Series C
Preferred Stock. None of the provisions relating to the Series C Preferred Stock
afford the holders of the Series C Preferred Stock protection in the event of a
highly leveraged or other transaction that might adversely affect their
interests.
SERIES C PREFERRED STOCK PRICE FLUCTUATIONS AND TRADING VOLUME
A number of factors may adversely influence the price of the Series C
Preferred Stock in public markets, many of which are beyond our control. In
particular, increased market interest rates would result in higher yields on
other financial instruments and may lead investors in Series C Preferred Stock
to seek investments with a higher annual distribution rate which could adversely
affect the market price of the shares of Series C Preferred Stock. Although we
intend to list the Series C Preferred Stock on the NYSE, the daily trading
volume of REITs in general and the Series C Preferred Stock in particular may be
lower than the trading volume of certain other industries. As a result,
investors who desire to liquidate substantial holdings at a single point in time
may find that they are unable to dispose of such shares in the market without
causing a substantial decline in the market value of such shares.
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $42.0 million, after all anticipated issuance costs (approximately
$48.1 million if the Underwriters' over-allotment option is exercised in full).
We will use the net proceeds from this offering to reduce borrowings under our
Credit Facility. Draws on the Credit Facility were used to fund acquisitions,
purchases of partnership units, development activity and general corporate
purposes. The Credit Facility currently bears interest at LIBOR plus .95% and
matures in September 1999.
S-7
<PAGE> 8
CAPITALIZATION
The following table sets forth our historical capitalization as of
September 30, 1998 and the pro forma capitalization to give effect to the
issuance and sale of the Series C Preferred Stock offered hereby:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------
HISTORICAL PRO FORMA
------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Debt
Lines of credit........................................... $113,806 $ 71,789
Notes payable............................................. 274,399 274,399
-------- ---------
Total long-term debt.............................. 388,205 346,188
-------- ---------
Shareholders' equity
Series C Preferred Stock, $0.001 par value per share;
2,000,000 shares authorized and 1,750,000 shares issued
and outstanding, pro forma............................. -- 42,017
Series B Preferred Stock, $0.001 par value per share;
2,000,000 shares authorized, issued and outstanding.... 48,056 48,056
Class A Common Stock, $0.001 par value per share;
120,000,000 shares authorized and 28,600,416 shares
issued and outstanding................................. 599,792 599,792
Class B Common Stock, $0.001 par value per share; 500,000
shares authorized and 154,604 shares issued and
outstanding, net of loans to shareholders of $4,002.... (1,086) (1,086)
Accumulated net income less distributions................. (43,065) (43,065)
-------- ---------
Total shareholders' equity........................ 603,697 645,714
-------- ---------
Total capitalization.............................. $991,902 $ 991,902
======== =========
</TABLE>
S-8
<PAGE> 9
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information for Shurgard
for each of the three years in the period ended December 31, 1997 and for the
nine-month periods ended September 30, 1997 and 1998. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included in Shurgard's Annual Report on Form 10-K for the year ended
December 31, 1997 and Shurgard's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, which are incorporated herein by reference.
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED AT OR FOR NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- ---------------------------
1995 1996 1997 1997 1998
-------- --------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental................................. $ 92,397 $ 103,784 $ 137,746 $ 100,540 $ 116,492
Other real estate investments.......... 1,396 3,371 225 114 (1,244)
Property management.................... 2,978 3,244 2,463 1,864 1,803
-------- --------- --------- --------- ----------
Total revenues................. 96,771 110,399 140,434 102,518 117,051
Expenses:
Operating.............................. 24,851 30,889 40,278 28,797 33,724
Management fees........................ 1,320 -- -- -- --
Depreciation and amortization.......... 17,410 21,199 28,243 19,991 24,269
Real estate taxes...................... 7,596 8,898 11,295 8,236 9,508
General, administrative and other...... 4,859 4,351 3,956 3,005 2,899
-------- --------- --------- --------- ----------
Total expenses................. 56,036 65,337 83,772 60,029 70,400
-------- --------- --------- --------- ----------
Income from operations................... 40,735 45,062 56,662 42,489 46,651
Interest and other income or expense,
net.................................... 1,126 604 1,481 1,103 1,042
Interest expense......................... (12,038) (12,829) (17,096) (12,686) (15,441)
Minority interest........................ (251) (52) 1,264 973 1,250
-------- --------- --------- --------- ----------
Net income............................... $ 29,572 $ 32,785 $ 42,311 $ 31,879 $ 33,502
======== ========= ========= ========= ==========
Basic net income per common share........ 1.43 1.39 1.40 1.08 1.05
Basic average shares outstanding......... 20,661 23,517 27,947 27,726 28,661
Diluted net income per common share...... $ 1.43 $ 1.39 $ 1.40 $ 1.08 $ 1.05
Diluted average shares outstanding....... 20,696 23,570 28,000 27,770 28,675
Distributions declared per common
share.................................. $ 2.38(1) $ 1.41(2) $ 1.91(3) $ 1.43 $ 1.46
BALANCE SHEET DATA (AT END OF PERIOD):
Storage centers, before accumulated
depreciation........................... $558,861 $ 758,726 $ 928,354 $ 873,361 $1,032,650
Total assets............................. 610,394 804,483 955,488 920,419 1,044,232
Notes payable............................ 131,395 131,794 239,494 234,819 274,399
Total liabilities........................ 172,610 302,755 326,026 288,954 421,320
Shareholders' equity..................... 434,496 498,511 610,787 615,043 603,697
OTHER DATA:
Funds from operations(4)................. $ 45,788 $ 53,083 $ 65,969 $ 48,858 $ 53,485
Percentage of funds from operations paid
out as distributions................... 80.1% 81.7% 81.1% 81.4% 78.2%
Cash flow provided by (used in):
Operating activities................... $ 46,113 $ 48,065 $ 78,108 $ 54,824 $ 62,240
Investing activities................... (86,311) (137,835) (182,718) (134,200) (107,233)
Financing activities................... 32,719 87,326 108,619 84,335 50,143
</TABLE>
S-9
<PAGE> 10
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
-------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C>
PORTFOLIO DATA (AT END OF PERIOD):
Number of properties:
Owned properties....................... 181 237 281 271 305
Managed properties..................... 83 37 31 30 30
-------- --------- --------- --------- ----------
Total.......................... 264 274 312 301 335
======== ========= ========= ========= ==========
Net rentable square feet:
Owned properties....................... 11,900 15,400 18,200 17,500 19,300
Managed properties..................... 4,700 1,900 1,500 1,700 1,600
-------- --------- --------- --------- ----------
Total.......................... 16,600 17,300 19,700 19,200 20,900
======== ========= ========= ========= ==========
</TABLE>
- ---------------
(1) Includes the distribution of $.44 per share declared in January 1995 based
on financial results for the quarter ended December 31, 1994, as well as the
special distribution of $.10 declared in November 1995.
(2) Does not include the distribution of $.47 per share declared in January 1997
based on financial results for the quarter ended December 31, 1996.
(3) Does not include the distribution of $.48 per share declared in January 1998
based on financial results for the quarter ended December 31, 1997.
(4) Funds from operations ("FFO"), as promulgated by the National Association of
Real Estate Investment Trusts ("NAREIT") in its March 1995 White Paper on
Funds from Operations, is defined as net income (calculated in accordance
with generally accepted accounting principles ("GAAP")) excluding gains or
losses from debt restructuring and sales of real estate, plus depreciation
of rental real estate and amortization of intangible assets exclusive of
deferred financing costs. Contributions to FFO from unconsolidated entities
in which the reporting entity holds an active interest are to be reflected
in FFO on the same basis. We believe FFO is a meaningful disclosure as a
supplement to net income because net income implicitly assumes that the
value of assets diminishes predictably over time while we believe that real
estate values have historically risen or fallen with market conditions. FFO
is not a substitute for net cash provided by operating activities or net
income computed in accordance with GAAP, nor should it be considered an
alternative indication of our operating performance or liquidity. In
addition, FFO is not comparable to "funds from operations" reported by other
REITs that do not define FFO in accordance with the NAREIT definition, as
interpreted by us.
FFO for each of the periods presented is calculated as follows:
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
FOR YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income before extraordinary item............... $29,572 $32,785 $42,311 $31,879 $33,502
Nonrecurring revenue/expenses...................... (223) -- (189) -- (416)
Preferred dividend distribution.................... -- -- (3,060) (1,960) (3,300)
Depreciation and amortization...................... 17,410 21,199 28,243 19,991 24,269
Depreciation and amortization from unconsolidated
joint ventures and subsidiaries.................. 149 219 (231) (227) 270
Deferred financing costs........................... (1,120) (1,120) (1,105) (825) (840)
------- ------- ------- ------- -------
Funds from operations............................ $45,788 $53,083 $65,969 $48,858 $53,485
======= ======= ======= ======= =======
</TABLE>
S-10
<PAGE> 11
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND DISTRIBUTIONS
The following table sets forth our consolidated ratios of earnings to
combined fixed charges and preferred stock dividend distributions for the
periods shown:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993(1) 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio................ 8.80x 2.95x 3.00x 2.79x 2.47x 2.06x
</TABLE>
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(1) The information for the year ended December 31, 1993 is based on the
combined historical financial information of the 17 publicly held limited
partnerships that were consolidated in connection with our formation as a
REIT.
The ratios of earnings to combined fixed charges and preferred stock
dividend distributions were computed by dividing earnings by the sum of combined
fixed charges and preferred stock dividend distributions. For this purpose,
earnings consist of net income before extraordinary item plus fixed charges less
capitalized interest. Fixed charges consist of interest expense, capitalized
interest and the amortization of debt issuance costs.
DESCRIPTION OF SERIES C PREFERRED STOCK
In addition to the information below, you should also read "Description of
Preferred Stock" in the accompanying Prospectus before deciding whether to
invest in the Series C Preferred Stock. However, if the terms set forth in this
Prospectus Supplement differ from the terms set forth in the Prospectus, you
should rely on the terms set forth in this Prospectus Supplement. We
reincorporated from the State of Delaware to the State of Washington in May
1997. Therefore, certain descriptions of Delaware law contained in the
Prospectus are inapplicable. For a general comparison of the differences between
Delaware law and Washington law, see "Certain Differences in Corporate Laws" in
our Proxy Statement for Annual Meeting of Shareholders, dated March 31, 1997.
GENERAL
We are authorized to issue up to 40,000,000 shares of preferred stock in
one or more series. Our Board of Directors has the power to determine the number
of shares in each series and fix the preference, conversion and other rights of
such series, including, but not limited to, fixing distribution rights,
distribution rates, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption (including
sinking fund provisions), and the liquidation preference, without any further
action by our shareholders (except in limited circumstances by holders of Series
A Junior Preferred Stock), unless such action is required by applicable law or
the rules of any stock exchange on which our securities are listed. The Series C
Preferred Stock is a series of our preferred stock.
On November 30, 1998, our Board of Directors adopted resolutions
authorizing the designation and issuance of the Series C Preferred Stock. The
following summary of the terms and provisions of the Series C Preferred Stock
does not purport to be complete and is qualified in its entirety by reference to
the relevant sections of the Charter, including the Designation of Rights and
Preferences of Series C Preferred Stock, each of which you may obtain from us.
The registrar, transfer agent and distributions disbursing agent for the
Series C Preferred Stock will be Gemisys Corporation.
We have applied to list the Series C Preferred Stock on the NYSE, subject
to official notice of issuance. If so approved, trading of the Series C
Preferred Stock on the NYSE is expected to commence within 30 days after the
date of initial delivery of the Series C Preferred Stock.
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SERIES B PREFERRED STOCK
We currently have outstanding 2,000,000 shares of Series B Preferred Stock.
Holders of shares of Series B Preferred Stock are entitled to receive, when and
as authorized by our Board of Directors, out of funds legally available for the
payment of distributions, cumulative cash distributions at the rate of 8.80% per
annum of the $25.00 liquidation preference (equivalent to a fixed annual amount
of $2.20 per share). Distributions on the Series B Preferred Stock are
cumulative from the date of original issue and are payable quarterly in arrears
on or about the last day of each March, June, September and December or, if not
a business day, the succeeding business day. The Series B Preferred Stock is not
redeemable prior to June 30, 2002. On or after June 30, 2002, we may, at our
option, upon not less than 30 nor more than 60 days' written notice, redeem the
Series B Preferred Stock, in whole or in part, at any time or from time to time,
at a redemption price of $25.00 per share, plus all accumulated and unpaid
distributions thereon to the date fixed for redemption. The shares of Series B
Preferred Stock are not convertible into or exchangeable for any other property
or securities of Shurgard. The Series B Preferred Stock ranks on parity with the
Series C Preferred Stock.
DISTRIBUTIONS
Holders of the Series C Preferred Stock will be entitled to receive, when
and as authorized by our Board of Directors, out of funds legally available for
the payment of distributions, cumulative cash distributions at the rate of 8.70%
per annum of the $25.00 liquidation preference (equivalent to a fixed annual
amount of $2.175 per share). Distributions on the Series C Preferred Stock will
be cumulative from the date of original issue and will be payable quarterly in
arrears on or about the last day of March, June, September and December or, if
not a business day, the succeeding business day (each, a "Distribution Payment
Date"). The first distribution on the Series C Preferred Stock will be paid on
December 31, 1998, which will be for less than a full quarter. Any distributions
payable on the Series C Preferred Stock for any partial period will be computed
on the basis of the actual number of days the Series C Preferred Stock is
outstanding and assuming a 360-day year consisting of twelve 30-day months.
Distributions will be payable to holders of record as they appear in our share
records at the close of business on the applicable record date, which will be
the first day of the calendar month in which the applicable Distribution Payment
Date falls or such other date designated by our Board of Directors for the
payment of distributions that is not more than 30 or less than 10 days prior to
such Distribution Payment Date (each, a "Distribution Record Date"). For
dividend distributions, the Series C Preferred Stock will rank senior to the
Class A Common Stock, the Class B Common Stock and the Series A Junior Preferred
Stock, and on parity with the Series B Preferred Stock.
No distributions on the Series C Preferred Stock will be authorized by our
Board of Directors or be paid or set apart for payment if such action is
restricted or prohibited by law or by the terms of any agreement of ours,
including any agreement relating to our indebtedness.
Notwithstanding the foregoing, distributions on the Series C Preferred
Stock will accumulate whether or not we have earnings, whether or not there are
funds legally available for the payment of such distributions and whether or not
such distributions are authorized. Accumulated but unpaid distributions on the
Series C Preferred Stock will not bear interest and holders of the Series C
Preferred Stock will not be entitled to any distributions in excess of full
cumulative distributions as described above.
Any distribution payment made on the Series C Preferred Stock will first be
credited against the earliest accumulated but unpaid distribution due with
respect to such shares.
If, for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Internal Revenue Code of 1986, as amended (the
"Code")) any portion (the "Capital Gains Amount") of the dividends (within the
meaning of the Code) paid or made available for the year to holders of all
classes of shares (the "Total Dividends"), then the portion of the Capital Gains
Amount that will be allocable to the holders of Series C Preferred Stock will be
the Capital Gains Amount multiplied by a fraction, the numerator of which is the
total dividends (within the meaning of the Code)
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paid or made available to the holders of the Series C Preferred Stock for the
year, and the denominator of which is Total Dividends.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of our business,
the holders of the Series C Preferred Stock are entitled to be paid out of our
assets that are legally available for distribution to our shareholders
liquidating distributions in cash or property at its fair market value as
determined by our Board of Directors in the amount of a liquidation preference
of $25.00 per share, plus an amount equal to any accumulated and unpaid
distributions to the date of such liquidation, dissolution or winding up, before
any distribution of assets is made to holders of Common Stock or any other
capital shares that rank junior to the Series C Preferred Stock as to
liquidation rights. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series C Preferred
Stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with any other entity or the sale, lease, transfer or
conveyance of all or substantially all of our property or business shall not be
deemed to constitute a liquidation, dissolution or winding up of our business.
For liquidation rights, the Series C Preferred Stock will rank senior to the
Class A Common Stock, the Class B Common Stock and the Series A Junior Preferred
Stock and on parity with the Class B Preferred Stock. For further information
regarding the rights of the holders of the Series C Preferred Stock upon the
liquidation, dissolution or winding up of Shurgard, see "Description of
Preferred Stock -- Liquidation Preference" in the accompanying Prospectus.
REDEMPTION
The shares of Series C Preferred Stock are not redeemable prior to December
8, 2003. On and after December 8, 2003, we may, at our option upon not less than
30 or more than 60 days' written notice, redeem the Series C Preferred Stock, in
whole or in part, at any time or from time to time, at a redemption price of
$25.00 per share, plus all accumulated and unpaid distributions thereon to the
date fixed for redemption (except as provided below), without interest, to the
extent Shurgard has funds legally available therefor. The redemption price of
the Series C Preferred Stock (other than any portion thereof consisting of
accumulated and unpaid distributions) may be paid solely from the sale proceeds
of other capital stock of Shurgard and not from any other source. For purposes
of the preceding sentence, "capital stock" means any common stock, preferred
stock, depository shares, interests, participation or other ownership interests
(however designated) and any rights (other than debt securities convertible into
or exchangeable for equity securities) or options to purchase any of the
foregoing. Holders of Series C Preferred Stock to be redeemed must surrender
such Series C Preferred Stock at the place designated in such notice and will be
entitled to the redemption price and any accrued and unpaid distributions
payable upon such redemption following such surrender. If notice of redemption
of any Series C Preferred Stock has been given and if we have set aside the
funds necessary for such redemption in trust for the benefit of the holders of
any Series C Preferred Stock so called for redemption, then from and after the
redemption date distributions will cease to accrue on such Series C Preferred
Stock, such Series C Preferred Stock will no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price. If fewer than all of the outstanding shares of
Series C Preferred Stock are to be redeemed, the Series C Preferred Stock to be
redeemed will be selected pro rata (as nearly as may be practicable without
creating fractional shares of Series C Preferred Stock) or by any other
equitable method we choose. See "Description of Preferred Stock -- Redemption"
in the accompanying Prospectus.
We will give notice of redemption by publishing a notice in a newspaper of
general circulation in the City of New York once a week for two successive weeks
beginning not less than 30 or more than 60 days prior to the redemption date. We
will mail a similar notice, postage prepaid, not less than 30 or more than 60
days prior to the redemption date, addressed to the respective holders of record
of the Series C Preferred Stock to be redeemed at their respective addresses as
they appear on our share transfer records. No failure to give such notice or any
defect in the notice or in the mailing of the notice will affect the
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validity of the proceedings for the redemption of any Series C Preferred Stock,
except as to the holder to whom notice was defective or not given. Each notice
must state (1) the redemption date, (2) the redemption price, (3) the number of
shares of Series C Preferred Stock to be redeemed, (4) the place or places where
the certificates evidencing the shares of Series C Preferred Stock are to be
surrendered for payment of the redemption price, and (5) that distributions on
the shares to be redeemed will cease to accumulate on such redemption date. If
fewer than all the shares of Series C Preferred Stock held by any holder are to
be redeemed, the notice mailed to such holder must also specify the number of
shares of Series C Preferred Stock to be redeemed from such holder.
The holders of Series C Preferred Stock at the close of business on a
Distribution Record Date will be entitled to receive the dividend distribution
payable with respect to such Series C Preferred Stock on the corresponding
Distribution Payment Date notwithstanding a redemption occurring between such
Distribution Record Date and the corresponding Distribution Payment Date or our
default in the payment of the distribution due. Except as provided above, we
will make no payment or allowance for unpaid distributions, whether or not in
arrears, on Series C Preferred Stock to be redeemed.
The Series C Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption provisions, except as provided under
"-- Restrictions on Ownership" below.
VOTING RIGHTS
The Series C Preferred Stock is not entitled to vote except as expressly
provided herein, by the Charter or by the Certificate of Designations of Series
C Preferred Stock, or as may be required by law or by the rules of the NYSE. In
any matter in which the Series C Preferred Stock is entitled to vote, including
any action by written consent, each share of Series C Preferred Stock will be
entitled to one vote.
Whenever distributions on any shares of Series C Preferred Stock are in
arrears for six or more quarterly periods, the holders of such shares of Series
C Preferred Stock (voting together with all other series of preferred stock
which have similar voting rights) will be entitled to vote for the election of
two additional directors of Shurgard at a special meeting called by the holders
of record of at least 10% of any series of Series C Preferred Stock so in
arrears or the holders of any other series of preferred stock on parity with the
Series C Preferred Stock so in arrears (unless such request is received less
than 90 days before the date fixed for the next annual or special meeting of our
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until all distributions accumulated on such shares of
Series C Preferred Stock for the past distribution periods and the then current
distribution period shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment, at which time the two additional
directors will resign from our Board of Directors. In such case, the entire
Board of Directors will be increased by two directors.
The approval of two-thirds of the outstanding Series C Preferred Stock
voting as a single class is required in order to amend, alter or repeal any
provision of the Designation of Rights and Preferences of Series C Preferred
Stock, whether by merger, consolidation or otherwise, so as to materially and
adversely affect the rights, preferences, privileges or voting power of the
holders of shares of Series C Preferred Stock or authorize, reclassify, create,
or increase the authorized or issued amount of any class or series of stock
having rights senior to Series C Preferred Stock or to create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase such shares. We may create additional classes of preferred stock that
rank on parity with or junior to the Series C Preferred Stock, increase the
authorized number of shares of such preferred stock and issue additional series
of such preferred stock without the consent of any holders of Series C Preferred
Stock or preferred stock with similar voting rights.
CONVERSION
The shares of Series C Preferred Stock are not convertible into or
exchangeable for any other property or securities of Shurgard.
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RESTRICTIONS ON OWNERSHIP
In order to maintain its qualification as a REIT, the Charter imposes
limitations on the number of shares of capital stock, including Series C
Preferred Stock, that may be owned by any single person or affiliated group. For
information regarding such restrictions on ownership of Series C Preferred
Stock, see "Restrictions on Transfers of Capital Stock; Excess Stock" in the
accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only, and is not tax advice. This
discussion does not purport to address all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances. This discussion is directed principally to investors who are
United States citizens or residents or U.S. corporations. This discussion does
not address consequences that are unique to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws.
We have operated and intend to operate in a manner that will enable us to
qualify as a REIT under the Code. Although we believe that we are organized and
operate in such a manner, we cannot assure you that we will remain qualified as
a REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial and
administrative interpretations. The determination of various factual matters and
circumstances not entirely within our control may affect our ability to qualify
as a REIT. If we fail to qualify as a REIT, we will be subject to federal income
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, we will be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax would significantly reduce the cash flow available for
distribution to shareholders. Except for the updated information contained under
"REIT Tax Law Changes Pursuant to the Taxpayer Relief Act of 1997" below, this
Prospectus Supplement does not address the taxation of Shurgard or the impact on
Shurgard of its election to be taxed as a REIT. The discussion set forth below
assumes that we qualify as a REIT under the Code.
In the opinion of Perkins Coie LLP, counsel to Shurgard, Shurgard,
commencing with the taxable year ended December 31, 1994, has been organized in
conformity with the requirements for qualification as a REIT and its current
organization and method of operation should enable it to qualify as a REIT in
the future. This opinion is based on various assumptions and is conditioned upon
the representations of Shurgard as to factual matters. Moreover, continued
qualification and taxation as a REIT will depend on Shurgard'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 in
the Prospectus. While Shurgard 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 Shurgard, no assurance can be given by counsel
or Shurgard that Shurgard will so qualify for any particular year. Perkins Coie
LLP will not review compliance with these tests on a continuing basis, and has
not undertaken to update its opinion subsequent to the date hereof.
Accordingly, each potential investor should refer to the Prospectus for a
summary of the federal income tax considerations to Shurgard of its REIT
election. Each potential investor is advised to consult their own tax advisor
regarding the tax consequences of the acquisition, ownership and sale of the
Series C Preferred 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.
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REIT TAX LAW CHANGES PURSUANT TO THE TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, the President signed into law H.R. 2014, Taxpayer Relief
Act of 1997 (the "1997 Act") providing, among other things, numerous provisions
designed to simplify the tax characterization and treatment of REITs. These
changes applied to us commencing on January 1, 1998. The material provisions
contained in the 1997 Act are summarized as follows:
(1) For purposes of the 75% and 95% gross income tests, (a) a REIT may now
render a de minimis amount of impermissible services to tenants or in
connection with the management of the property and still treat the
amounts received by the REIT with respect to that property as rents
from real property and (b) the attribution rules used for purposes of
determining related party tenants and independent contractors have been
relaxed when applying these rules to partners of partnerships that own
shares in a REIT. See "Certain Federal Income Tax Considerations --
Overview of REIT Qualification Rules -- Income Tests" in the
accompanying Prospectus.
(2) A REIT may now elect to retain and pay income tax on the long-term
capital gains recognized by it during the year. The REIT must pay
income tax on the gain at the rate of 35%. If the election is made, the
shareholders include the capital gain on their personal tax returns and
increase the basis in their stock by the amount of the undistributed
capital gain (less the amount of capital gains tax paid by the REIT).
The shareholders are then entitled to a credit on their tax return for
their proportionate share of the tax paid by the REIT. See "Certain
Federal Income Tax Considerations -- Taxation of the Company as a
REIT -- Tax on Undistributed Income" in the accompanying Prospectus.
(3) The gross income requirement that 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 represent less than 30% of the
REIT's gross income for each taxable year has been repealed. See
"Certain Federal Income Tax Considerations -- Overview of REIT
Qualification Rules -- Income Tests" in the accompanying Prospectus.
(4) For purposes of eliminating any non-REIT year accumulated earnings
acquired by a REIT, the earliest accumulated earnings are now treated
as being distributed first after distribution of current earnings. Any
distribution of these accumulated earnings will not be treated,
however, as a distribution for purposes of calculating the dividends
paid deduction. See "Certain Federal Income Tax
Considerations -- Overview of REIT Qualification Rules -- Annual
Distribution Requirements" in the accompanying Prospectus.
(5) Corporations wholly owned by a REIT will still be "qualified REIT
subsidiaries" regardless of whether the subsidiaries have always been
owned by the REIT. See "Certain Federal Income Tax
Considerations -- Overview of REIT Qualification Rules -- Nature of
Assets" in the accompanying Prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
As long as we qualify as a REIT, our taxable U.S. shareholders (including
holders of Series C Preferred Stock) will be taxed on distributions made out of
current or accumulated earnings and profits (and not designated as capital gain
dividends or retained capital gains) as ordinary income. Capital and ordinary
dividends will not be eligible for the dividends received deduction for
corporations. For purposes of determining whether distributions on the Series C
Preferred Stock are out of current or accumulated earnings and profits, the
earnings and profits of Shurgard will be allocated first to the Series C
Preferred Stock and Series B Preferred Stock on a pari passu basis and then
allocated to the Class A Common Stock, the Class B Common Stock and the Series A
Junior Preferred Stock.
As described above, we may elect to retain and pay income tax on the
long-term capital gains recognized by us during the year. If we so elect, we
will pay income tax on the gain at a rate of 35%. Although our U.S. shareholders
would include in their income as long-term capital gain their proportionate
share of such undistributed net long-term capital gain, they would also receive
a refundable tax credit for
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their proportionate share of the tax paid by us on such retained capital gains
and an increase in their basis in their Shurgard stock in an amount equal to the
difference between the undistributed long-term capital gains and the amount of
tax paid by us.
In addition to the changes to provisions directly dealing with the tax
characterization and treatment of REITs, the 1997 Act and H.R. 2676, the IRS
Restructuring and Reform Act of 1998 (the "1998 Reform Act"), changed
significantly the taxation of capital gains by taxpayers who are individuals,
estates or trusts. IRS Notice 97-64 provides temporary guidance with respect to
the taxation of distributions by REITs that are designated as capital gain
dividends. Under IRS Notice 97-64, taking into account changes in the capital
gains rates made by the 1998 Reform Act, a REIT may designate (subject to
certain limits) whether a capital gain dividend is taxable to domestic
shareholders (other than corporations) as a 20% rate gain distribution (for
capital gains recognized by a REIT with respect to capital assets held more than
one year) or a Section 1250 gain distribution taxed at a 25% rate (for a portion
of the gain recognized by the REIT with respect to dispositions of certain real
property held for more than one year equal to the amount of all prior
depreciation deductions not otherwise required to be taxed as ordinary
depreciation recapture income).
Amounts designated by us pursuant to the 1997 Act as undistributed capital
gains would be treated with respect to non-U.S. shareholders in the
substantially same manner as described in the Prospectus for actual
distributions by us of capital gain dividends. See "Certain Federal Income Tax
Considerations -- Federal Income Taxation of Foreign Stockholders" in the
accompanying Prospectus. Under that approach, the non-U.S. shareholders would,
however, be able to offset as a credit against their United States federal
income tax liability resulting therefrom their proportionate share of the tax
paid by us on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by us were to
exceed their actual United States federal income tax liability).
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted tax basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent such distributions exceed the
adjusted basis of a shareholder's shares, they will be included in income as
long-term capital gain (or short-term capital gain if the shares have been held
for one year or less), assuming the shares are a capital asset in the hands of
the shareholder. In addition, if we declare a distribution in October, November
or December payable to a shareholder of record in any such month, such
distribution shall be treated as both paid by us and received by the shareholder
on December 31 of such year, provided that we actually pay the dividend during
January of the following calendar year.
Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses. We will notify shareholders after
the close of our taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
SALE OR EXCHANGE OF SERIES C PREFERRED STOCK
Upon the sale of Series C Preferred Stock, a shareholder will generally
recognize gain or loss equal to the difference between (1) the amount of cash
and the fair market value of any property received and (2) the shareholder's
adjusted tax basis in such shares. Such gain or loss will be a capital gain or
loss if the Series C Preferred Stock has been held as a capital asset and will
be long-term gain or loss if such shares have been held for more than one year.
Any loss upon a sale or exchange of Series C Preferred Stock by a shareholder
who held such Series C Preferred Stock for six months or less (after applying
certain holding period rules) will generally be treated as a long-term capital
loss to the extent such shareholder previously received capital gain
distributions with respect to such Series C Preferred Stock.
As a result of the 1997 Act and the 1998 Reform Act, individuals, trusts
and estates that hold capital assets for more than 12 months will generally be
taxed at a maximum long-term capital gain rate of 20% on gain from the sale or
exchange of those investments. In addition, any net capital gain which otherwise
would be taxed at a 15% rate is taxed at a rate of 10%. To obtain these lower
rates, assets must generally be held by the taxpayer for more than one year.
However, a maximum rate of 25% applies for
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"unrecaptured Section 1250 gain" for individuals, trusts and estates. These
lower rates also apply for alternative minimum tax purposes.
For assets acquired and held for more than five years after December 31,
2000, these rates are lowered to 18% and 8%, respectively. Individual taxpayers
holding certain capital assets including readily tradable stock as of January 1,
2001 may elect to treat the asset as having been sold on such date for an amount
equal to its then current fair market value and having been reacquired for an
amount equal to such value. For these purposes, the fair market value of the
readily tradable stock is equal to its closing market price on the next business
day after January 1, 2001. If such election is made, any gain (but not loss) is
recognized by the taxpayer as of that date.
REDEMPTION OF SERIES C PREFERRED STOCK
A redemption of Series C Preferred Stock will be treated as a distribution
taxable as a dividend (to the extent of our current and accumulated earnings and
profits) at ordinary income tax rates unless the redemption satisfies one of
three tests set forth in Section 302(b) of the Code. The redemption will be
treated as a sale or exchange if it (1) is "substantially disproportionate" with
respect to the shareholder, (2) results in a "complete termination" of the
shareholder's stock interest in Shurgard, or (3) is "not essentially equivalent
to a dividend" with respect to the shareholder, all within the meaning of
Section 302 of the Code. In determining whether any of these tests have been
met, Series C Preferred Stock considered to be owned by a shareholder by reason
of certain constructive ownership rules set forth in the Code, as well as Series
C Preferred Stock actually owned by such shareholder, must generally be taken
into account. If a particular holder of Series C Preferred Stock owns (actually
or constructively) no shares of common stock of Shurgard, or an insubstantial
percentage of the outstanding shares of the common stock, a redemption of all
the Series C Preferred Stock owned by such shareholder (actually or
constructively) generally should qualify for sale or exchange treatment because
the redemption would not be "essentially equivalent to a dividend." However,
because the determination as to whether any of the alternative tests of Section
302(b) of the Code will be satisfied with respect to any particular holder of
Series C Preferred Stock depends upon the facts and circumstances at the time
that the determination must be made, prospective holders of Series C Preferred
Stock are encouraged to consult their own tax advisors to determine such tax
treatment.
If a redemption of Series C Preferred Stock is not treated as a
distribution taxable as a dividend to a particular shareholder, it will be
treated as to that shareholder as a taxable sale or exchange. As a result, such
shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (1) the amount of cash and the fair
market value of any property received (less any portion of the property that is
attributable to declared but unpaid dividends attributable to the redeemed
shares, which will be taxable as a dividend to the extent of our current and
accumulated earnings and profits) and (2) the shareholder's adjusted basis in
the shares of Series C Preferred Stock for tax purposes. Such gain or loss will
be capital gain or loss if the shares of Series C Preferred Stock have been held
as a capital asset and will be long-term gain or loss if such shares have been
held for more than one year.
If a redemption of the Series C Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash and the fair market value of any property
received by the shareholders. The shareholder's adjusted tax basis in such
redeemed Series C Preferred Stock will be transferred to the shareholder's
remaining stockholdings in Shurgard. If, however, the shareholder has no
remaining stockholdings in Shurgard, such basis could be transferred to a
related person or it may be lost entirely.
BACKUP WITHHOLDING
We will report to our U.S. shareholders 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
shareholder may be subject to backup withholding at the rate of 31% with respect
to
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dividends paid and redemptions unless such shareholder (1) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (2) provides a taxpayer identification number, certifies that the
shareholder is not subject to backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that does
not provide us with his, her or its 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 shareholder's income tax liability.
RECENT TAX PROPOSAL
On February 2, 1998, President Clinton released his budget proposal for
fiscal year 1999 (the "Proposal"). The Proposal would have prohibited a REIT
from owning, directly or indirectly, more than 10% of the voting power or value
of all classes of a C corporation's stock (other than the stock of a qualified
REIT subsidiary). Currently, a REIT may own no more than 10% of the voting stock
of a C corporation, but its ownership of the nonvoting stock of a C corporation
is not limited (other than by the rule that the value of a REIT's combined
equity and debt interests in a C corporation may not exceed 5% of the value of a
REIT's total assets). That provision was proposed to be effective with respect
to stock in a C corporation acquired by a REIT on or after the date of "first
committee action" with respect to the provision. To date, no such proposal has
been formally introduced into Congress as proposed legislation. No assurance can
be given, however, that such a proposal, or a similar proposal, will not be
considered by Congress and enacted in the future. If the proposal were to be
enacted as originally proposed, the Company's interest in Shurgard's Storage To
Go, which exceeds 10% of the value of the outstanding stock, would be
grandfathered, but such grandfathering would be lost if the subsidiary were to
engage in a new trade or business or acquire substantial new assets, which could
materially impede the ability of the Company to engage in other activities or
expand substantially its current activities conducted through Shurgard's Storage
To Go.
S-19
<PAGE> 20
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriters, the number of shares
set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
Salomon Smith Barney Inc. .................................. 584,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 583,000
PaineWebber Incorporated.................................... 583,000
----------
Total............................................. 1,750,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other
considerations. The underwriters are obligated to purchase all of the shares
(other than those covered by the over-allotment option described below) if they
purchase any of the shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and some of the shares to certain dealers at the public offering
price less a concession not in excess of $.50 per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $.40 per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this Prospectus Supplement, to purchase up to 250,000 additional
shares of Series C Preferred Stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.
We have applied to have the Series C Preferred Stock listed on the NYSE.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of Series C Preferred Stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ .7875 $ .7875
Total....................................................... $1,378,125 $1,575,000
</TABLE>
In connection with this offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of Series C Preferred Stock in excess of the number of shares to be
purchased by the underwriters in this offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the Series C
Preferred Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of Series C Preferred Stock made for the purpose of
preventing or retarding a decline in the market price of the Series C Preferred
Stock while this offering is in progress. Penalty bids permit the underwriters
to reclaim a selling concession from a syndicate member when Salomon Smith
Barney Inc., in covering syndicate short positions or making stabilizing
purchases, repurchases shares originally sold by that syndicate member. These
activities may cause the price of the Series C Preferred Stock to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These
S-20
<PAGE> 21
transactions may be effected on the NYSE or in the over-the-counter market, or
otherwise, and, if commenced, may be discontinued at any time.
We estimate that the total expenses of this offering will be $355,000.
The underwriters have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Perkins Coie LLP,
Seattle, Washington, as our securities and tax counsel, and for the Underwriters
by King & Spalding, Atlanta, Georgia.
S-21
<PAGE> 22
(This page intentionally left blank)
<PAGE> 23
PROSPECTUS
SHURGARD STORAGE CENTERS, INC.
$300,000,000
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
Shurgard Storage Centers, Inc. (the "Company") may from time to time offer
in one or more series (a) its debt securities (the "Debt Securities"), (b)
shares of its preferred stock, par value $.001 per share (the "Preferred
Stock"), or (c) shares of its Class A Common Stock, par value $.001 per share
(the "Class A Common Stock"), with an aggregate public offering price of up to
$300,000,000 on terms to be determined at the time of offering. The Debt
Securities, the Preferred Stock and the Class A 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: (a) 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 Class A
Common Stock, covenants and any initial public offering price; (b) 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 (c) in the case of Class A 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 U.S. 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.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMPANY.
------------------------
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 February 20, 1997.
<PAGE> 24
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. The Commission
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 Commission. In addition, the Class A
Common Stock is listed on the New York Stock Exchange (the "NYSE") and such
reports, proxy statements and other information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
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 year ended December 31, 1995;
b. Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996;
c. Current Reports on Form 8-K dated November 14, 1996 and January 16,
1997;
d. Description of the Class A Common Stock contained in the Company's
Registration Statement on Form 8-A, dated April 26, 1995, as
amended; and
e. Description of Preferred Share Purchase Rights contained in the
Company's Registration Statement on Form 8-A, dated April 26, 1995,
as amended.
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 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 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
2
<PAGE> 25
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 Investor Relations at the Company, 1201
Third Avenue, Suite 2200, Seattle, Washington, 98101 (telephone number: (206)
624-8100).
3
<PAGE> 26
RISK FACTORS
An investment in the Company involves various risks. In evaluating an
investment, investors should consider the following factors, in addition to
other matters set forth or incorporated in this Prospectus and any accompanying
Prospectus Supplement.
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 meet debt service obligations and to make expected distributions to
stockholders would be adversely affected. The Company's ability to develop and
acquire properties depends on its ability to obtain equity or debt financing.
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 are less than the
distributions payable to such new stockholders, the Company's ability to meet
debt service obligations and to make expected 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 funds from operations and its
ability to meet debt service obligations and 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.
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
4
<PAGE> 27
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, 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 and related businesses. 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
and related businesses.
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. The extent to which the Company is
affected by competition will depend in significant part on local market
conditions.
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. The Company obtains such
environmental assessment reports on the properties it owns and the properties it
operates as it deems appropriate. While the reports obtained by the Company have
not revealed any environmental liability or compliance concerns that the Company
believes would have a material adverse effect on its financial condition or
results of operations, no assurance can be given that any environmental
assessments undertaken by the Company have revealed all potential environmental
liabilities. 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. 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, no assurance
can be given that no such claim will be asserted against the Company. In
addition, no assurance can be given 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
5
<PAGE> 28
financial condition or results of operations. Furthermore, no assurance can be
given 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.
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 no assurance can be given 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
6
<PAGE> 29
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 this 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 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 this 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. No assurance can be given 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 Debt Securities, Preferred
Stock and Common Stock. One of the factors that would influence the price of
the Debt Securities, Preferred Stock and Common Stock in public trading markets
is the annual yield from interest payments, Preferred Stock dividends or Common
Stock distributions by the Company on the price paid for the Debt Securities,
Preferred Stock or Common Stock, respectively, 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 Debt Securities, Preferred Stock and 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.
International Operations. The Company invests in operations outside the
United States. The Company either faces or may face certain risks inherent in
international business operations, including currency risks, unexpected changes
in regulatory requirements, longer accounts receivable payment cycles,
difficulties in staffing and managing international operations, potentially
adverse tax burdens, obstacles to the repatriation of earnings and cash, and the
burdens of complying with different permitting standards and a wide variety of
foreign laws. Each of these risks might impact 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.
7
<PAGE> 30
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 (a) internal growth through
increases in revenues and operating efficiencies at its existing stores and (b)
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.
As of September 30, 1996, the Company owned and operated, directly and
through its subsidiaries and joint ventures, 230 self storage properties,
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, Georgia; and Bellevue, Washington. The
Company is a Delaware corporation incorporated on July 23, 1993. The Company
began operations as a REIT through the consolidation on March 1, 1994 of 17
publicly held real estate limited partnerships (the "Consolidation"). The
Company's executive offices are located at 1201 Third Avenue, Suite 2200,
Seattle, Washington 98101, and its 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 ratios shown for the years ended December 31, 1994, 1995 and
1996 are for the Company. Ratios shown for the years ended December 31, 1992 and
1993 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
- ----------------- --------------------------
1992 1993 1994 1995 1996
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
10.23x 8.80x 2.95x 3.00x 2.79x
</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
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<PAGE> 31
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.
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 to
be issued thereunder are summaries of the anticipated material 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 such 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;
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<PAGE> 32
(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 Class A Common Stock or Preferred Stock or the
method by which any such portion shall be determined;
(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 Class A 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 consisting 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, if the Company
is to have such 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 or 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 in book entry form, the identity of the
depositary for such Debt Securities and the terms of the depositary
arrangement;
(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
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<PAGE> 33
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;
(17) whether and under what circumstances the Company will pay any
Additional Amounts, as contemplated in the applicable Indenture, 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 Indenture 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 (defined below) 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 Bylaws 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 Bylaws) or 300% of its adjusted net worth (as
defined in the Bylaws). 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.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder of such Debt Security on the
applicable Regular Record Date and may be paid either to the person in whose
name such Debt Security is registered at the close of business on a special
record date to be fixed by the Trustee (the "Special Record Date") for the
payment of such Defaulted Interest, notice whereof shall be given to the holder
of such Debt Security not less than 10 days prior to such Special Record Date,
or may be paid at any time in any other lawful manner, all as will be more
completely described in the Indenture.
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
11
<PAGE> 34
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 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
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, bylaws 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 and
that the loss thereof is not disadvantageous in any material respect to the
holders of the Debt Securities.
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
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<PAGE> 35
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 commercially reasonable.
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 by appropriate proceedings.
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, to (a) 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) 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) 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) that is 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) 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) 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> 36
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 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.
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<PAGE> 37
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 Class A 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
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 necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided 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
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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, 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 that 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. Persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series will constitute a quorum at any meeting called to adopt a
resolution, and at any reconvened meeting; 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.
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
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<PAGE> 39
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 (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 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 (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 European Currency
Unit ("ECU") both within the European
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<PAGE> 40
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 Class A 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 Class A 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 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.
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<PAGE> 41
DESCRIPTION OF COMMON STOCK
The Company has authority to issue 120,000,000 shares of Class A Common
Stock, par value $.001 per share, and 500,000 shares of Class B Common Stock,
par value $.001 per share (collectively, the "Common Stock"). At January 31,
1997, the Company had outstanding 27,609,548 shares of Class A Common Stock and
154,604 shares of Class B Common Stock.
GENERAL
The following description of the Class A Common Stock sets forth certain
general terms and provisions of the Class A Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that Class A
Common Stock will be issuable upon conversion of Debt Securities or Preferred
Stock. The statements below describing the Class A Common Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Bylaws.
TERMS
Subject to the preferential rights of any other shares or series of stock,
holders of Class A 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 Class A 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 Class A 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 Class A
Common Stock will possess ordinary voting rights for the election of directors
and, in respect of other corporate matters, each share will entitle the holder
thereof to one vote. Holders of Class A 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 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 Class A
Common Stock will not have preemptive rights, which means they have no right to
acquire any additional shares of Class A Common Stock that may be issued by the
Company at a subsequent date. All shares of Class A Common Stock now outstanding
are, and additional shares of Class A Common Stock offered will be when issued,
fully paid and nonassessable, and no shares of Class A Common Stock are or will
be subject to preemptive or similar rights.
The Class B Common Stock has rights substantially similar to those of the
Class A 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 stockholder. 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 Class A 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 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."
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TRANSFER AGENT
The registrar and transfer agent for the Common Stock is Gemisys
Corporation.
STOCKHOLDER 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 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, trade together with
the Common Stock until a Distribution Date (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
onehundredth 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 (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
(the earlier of such dates, the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Stock certificates outstanding as
of March 25, 1994 (the "Rights Record Date"), by such 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. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Stock certificates issued after the
Rights Record Date upon transfer or new issuance of 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 outstanding as of the Rights
Record Date, even without such notation or a copy of the Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the 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
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 a dividend on
the Common Stock payable in Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
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Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. 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. 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. Each Junior Preferred Share will have 100 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each Junior Preferred Share will be entitled to receive 100 times the
amount received per share of 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 of 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 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 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, 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 one one-hundredth of
a Junior Preferred Share (or of a share of a class or series of the 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 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 stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
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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 January 31,
1997. The Company has designated 2,800,000 shares of the Preferred Stock as the
Junior Preferred Shares issuable in connection with the Rights Agreement
described under "Description of Common Stock -- Stockholder Rights Plan."
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 Bylaws.
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;
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(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 Company's affairs; and
(15) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
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 Company's affairs, rank (a) senior
to all classes or series of 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 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
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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.
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 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 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 any 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 outstanding shares
of 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 shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed;
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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. 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 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 stockholders 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
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such Preferred Stock does not have a cumulative dividend). After payment of the
full amount of the 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 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 Class A Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Class A 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 it 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 or call for redemption of shares of the
Company (whether 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 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 an 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
stockholders of the Company.
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If, despite the restrictions noted above, any person acquires shares of
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 stockholders; 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 Class A 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 Class A Common Stock for the period during which the shares were
Excess Stock.
All certificates of Class A Common Stock and Class B Common Stock, any
other series of 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 stockholder 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 Company's 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.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of certain federal income tax considerations to the
Company and 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 any of
the Common Stock will vary depending on the terms of the specific Common Stock
acquired by such holder, as well as his or her particular situation. Investors
acquiring Debt Securities or Preferred Stock should refer to their respective
Prospectus Supplement for federal income tax considerations associated with such
investment. 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 holders
(including insurance companies, financial institutions or broker-dealers,
tax-exempt organizations, foreign corporations and person 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.
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
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 has elected 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
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that typically results when a corporation
earns income and distributes that income to stockholders 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 stockholders.
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 prior and
future proposed method of operation has enabled it and will continue to enable
it 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.
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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
stockholders. 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, it 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 it failed either the 75% or the 95% gross income
test, multiplied by (b) a fraction intended to reflect its profitability.
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 Shurgard Incorporated merged
with and into the Company, the Company recognizes gain on the disposition of any
asset acquired by the Company from Shurgard Incorporated, 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 stockholders, 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 (the "Qualified Assets") and not more than 25% (by value) of the
Company's total assets be represented by securities (other than those
securities included in Qualified Assets) limited in respect of any one
issuer to an amount not greater than 5% of the
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value of the Company's total assets and to not more than 10% of the
outstanding voting securities of the issuer.
(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 (other than sales or dispositions
as a dealer) 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 stockholders 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 stockholders.
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 stockholders and its
Certificate of Incorporation provides, to decrease the possibility 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 Class A 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
securities that are Qualified Assets, 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. The Company has recently invested in Shurgard's Storage To
Go, a taxable REIT subsidiary engaged in the containerized storage business (the
"Taxable Subsidiary"). The Taxable Subsidiary is a fully taxed C corporation not
qualifying as a REIT or qualified REIT subsidiary. The Company owns nonvoting
stock of the Taxable Subsidiary representing less than 75% of the total value of
all of the Taxable Subsidiary's outstanding securities. Although no appraisal
has been obtained by the Company to determine the value of the Company's
stockholdings in the Taxable Subsidiary, the Company has represented that such
value is significantly less than 5% of the total value of all Company assets.
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 five wholly
owned corporate subsidiaries that were formed and owned at all times during
their existence by the Company. These corporations should be
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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 centers. 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.
The Company has acquired interests in certain partnerships that entitle the
Company to share in a percentage of profits in excess of its percentage of total
capital contributed to the partnerships. 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 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 the interests were acquired. In the
event the IRS determines that the percentage of capital 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). Effective January 1, 1997, the IRS issued
final Treasury Regulations regarding the classification of entities under
Section 7701 of the Code. Pursuant to these Regulations, domestic and foreign
entities having associates and an objective to carry on business for profit,
other than those treated by definition as corporations, may generally choose to
be taxed as either partnerships or associations taxed as corporations. Prior to
the effective date of these Regulations, entities must have had a reasonable
basis for supporting their characterization under prior regulations. These prior
regulations were based on the historical differences under local law between
partnerships and corporations. Accordingly, entities were previously
characterized based on whether the entity had or lacked a preponderance of
corporate attributes (i.e., limited liability, centralized management, free
transferability of interests and continuity of life). If the partnerships were
taxed as corporations and the Company's ownership in any of the partnerships
exceeded 10% of the partnership's voting interests or the value of such
interests 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 prior to 1997 as
partnerships (and not as
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associations taxable as a corporations) and that for 1997 and all future years
it will not elect or cause any of the partnerships to be taxed other than as a
partnership.
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 centers 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 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 centers.
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
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.
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
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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
stockholders 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 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 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 stockholders 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.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) 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.
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 stockholders. Distributions to stockholders 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 stockholders 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.
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TAXATION OF HOLDERS OF DEBT SECURITIES
Holders of Debt Securities should consult the Prospectus Supplement with
respect to such Securities for a discussion of U.S. federal income tax
consequences associated with the ownership of Debt Securities.
TAXATION OF HOLDERS OF PREFERRED STOCK
Holders of Preferred Stock should consult the Prospectus Supplement with
respect to such Securities for a discussion of U.S. federal income tax
consequences associated with the ownership of Preferred Stock.
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) is (a) a citizen or
resident of the United States, (b) 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 (c) 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.
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 (a) the amount of cash and the fair
market value of any property received on such sale or other disposition and (b)
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
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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 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
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) 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
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"). Also, for
tax-exempt stockholders that are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts and qualified group legal
services plans exempt from federal income taxation under Sections 501(c)(7),
(c)(9), (c)(17) and (c)(20), respectively, of the Code, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning those
"set aside" and reserve requirements. 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 its dividends even if its 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.
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-
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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 will 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, distributions by a REIT that are attributable to 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 (a) 35% of capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (b) 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 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 (a) the Company is a "domestically controlled REIT" or
(b) the stock is "regularly traded" on an established securities market (such as
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. While the
Company believes that it is a domestically controlled REIT, such status depends
on the ownership of the Company's freely transferable stock and, therefore, no
assurance can be given 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
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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 U.S.
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 (a) dividends subject to the 30% (or lower treaty rate)
withholding tax discussed above, (b) capital gains dividends, or (c)
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 (i) is
a U.S. person, (ii) derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (iii) is a
"controlled foreign corporation" (generally, a foreign corporation controlled by
U.S. Stockholders) for U.S. 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 U.S. 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 Securities 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.
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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.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts will be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the Company's approval. Contracts will not be subject to any
conditions except (a) the purchase by an institution of the Securities covered
by its Contracts shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject
and (b) if the Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts. The underwriters and other agents
will not have any responsibility in respect of the validity or performance of
such Contracts.
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 Class A Common Stock. The Class A Common Stock is currently
listed on the NYSE. Unless otherwise specified in the related Prospectus
Supplement, any shares of Class A 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, 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, no assurance can be given as to the liquidity of, or the
trading market for, the Securities.
39
<PAGE> 62
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 addition, in certain
states the 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 consolidated 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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1,750,000 SHARES
SHURGARD STORAGE
CENTERS, INC.
8.70% SERIES C
CUMULATIVE REDEEMABLE
PREFERRED STOCK
(LIQUIDATION PREFERENCE
$25.00 PER SHARE)
LOGO
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PROSPECTUS SUPPLEMENT
DECEMBER 3, 1998
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SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
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