As filed with the Securities and Exchange Commission on August 27, 1996
Registration No. 333-4556
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STORAGE USA, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1251239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10440 Little Patuxent Parkway
Suite 1100
Columbia, Maryland 21044
(410) 730-9500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Mr. Dean Jernigan
Chairman and Chief Executive Officer
Storage USA, Inc.
10440 Little Patuxent Parkway
Suite 1100
Columbia, Maryland 21044
(410) 730-9500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy to:
Mr. Randall S. Parks
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check
the following box.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. X
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED AUGUST 27, 1996
434,890 Shares
STORAGE USA, INC.
Common Stock
This Prospectus relates to the possible issuance by Storage USA, Inc.
(the "Company") of up to 434,890 shares (the "Redemption Shares") of common
stock, par value $.01 per share ("Common Stock"), of the Company if, and to
the extent that, current holders of 434,890 units of limited partnership
interest ("Units") in SUSA Partnership, L.P. (the "Partnership"), of which the
Company is the sole general partner and currently owns an approximately 94%
interest, tender such Units for redemption and the Company elects to redeem
the Units for shares of Common Stock. The Partnership issued the Units in
connection with the acquisition of self-storage facilities. Under the Second
Amended and Restated Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement"), the Units are redeemable by the holders thereof for,
at the Company's election, cash or, on a one-for-one basis, shares of Common
Stock. See "Redemption of Units" and "Plan of Distribution."
The Common Stock is traded on the New York Stock Exchange under the
symbol "SUS." To ensure compliance with certain requirements related to the
Company's qualification as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, the Company's Amended Charter
limits the number of shares of Common Stock that may be owned by any single
person or affiliated group to 9.8% of the outstanding Common Stock (the
"Ownership Limitation") and restricts the transferability of shares of Common
Stock if the purported transfer would prevent the Company from qualifying as a
REIT. See "Description of Capital Stock."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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 ___________, 1996.
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"). Such reports,
proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its Regional Offices at Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7
World Trade Center, New York, New York 10048, and can also be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of the prescribed fees or from the Commission's site
on
the World Wide Web at http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement"), filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"). This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules of the Commission. For
further information, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(Commission File No. 001-12910) under the Exchange Act are hereby incorporated
by reference in this Prospectus: (i) the Company's Annual Report on Form 10-K
for the period ended December 31, 1995, as amended by Form 10-K/A filed June
28, 1996; (ii) the Company's Quarterly Reports on Form 10-Q for the quarter
ended March 31, 1996, as amended by Form 10-Q/A filed June 28, 1996, and
for the quarter ended June 30, 1996; (iii) the Company's Current Reports on
Form
8-K filed on March 7, April 1, April 5 and August 2, 1996, and the Company's
Current Report on Form 8-K filed on June 21, 1996, as amended by the Current
Report on Form 8-K/A filed on July 17, 1996; and (iv) the description of the
Common Stock contained in the Company's Registration Statement on Form 8-A
filed on March 15, 1994, under the Exchange Act, including any reports filed
under the Exchange Act for the purpose of updating such description. All
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act prior to the termination of the offering of all of the
Common Stock shall be deemed to be incorporated by reference herein.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document, as the case may
be, which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide on request and without charge to each person
to whom this Prospectus is delivered a copy (without exhibits) of any or all
documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to Storage USA, Inc., 10440 Little Patuxent Parkway,
Suite 1100, Columbia, Maryland 21044, Attention: Secretary (telephone 401/730-
9500).
THE COMPANY
Storage USA, Inc. is a self-managed, self-advised real estate
investment trust ("REIT") engaged in the management, acquisition and
development of self-storage facilities. The Company conducts its business
through SUSA Partnership, L.P. in which it is the sole general partner (the
"General Partner") and owns approximately a 94% general partnership interest.
The Company's self-storage facilities operate under the Storage USA name and
offer low-cost, easily accessible and enclosed storage space for personal and
business use, primarily on a month-to-month basis. All of the Company's
facilities are fenced, have locked gates, are lighted at night and have
computer-controlled gates that permit certain tenants to access their storage
units 24 hours a day or are being upgraded to those standards.
The Company is incorporated in Tennessee. Its executive offices are
located at 10440 Little Patuxent Parkway, Suite 1100, Columbia, Maryland
21044, and its telephone number is (410) 730-9500.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 150,000,000 shares of Common Stock,
$.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value. The
following information with respect to the capital stock of the Company is
subject to the detailed provisions of the Company's Amended Charter (the
"Charter") and Amended and Restated Bylaws (the "Bylaws"), as currently in
effect. These statements do not purport to be complete, or to give full
effect to the provisions of statutory or common law, and are subject to, and
are qualified in their entirety by reference to, the terms of the Charter and
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters voted on by shareholders, including elections of directors. Except as
otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of Preferred Stock, the holders of
such shares of Common Stock exclusively possess all voting power. The Charter
does not provide for cumulative voting in the election of directors. Subject
to any preferential rights of any outstanding series of Preferred Stock, the
holders of Common Stock are entitled to such distributions as may be declared
from time to time by the Board of Directors from funds available therefor, and
upon liquidation are entitled to receive pro rata all assets of the Company
available for distribution to such holders. All shares of Common Stock issued
hereunder will be fully paid and nonassessable, and the holders thereof will
not have preemptive rights.
The Transfer Agent for the Common Stock is First Union National Bank
of North Carolina, Charlotte, North Carolina. The Common Stock is traded on
the NYSE under the symbol "SUS." The Company will apply to the NYSE to list
any additional shares of Common Stock to be issued from time to time pursuant
to this Prospectus and the Company anticipates that such shares will be so
listed.
Preferred Stock
Under the Charter, the Board of Directors of the Company is
authorized, without further shareholder action, to provide for the issuance of
up to 5,000,000 shares of Preferred Stock, in such series, with such
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions, as may be
fixed by the Board of Directors.
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), shares of capital stock must be held by a
minimum of 100 persons for at least 335 days in each taxable year following
its 1994 taxable year or during a proportionate part of a shorter taxable
year. In addition, at all times during the second half of each taxable year
following its 1994 taxable year, no more than 50% in value of the shares of
beneficial interest of the Company may be owned, directly or indirectly and by
applying certain constructive ownership rules, by five or fewer individuals
(the "5/50 Rule"). Because the Board of Directors believes it is essential
for the Company to continue to qualify as a REIT, the Charter restricts the
acquisition of shares of Common Stock (the "Ownership Limitation").
The Ownership Limitation provides that, subject to certain exceptions
specified in the Charter, no shareholder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.8% of the
outstanding shares of Common Stock. Pursuant to a Strategic Alliance
Agreement, dated as of March 19, 1996, among the Company, Security Capital
U.S. Realty and Security Capital Holdings S.A. (together with Security Capital
U.S. Realty, "Security Capital"), the Board of Directors of the Company
proposed, and the shareholders approved, an amendment to the Charter that
provides that Security Capital and its affiliates may beneficially own, in the
aggregate, up to 37.5% of the common stock of the Company (the "Special
Shareholder Limit"). The Ownership Limitation prevents any non-U.S. holder
(other than Security Capital and its affiliates) from acquiring additional
shares of the Company's capital stock if, as a result of such acquisition, the
Company would fail to qualify as a domestically-
controlled REIT (computed assuming that Security Capital owns the maximum
percentage of the Company's capital stock that it is permitted to own under
the Special Shareholder Limit).
The Ownership Limitation also provides that if any holder of capital
stock of the Company purports to transfer shares to a person or there is a
change in the capital structure of the Company, and either the purported
transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the transferee to hold shares in excess of the
applicable ownership limit, then the capital stock being transferred (or in
the case of an event other than a transfer, the capital stock beneficially
owned) that would cause one or more of the restrictions on ownership or
transfer to be violated shall be automatically transferred to a trust for the
benefit of a designated charitable beneficiary. The purported transferee of
such shares shall have no right to receive dividends or other distributions
with respect to such shares and shall have no right to vote such shares. Any
dividends or other distributions paid to such purported transferee prior to
the discovery by the Company that the shares have been transferred to a trust
shall be paid upon demand to the trustee of the trust for the benefit of the
charitable beneficiary. The trustee of the trust will have all rights to
dividends with respect to shares of capital stock held in trust, which rights
will be exercised for the exclusive benefit of the charitable beneficiary.
Any dividends or distributions paid over to the trustee will be held in trust
for the charitable beneficiary. The trustee shall designate a transferee of
such stock so long as the ownership of such shares of stock by the transferee
would not violate the restrictions on ownership or transfer. Upon the sale of
such shares, the purported transferee shall receive the lesser of (A)(i)
the price per share such purported transferee paid for the capital stock in
the purported transfer that resulted in the transfer of shares of capital
stock to the trust, or (ii) if the transfer or other event that resulted in
the transfer of shares of capital stock to the trust was not a transaction in
which the purported record transferee gave full value for such shares, a price
per share equal to the market price on the date of the purported transfer or
other event that resulted in the transfer of the shares to the trust, and (B)
the price per share received by the trustee from the sale or other disposition
of the shares held in the trust.
The Board of Directors may grant an exemption for the Ownership
Limitation to any person so requesting, so long as (A) the Board has
determined that such exemption will not result in the Company being "closely
held" within the meaning of Section 856(h) of the Code, and (B) such person
provides to the Board such representations and undertakings as the Board may
require.
REDEMPTION OF UNITS
Redemption Rights for Limited Partnership Units
Pursuant to the Partnership Agreement, the limited partners of the
Partnership (the "Limited Partners") generally have the right to cause the
redemption (the "Redemption Rights") of their interests in the Partnership.
Each Limited Partner may, subject to certain limitations, require that the
Partnership redeem all or a portion of his Units at any time after one year
from the date the Units were acquired by delivering a notice of exercise of
redemption right to the Company. The form of notice is an exhibit to the
Partnership Agreement. Upon redemption, each Limited Partner will receive, at
the option of the Company, either (i) a number of shares of Common Stock equal
to the number of Units redeemed (subject to certain anti-dilution adjustments)
or (ii) cash in an amount equal to the market value of the number of shares of
Common Stock he would have received pursuant to clause (i) above. The market
value of the Common Stock for this purpose will be equal to the average of the
closing trading prices of the Company's Common Stock (or substitute
information, if no such closing prices are available) for the ten consecutive
trading days before the day on which the redemption notice was received by the
Partnership. The redemption price will be paid in cash in the event that the
issuance of Common Stock to the redeeming Limited Partner would (i) result in
such partner or any other person owning, directly or indirectly, Common Stock
in excess of the Ownership Limitation, (ii) result in Common Stock being owned
by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, actually
or constructively, 10% or more of the ownership interests in a tenant of the
Company's or the Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code, or (v) cause the acquisition of Common Stock by such
partner to be "integrated" with any other distribution of Common Stock for
purposes of complying with the registration provisions of the Securities Act
of 1933, as amended. A Limited Partner must request the redemption of at
least 500 Units (or all of the Units held by such holder, if less than 500 are
so held).
In lieu of the Partnership redeeming Units, the Company, in its sole
discretion, has the right to assume directly and satisfy the redemption right
of a Limited Partner described in the preceding paragraph. The Company
anticipates that it generally will elect to assume directly and satisfy any
redemption right exercised by a Limited Partner through the issuance of shares
of Common Stock by the Company (the Redemption Shares) pursuant to this
Prospectus, whereupon the Company will acquire the Units being redeemed. Such
an acquisition will be treated as a sale of the Units to the Company for
federal income tax purposes. See "-- Tax Consequences of Redemption."
Upon redemption, a Limited Partner's right to receive distributions with
respect to the Units redeemed will cease.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Limited Partner who exercises his
right to require the redemption of his Units.
Tax Treatment of Redemption of Units. If the Company assumes and
performs the redemption obligation, the Partnership Agreement provides that
the redemption will be treated by the Company, the Partnership, and the
redeeming Limited Partner as a sale of Units by such Limited Partner to the
Company at the time of such redemption. In that event, such sale will be
fully taxable to the redeeming Limited Partner and such redeeming Limited
Partner will be treated as realizing for tax purposes an amount equal to the
sum of the cash or the value of the Common Stock received in connection with
the redemption plus the amount of any Partnership liabilities allocable to the
redeemed Units at the time of the redemption. If the Company does not elect
to assume the obligation to redeem a Limited Partner's Units and the
Partnership redeems such Units for cash or shares of Common Stock that the
Company contributes to the Partnership to effect such redemption, the
redemption likely would be treated for tax purposes as a sale of such Units in
a fully taxable transaction, although the matter is not free from doubt. In
that event, the redeeming Partner would be treated as realizing an amount
equal to the sum of the cash or the value of the shares of Common Stock
received in connection with the redemption plus the amount of any Partnership
liabilities allocable to the redeemed Units at the time of the redemption.
The determination of the amount of gain or loss in the event of sale treatment
is discussed more fully below.
If the Partnership chooses to redeem a Limited Partner's Units for
cash that is not contributed by the Company to effect the redemption, the tax
consequences would be the same as described in the previous paragraph, except
that if the Partnership redeems less than all of the Units held by a Limited
Partner, the Limited Partner would not be permitted to recognize any loss
occurring on the transaction and would recognize taxable gain only to the
extent that the cash, plus the amount of any Partnership liabilities allocable
to the redeemed Units, exceeded the Limited Partner's adjusted basis in all of
such Limited Partner's Units immediately before the redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally.
If a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or
loss from such sale or other disposition will be based on the difference
between the amount considered realized for tax purposes and the tax basis in
such Unit. See "-- Basis of Units." Upon the sale of a Unit, the "amount
realized" will be measured by the sum of the cash and fair market value of
other property (e.g., Redemption Shares) received plus the amount of any
Partnership liabilities allocable to the Unit sold. To the extent that the
amount of cash or the fair market value of property received plus the
allocable share of any Partnership liabilities exceeds the Limited Partner's
basis in the Unit disposed of, such Limited Partner will recognize gain. It
is possible that the amount of gain recognized or even the tax liability
resulting from such gain could exceed the amount of cash and the value of any
other property (e.g., Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit that is attributable to a Limited Partner's
share of "unrealized receivables" of the Partnership (as defined in Section
751 of the Code) exceeds the basis attributable to those assets, such excess
will be treated as ordinary income. Unrealized receivables include, to the
extent not previously included in Partnership income, any rights to payment
for services rendered or to be rendered. Unrealized receivables also include
amounts that would be subject to recapture as ordinary income if the
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the
time of the transactions resulting in the issuance of the Units to have
received his Units upon liquidation of a partnership will have an initial tax
basis in his Units ("Initial Basis") equal to his basis in his partnership
interest at the time of such liquidation. Similarly, in general, a Limited
Partner who at the time of the transactions resulting in the issuance of the
Units contributed a partnership interest to the Partnership in exchange for
Units will have an Initial Basis in the Units equal to his basis in the
contributed partnership interest. A Limited Partner's Initial Basis in his
Units generally is increased by (i) such Limited Partner's share of
Partnership taxable income and (ii) increases in his share of liabilities of
the Partnership (including any increase in his share of liabilities occurring
in connection with the transactions resulting in the issuance of the Units).
Generally, such Limited Partner's basis in his Units is decreased (but not
below zero) by (A) his share of Partnership distributions, (B) decreases in
his share of liabilities of the Partnership (including any decrease in his
share of liabilities of the Partnership occurring in connection with the
transactions resulting in the issuance of the Units), (C) his share of losses
of the Partnership and (D) his share of nondeductible expenditures of the
Partnership that are not chargeable to capital.
Potential Application of Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption of Units may cause the original
transfer of property to the Partnership in exchange for Units to be treated as
a "disguised sale" of property. The Code and the Treasury Regulations
thereunder (the "Disguised Sale Regulations") generally provide that, unless
one of the prescribed exceptions is applicable, a partner's contribution of
property to a partnership and a simultaneous or subsequent transfer of money
or other consideration (including the assumption of or taking subject to a
liability) from the partnership to the partner will be presumed to be a sale,
in whole or in part, of such property by the partner to the partnership.
Further, the Disguised Sale Regulations provide generally that, in the absence
of an applicable exception, if money or other consideration is transferred by
a partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will be, when viewed together,
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale.
The Disguised Sale Regulations also provide that if two years have passed
between the transfer of money or other consideration from a partnership to
a partner and the contribution of property, the transactions will be presumed
not to be a sale unless the facts and circumstances clearly establish that the
transfers constitute a sale.
Accordingly, if a Unit is redeemed by the Partnership, the Service
could contend that the Disguised Sale Regulations apply because the redeeming
Limited Partner will receive cash or shares of Common Stock subsequent to his
previous contribution of property to the Partnership. If the Service were to
make successfully such an assertion, the transactions in connection with the
issuance of the Units themselves could be taxable as a disguised sale under
the Disguised Sale Regulations. Any gain recognized thereby may be eligible
for installment reporting under Section 453 of the Code, subject to certain
limitations.
Comparison of Ownership of Units and Shares of Common Stock
Generally, the nature of an investment in shares of Common Stock of
the Company is substantially equivalent economically to an investment in Units
in the Partnership. Since the Partnership makes distributions to its partners
on a per Unit basis and the Company owns one Unit for each outstanding share
of Common Stock, a holder of a share of Common Stock generally receives the
same distribution that a holder of a Unit receives, and shareholders and Unit
holders generally share in the risks and rewards of ownership in the
enterprise being conducted by the Company (through the Partnership). However,
there are some differences between ownership of Units and ownership of shares
of Common Stock, some of which may be material to investors.
The information below highlights a number of the significant
differences between the Partnership and the Company and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Limited Partners of the Partnership
in understanding how their investment will be changed if their Units are
redeemed for Common Stock. This discussion is summary in nature and does
not constitute a complete discussion of these matters. Holders of Units
should carefully review the balance of this Prospectus and the registration
statement of which this Prospectus is a part for additional important
information about the Company.
Form of Organization and Assets Owned. The Partnership is organized
as a Tennessee limited partnership. The Company is a Tennessee corporation.
The Company elected to be taxed as a REIT under the Code effective
for its taxable year ended December 31, 1994 and intends to maintain its
qualification as a REIT.
Length of Investment. The Partnership has a stated termination date
of December 31, 2054, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue
its operations for an indefinite time period.
Additional Equity. The Partnership is authorized to issue Units and
other partnership interests to the partners or to other persons for such
consideration and on such terms and conditions as the General Partner, in its
sole discretion, may deem appropriate. In addition, the General Partner may
cause the Partnership to issue additional Units, or other partnership
interests in one or more different series or classes which may be senior to
the Units, to the General Partner, in conjunction with the offering of
securities of the Company having substantially similar rights, in which the
proceeds thereof are contributed to the Partnership. Consideration for
additional partnership interests may be cash or other property or other assets
permitted by Tennessee law.
Under the Charter, the total number of shares of all classes of stock
that the Company has the authority to issue is 150,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. No shares of Preferred Stock
are outstanding as of the date of this Prospectus. As long as the Partnership
is in existence, the proceeds of all equity capital raised by the Company will
be contributed to the Partnership in exchange for Units or other interests in
the Partnership.
Management and Control. All management and control over the business
of the Partnership are vested in the General Partner of the Partnership, and
no Limited Partner of the Partnership has any right to participate in or
exercise management or control over the business of the Partnership. Upon the
occurrence of an event of bankruptcy or the dissolution of the General
Partner, such General Partner shall be deemed to be removed automatically;
otherwise, the General Partner may not be removed by the Limited Partners with
or without cause.
The Board of Directors has exclusive control over the Company's
business and affairs subject to the restrictions in the Charter and Bylaws.
The Board of Directors has adopted certain policies with respect to
acquisition, development, investing, financing and conflict of interest, but
these policies may be altered or eliminated without a vote of the
shareholders. Accordingly, except for their vote in the elections of
directors, shareholders have no control over the ordinary business policies of
the Company.
Fiduciary Duties. Under Tennessee law, the General Partner of the
Partnership is accountable to the Partnership as a fiduciary and,
consequently, is required to exercise good faith in all of its dealings with
respect to partnership affairs. However, under the Partnership Agreement, the
General Partner is under no obligation to take into account the tax
consequences to any Limited Partner of any action taken by it, and the General
Partner will have no liability to a Limited Partner as a result of any
liabilities or damages incurred or suffered by or benefits not derived by a
Limited Partner as a result of an action or inaction of the General Partner so
long as the General Partner acted in good faith.
Under Tennessee law, the Company's directors must perform their duties
in good faith, in a manner that they believe to be in the best interests of
the Company and with the care an ordinarily prudent person in a like situation
would exercise under similar circumstances. Directors of the Company who act
in such a manner generally will not be liable to the Company for monetary
damages arising from their activities.
Management Limitation of Liability and Indemnification. The
Partnership Agreement generally provides that the General Partner will incur
no liability for monetary damages to the Partnership or any Limited Partner
for losses sustained or liabilities incurred as a result of errors in judgment
or of any act or omission if the General Partner acted in good faith. In
addition, the General Partner is not responsible for any misconduct or
negligence on the part of its agents provided the General Partner appointed
such agents in good faith. The General Partner may consult with legal
counsel, accountants, consultants, real estate brokers and such other persons
and any action it takes or omits to take in reliance upon the opinion of such
persons, as to matters which the General Partner reasonably believes to be
within their professional or expert competence, shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such
opinion. The Partnership Agreement also provides for indemnification of the
General Partner, the directors and officers of the General Partner, and such
other persons as the General Partner may from time to time designate, against
any and all losses, claims, damages, liabilities (joint or several), expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, that
relate to the operations of the Partnership in which such person may be
involved, or is threatened to be involved, provided that the Partnership shall
not indemnify any such person (i) for an act or omission of such person that
was material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) if such person actually received an improper benefit in money, property
or services or (iii) in the case of any criminal proceeding, if such person
had reasonable cause to believe that the act or omission was unlawful. Any
indemnification will be made only out of assets of the Partnership.
The Company's Charter obligates it to indemnify and advance expenses
to present and former directors and officers to the maximum extent permitted
by Tennessee law. The Tennessee Business Corporation Act ("TBCA") permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, settlements, penalties, fines or reasonable
expenses incurred with respect to a proceeding to which they may be made a
party by reason of their service in those or other capacities if (i) such
persons conducted themselves in good faith, (ii) they reasonably believed, in
the case of conduct in their official capacities with the corporation, that
their conduct was in its best interests and, in all other cases, that their
conduct was at least not opposed to its best interests, and (iii) in the case
of any criminal proceeding, they had no reasonable cause to believe that their
conduct was unlawful. Any indemnification by the Company pursuant to the
provisions of the Charter described above will be paid out of the assets of
the Company and will not be recoverable from the shareholders.
The TCBA permits the charter of a Tennessee corporation to include a
provision eliminating or limiting the personal liability of its directors to
the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except that such provision cannot eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of the law, or (iii) for unlawful distributions that exceed what could have
been distributed without violating the TBCA or the corporation's charter. The
Company's Charter contains a provision eliminating the personal liability of
its directors or officers to the Company or its shareholders for money damages
to the maximum extent permitted by Tennessee law from time to time.
Anti-Takeover Provisions. Except in limited circumstances, the
General Partner of the Partnership has exclusive management power over the
business and affairs of the Partnership. The General Partner may not be
removed by the Limited Partners with or without cause. Under the Partnership
Agreement, the General Partner may, in its sole discretion, prevent a Limited
Partner from transferring his interest or any rights as a Limited Partner
except in certain limited circumstances. The General Partner may exercise
this right of approval to deter, delay or hamper attempts by persons to
acquire a controlling interest in the Partnership.
In addition to the Ownership Limitation described above under
"Restrictions on Transfer of Capital Stock," the Company's Charter contains
certain other provisions that may have an anti-takeover effect. The Charter
divides the Board of Directors into three classes, each constituting
approximately one-third of the total number of directors and with the classes
serving three-year staggered terms. The classification of directors has the
effect of making it more difficult for shareholders to change the composition
of the Board of Directors and may discourage a third party from accumulating
large blocks of the Company's stock or attempting to gain control of the
Company. Accordingly, shareholders could be deprived of certain opportunities
to sell their shares at a higher market price than otherwise might be the
case.
In addition, Tennessee has adopted a series of statutes which may have
an anti-takeover effect and may delay or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest. Under the
Tennessee Investor Protection Act, unless a Tennessee corporation's board of
directors has recommended a takeover offer to shareholders which was made on
substantially equal terms to all shareholders, no offeror beneficially owning
5% or more of any class of equity securities of the offeree company, any of
which was purchased within one year prior to the proposed takeover offer, may
offer to acquire any class of equity security of an offeree company pursuant
to a tender offer if after the acquisition thereof the offeror would be
directly or indirectly a beneficial owner of more than 10% of any class of
outstanding equity securities of the company (a "Takeover Offer"). However,
this prohibition does not apply if the offeror, before making such purchase,
has made a public announcement of his intention with respect to changing or
influencing the management or control of the offeree company, has made a full,
fair and effective disclosure of such intention to the person from whom he
intends to acquire such securities and has filed with the Tennessee
Commissioner of Commerce and Insurance (the "Commissioner") and the offeree
company a statement signifying such intentions and containing such additional
information as the Commissioner by rule prescribes. Such an offeror must
provide that any equity securities of an offeree company deposited or tendered
pursuant to a Takeover Offer may be withdrawn by an offeree at any time within
seven days from the date the offer has become effective following filing with
the Commissioner and the offeree company and public announcement of the terms
or after 60 days from the date the offer has become effective. If an offeror
makes a Takeover Offer for less than all the outstanding equity securities of
any class, and if the number of securities tendered is greater than the number
the offeror has offered to accept and pay for, the securities shall be
accepted pro rata. If an offeror varies the terms of a Takeover Offer before
its expiration date by increasing the consideration offered to offerees, the
offeror shall pay the increased consideration for all equity securities
accepted, whether accepted before or after the variation in the terms of the
offer.
Under the Tennessee Business Combination Act, subject to certain
exceptions, no Tennessee corporation may engage in any "business combination"
with an "interested shareholder" for a period of five years following the date
that such shareholder became an interested shareholder unless prior to such
date the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder.
"Business combination" is defined by the statute as any (i) merger or
consolidation; (ii) share exchange; (iii) sale, lease, exchange, mortgage,
pledge or other transfer of assets representing 10% or more of (A) the
aggregate market value of the corporation's consolidated assets, (B) the
aggregate market value of the corporation's shares, or (C) the corporation's
consolidated net income; (iv) issuance or transfer of shares from the
corporation to the interested shareholder; (v) plan of liquidation or
dissolution proposed by the interested shareholder; (vi) transaction or
recapitalization which increases the proportionate share of any outstanding
voting securities owned or controlled by the interested shareholder; or (vii)
financing arrangement whereby any interested shareholder receives, directly or
indirectly, a benefit, except proportionately as a shareholder.
"Interested shareholder" is defined as (i) any person that is the
beneficial owner, directly or indirectly of 10% or more of the voting power of
any class or series of outstanding voting stock of the corporation or (ii) an
affiliate or associate of the corporation who at any time within the five-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of any class or
series of the outstanding voting stock of the corporation. Consummation of a
business combination that is subject to the five-year moratorium is permitted
after such period when the transaction complies with all applicable charter
and bylaw requirements and either (i) is approved by the holders of two-thirds
of the voting stock not beneficially voting owned by the interested
shareholder, or (ii) meets certain fair price criteria.
The Tennessee Greenmail Act prohibits a Tennessee corporation from
purchasing, directly or indirectly, any of its shares at a price above the
market value of such shares (defined as the average of the highest and lowest
closing market price for such shares during the 30 trading days preceding the
purchase and sale of the shares or preceding the commencement of announcement
or a tender offer if the seller of such shares has commenced a tender offer or
announced an intention to seek control of the corporation) from any person who
holds more than 3% of the class of securities to be purchased if such person
has held such shares for less than two years, unless the purchase has been
approved by the affirmative vote of a majority of the outstanding shares of
each class of voting stock issued by the corporation or the corporation makes
an offer, of at least equal value per share, to all holders of shares of such
class.
The Tennessee Control Share Acquisition Act provides that "control
shares" of a Tennessee corporation acquired in a "control share acquisition"
have the same voting rights as all other shares of the same class or series
only if approved at an annual or special meeting by the holders of a majority
of all shares entitled to vote generally with respect to the election of
directors, but excluding shares of stock owned by an acquiring person,
officers, and employees of the corporation who are also directors. "Control
shares" are voting shares of stock which, if aggregated with all of the other
shares of stock previously acquired by the person, would entitle the acquiror
to exercise or direct the exercise of voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth (1/5) or
more but less than one-third (1/3) of all voting power; (ii) one-third (1/3)
or more but less than a majority of all voting power; or (iii) a majority or
more of all voting power. Control shares do not include shares that the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding control shares.
A person who has made or proposes to make a control share acquisition,
upon the satisfaction of certain conditions (including an undertaking to pay
expenses and deliver a control share acquisition statement to the
corporation), may compel the board of directors to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
to be accorded the control shares acquired or to be acquired in the control
share acquisition. If no request for a special meeting of shareholders is
made, consideration of the voting rights to be accorded the control shares
acquired or to be acquired in the control share acquisition shall be presented
at the next annual or special meeting of shareholders.
If voting rights are not approved at the shareholders' meeting or if
the acquiring person does not deliver a control share acquisition statement as
permitted by the act, then, subject to certain conditions and limitations, the
corporation may redeem all but not less than all of the control shares
acquired in a control share acquisition, at any time during the period ending
60 days after the last acquisition of control shares by an acquiring person,
from the acquiring person for the fair value of such shares. If a control
share acquisition statement is filed, fair value is determined as of the
effective date of the vote of the shareholders denying voting rights to the
acquiring person or, if no such statement is filed, as of the date of the last
acquisition of control shares by the acquiring person without regard to the
effect of the denial of voting rights. If voting rights for control shares
are approved at a shareholders meeting and the acquiror becomes entitled to
vote a majority of the shares entitled to vote, all shareholders who have not
voted in favor of granting such voting rights to the acquiring person may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights includes consideration of the valuations,
future events or transactions bearing upon the corporation's value to the
acquiring shareholder as described in any valuations, projections or estimates
made by or on behalf of the acquiring person or his associates.
The Tennessee Control Share Acquisition Act does not apply to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction.
The Company's Bylaws contain a provision exempting from the Tennessee
Control Share Acquisition Act any and all such acquisitions by any person of
the Company's shares of capital stock. There can be no assurance that such
provision will not be amended or eliminated at any point in the future.
Voting Rights. Under the Partnership Agreement, the Limited Partners
have voting rights only as to the continuation of the Partnership in certain
circumstances and certain amendments of the Partnership Agreement, as
described more fully below. Otherwise, all decisions relating to the
operation and management of the Partnership are made by the General Partner.
As of June 30, 1996, the Company held approximately 94% of the outstanding
interests in the Partnership. As Units held by Limited Partners are redeemed,
the Company's percentage ownership of the Partnership will increase. If
additional Units are issued to third parties, the Company's percentage
ownership of the Partnership will decrease.
Shareholders of the Company have the right to vote on, among other
things, a merger or sale of substantially all of the assets of the Company,
certain amendments to the Charter and dissolution of the Company. All shares
of Common Stock have one vote, and the Charter permits the Board of Directors
to classify and issue Preferred Stock in one or more series having voting
power which may differ from that of the Common Stock. See "Description of
Capital Stock."
Amendment of the Partnership Agreement or the Charter. The
Partnership Agreement may be amended by the General Partner without the
consent of the Limited Partners in any respect, except that certain amendments
affecting the fundamental rights of a Limited Partner must be approved by
consent of Limited Partners holding more than 51% of the Units. Such consent
is required for any amendment that would (i) affect the Redemption Rights,
(ii) adversely affect the rights of Limited Partners to receive distributions
payable to them under the Partnership Agreement, (iii) alter the Partnership's
profit and loss allocations, or (iv) impose any obligation upon the Limited
Partners to make additional capital contributions to the Partnership.
The Charter may be amended by the affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock, with the shareholders
voting as a class with one vote per share (or the written consent of such
majority if such a vote becomes permissible under Tennessee law); provided,
that the Charter provision providing for the classification of the Board of
Directors may not be amended, altered, changed or repealed without the
affirmative vote of at least 80% of the members of the Board of Directors or
the affirmative vote of holders of 75% of the outstanding shares of capital
stock entitled to vote generally in the election of directors voting as a
class. The Company's Bylaws may be amended by the Board of Directors or by
vote of the holders of a majority of the outstanding shares, provided that
certain provisions, including the provisions with respect to the staggered
terms of the Board of Directors, cannot be amended without the affirmative
vote of 80% of the members of the entire Board of Directors or the holders of
75% of the outstanding shares of capital stock entitled to vote generally in
the election of the directors.
Vote Required to Dissolve the Partnership or the Company. At any time
prior to December 31, 2054 (upon which date the Partnership shall terminate),
the General Partner may elect to dissolve the Partnership in its sole
discretion. Such dissolution shall also occur upon (i) the bankruptcy,
dissolution or withdrawal of the General Partner (unless the Limited Partners
unanimously elect to continue the Partnership), (ii) the passage of 90 days
after the sale or other disposition of all or substantially all the assets of
the Partnership or (iii) the redemption of all of the outstanding Units (other
than those held by the General Partner, if any).
Under Tennessee law, the Board of Directors generally must recommend
and the holders of a majority of the outstanding Common Stock entitled to vote
must approve any proposal in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership
Agreement, the sale, exchange, transfer or other disposition of all or
substantially all of the Partnership's assets or merger or consolidation of
the Partnership requires only the consent of the General Partner. Under
Tennessee law, any merger or share exchange of the Company requires the
separate approval of the Board of Directors and each group of shareholders
entitled to vote on such matter by a majority of all votes entitled to be cast
by such group. Under Tennessee law, the sale of all or substantially all of
the assets of the Company otherwise than in the normal course of business
requires the approval of the Board of Directors and holders of a majority of
the outstanding shares of Common Stock. No approval of the shareholders is
required for the sale of the Company's assets in the usual and regular course
of business.
Compensation, Fees and Distributions. The Company does not receive
any compensation for its services as General Partner of the Partnership. As a
partner in the Partnership, however, the General Partner has the same right to
allocations and distributions as other partners of the Partnership. In
addition, the Partnership will reimburse the General Partner for all expenses
incurred relating to the ongoing operation of the Partnership and any offering
of partnership interests in the Partnership or capital stock of the Company.
Liability of Investors. Under the Partnership Agreement and
applicable state law, the liability of the Limited Partners for the
Partnership's debts and obligations is generally limited to the amount of
their investment in the Partnership and Limited Partners are generally not
liable for any debts, liabilities, contracts or obligations of the
Partnership.
Under Tennessee law, the Company's shareholders are not personally
liable for the debts or obligations of the Company.
Nature of Investments. The Units constitute equity interests
entitling each Limited Partner to his pro rata share of cash distributions
made to the Limited Partners of the Partnership. The Partnership generally
intends to retain and reinvest in its business proceeds of the sale of
property or excess refinancing proceeds.
The shares of Common Stock constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Partnership with respect to the Units, and each shareholder will be
entitled to his pro rata share of any dividends or distributions paid with
respect to the Common Stock. The dividends payable to the shareholders are
not fixed in amount and are only paid if, when and as declared by the Board of
Directors. In order to qualify as a REIT, the Company must distribute at
least 95% of its annual taxable income (excluding capital gains), and any
taxable income (including capital gains) not distributed will be subject to
corporate income tax.
Potential Dilution of Rights. The General Partner of the Partnership
is authorized, in its sole discretion and without the consent of the Limited
Partners, to cause the Partnership to issue additional limited partnership
interests and other equity securities for any partnership purpose at any time
to the Limited Partners or to other persons on terms and conditions
established by the General Partner.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and a variety of other equity securities of
the Company with such powers, preferences and rights as the Board of Directors
may designate. The issuance of additional shares of either Common Stock or
other similar or senior equity securities may result in the dilution of the
interests of the shareholders.
Liquidity. Subject to certain exceptions, a Limited Partner may not
transfer all or any portion of his Units without (i) obtaining the prior
written consent of the General Partner, which consent may be withheld in the
sole and absolute discretion of the General Partner, and (ii) meeting certain
other requirements set forth in the Partnership Agreement. Notwithstanding
the foregoing, subject to certain restrictions, a Limited Partner may transfer
Units to (i) a member of a Limited Partner's Immediate Family or a trust for
the benefit of a member of a Limited Partner's Immediate Family in a donative
transfer or (ii) if such Limited Partner is a corporation or other business
entity, any of its Affiliates or subsidiaries or to any successor in interest
of such Limited Partner. Limited Partners should expect to hold their Units
until they redeem them for cash or shares of Common Stock, or until the
Partnership terminates. The right of a transferee to become a substituted
Limited Partner also is subject to the consent of the General Partner, which
consent may be withheld in its sole and absolute discretion. If the General
Partner does not consent to the admission of a transferee, the transferee will
succeed to all economic rights and benefits attributable to such Units
(including the right of redemption) but will not become a Limited Partner or
possess any other rights of Limited Partners (including the right to vote on
or consent to actions of the Partnership). The General Partner may require,
as a condition of any transfer, that the transferring Limited Partner assume
all costs incurred by the Partnership in connection with such transfer.
Federal Income Taxation. The Partnership is not subject to federal
income taxes. Instead, each holder of an interest in the Partnership includes
its allocable share of the Partnership's taxable income or loss in determining
its individual federal income tax liability. As of June 30, 1996, the maximum
federal income tax rate for individuals was 39.6%. Income and loss from the
Partnership generally is subject to the "passive activity" limitations. Under
the "passive activity" rules, income and loss from the Partnership that is
considered "passive" income or loss generally can be offset against income and
loss (including passive loss carry-forwards from prior years) from other
investments that constitute "passive activities" (unless the Partnership is
considered a "publicly traded partnership," in which case income and loss from
the Partnership can only be offset against other income and loss from the
Partnership). Income of the Partnership, however, that is attributable to
dividends or interest does not qualify as passive income and cannot be offset
with losses and deductions from a "passive activity." Cash distributions from
the Partnership are not taxable to a holder of Units except to the extent they
exceed such holder's basis in its interest in the Partnership (which will
include such holder's allocable share of the Partnership's debt). Each year,
holders of Units will receive a Schedule K-1 tax form containing detailed tax
information for inclusion in preparing their federal income tax returns.
Holders of Units are required in some cases to file state income tax returns
and/or pay state income taxes in the states in which the Partnership owns
property, even if they are not residents of those states, and in some such
states the Partnership is required to remit a withholding tax with respect to
distributions to such nonresidents.
The Company elected to be taxed as a REIT effective for its taxable
year ended December 31, 1994. So long as it qualifies as a REIT, the Company
generally will be permitted to deduct distributions paid to its shareholders,
which effectively will reduce (or eliminate) the "double taxation" that
typically results when a corporation earns income and distributes that income
to its shareholders in the form of dividends. A REIT, however, is subject to
federal income tax on income that is not distributed and also may be subject
to federal income and excise taxes in certain circumstances. The maximum
federal income tax rate for corporations currently is 35% and for individuals
is 39.6%. Dividends paid by the Company will be treated as "portfolio" income
and cannot be offset with losses from "passive activities." Distributions
made by the Company to its taxable domestic shareholders out of current or
accumulated earnings and profits will be taken into account by them as
ordinary income. Distributions that are designated as capital gain dividends
generally will be taxed as long-term capital gain, subject to certain
limitations. Distributions in excess of current and accumulated earnings and
profits will be treated as a non-taxable return of capital to the extent of a
shareholder's adjusted basis in its Common Stock, and the excess over a
shareholder's adjusted basis will be taxed as capital gain. Each year,
shareholders of the Company (other than certain types of institutional
investors) will receive IRS Form 1099, which is used by corporations to report
dividends paid to their shareholders. Shareholders who are individuals
generally should not be required to file state income tax returns and/or pay
state income taxes outside of their state of residence with respect to the
Company's operations and distributions. The Company may be required to pay
state income taxes in certain states.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
that may be relevant to a prospective holder of the Common Stock is based on
current law, is for general information only, and is not tax advice. The
discussion contained herein does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or 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.
The statements in this discussion are based on current provisions of
the Code, existing, temporary, and currently proposed Treasury regulations
promulgated under the Code (the "Treasury Regulations"), the legislative
history of the Code, existing administrative rulings and practices of the
Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes. Unless otherwise provided in this
discussion, the term "Partnership" includes all Subsidiary Partnerships.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE,
OWNERSHIP, AND SALE OF THE COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
The Company made an election to be taxed as a REIT under sections 856
through 860 of the Code, effective for its taxable year ended December 31,
1994. The Company believes that, commencing with such taxable year, it has
been organized and has operated in such a manner as to qualify for taxation as
a REIT under the Code, and the Company intends to continue to operate in such
a manner, but no assurance can be given that the Company will operate in a
manner so as to qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth
the material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof, all of which are subject
to change prospectively or retrospectively.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on its net income that is
distributed currently to its shareholders. That treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Company will be subject to federal income tax in the following
circumstances. First, the Company will be taxed at regular corporate rates on
any undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the
Company has (i) 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 (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth,
if the Company has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the Company fails the 75% or 95% gross income test.
Sixth, 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 net 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. Seventh, if the Company acquires any asset from a C corporation
(i.e., a corporation generally subject to full corporate-level tax) in a
transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the Company recognizes gain on the disposition
of such asset during the 10-year period beginning on the date on which such
asset was acquired by the Company, then to the extent of such asset's
"built-in gain" (i.e., the excess of the fair market value of such asset at
the time of acquisition by the Company over the adjusted basis in such asset
at such time), the Company will be subject to tax at the highest regular
corporate rate applicable (as provided in Treasury Regulations that have not
yet been promulgated). The results described above with respect to the
recognition of "built-in gain" assume that the Company would make an election
pursuant to IRS Notice 88-19 if it were to make any such acquisition.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i)
that is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares, or by transferable
certificates of beneficial interest; (iii) that would be taxable as a domestic
corporation, but for sections 856 through 860 of the Code; (iv) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100
or more persons; (vi) not more than 50% in value of the outstanding stock of
which is owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of each
taxable year (the "5/50 Rule"); (vii) that makes an election to be a REIT (or
has made such election for a previous taxable year) and satisfies all relevant
filing and other administrative requirements established by the Service that
must be met in order to elect and to maintain REIT status; (viii) that uses a
calendar year for federal income tax purposes and complies with the
recordkeeping requirements of the Code and Treasury Regulations; and (ix) that
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate
part of a taxable year of less than 12 months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made by
the Company to be taxed as a REIT. The Company believes that it has issued
sufficient shares of Common Stock with sufficient diversity of ownership to
allow it to satisfy requirements (v) and (vi). In addition, the Company's
Charter provides for restrictions regarding transfer of the Common Stock that
are intended to assist the Company in continuing to satisfy the stock
ownership requirements described in (v) and (vi) above. Such transfer
restrictions are described above under "Restrictions on Transfer of Capital
Stock."
For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares
of a REIT in proportion to their actuarial interests in the trust for purposes
of the 5/50 Rule.
The Company currently has one direct corporate subsidiary, Storage USA
Trust, a Maryland real estate investment trust (the "Trust"), and may have
additional subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" will not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a qualified REIT subsidiary will be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT.
A "qualified REIT subsidiary" is a corporation, all of the capital stock of
which has been held by the REIT at all times during the period such
corporation has been in existence. Thus, in applying the requirements
described herein, any qualified REIT subsidiaries of the Company will be
ignored, and all assets, liabilities, and items of income, deduction, and
credit of such subsidiaries will be treated as assets, liabilities, and items
of income, deduction, and credit of the Company. The Trust is a qualified
REIT subsidiary. The Trust, therefore, will not be subject to federal
corporate income taxation, although it may be subject to state and local
taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests, described below. Thus, the
Company's proportionate share of the assets, liabilities, and items of income
of the Partnership and of any other partnership in which the Company has
acquired or will acquire an interest, directly or indirectly (a "Subsidiary
Partnership"), are treated as assets and gross income of the Company for
purposes of applying the requirements described herein.
Income Tests
In order for the Company to maintain its qualification as a REIT,
there are three requirements relating to the Company's gross income that must
be satisfied annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must consist of defined types of income 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
temporary investment income. Second, at least 95% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property or temporary investments, and
from dividends, other types of interest, and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Third, not
more that 30% of the Company's gross income (including gross income from
prohibited transactions) for each taxable year may be gain from the sale or
other disposition of (i) stock or securities held for less than one year, (ii)
dealer property that is not foreclosure property, and (iii) certain real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property).
Rents received by the Company 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 or sales. Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the Company, or an owner of
10% or more of the Company, directly or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a 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." Finally, for rents received to qualify as "rents from real
property," the Company generally must not operate or manage the property or
furnish or render services to the tenants of such property, other than through
an "independent contractor" who is adequately compensated and from whom the
Company derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by the Company are
customarily furnished or rendered in connection with the rental of real
property for occupancy only and are not otherwise considered "rendered to the
occupant."
The Company, through the Partnership, derives the bulk of its revenues
from rent from storage unit leases, additional first month rent, and late
charges attributable to such rents (collectively, the "Primary Revenues").
Additional revenues are derived from ancillary services such as moving truck
rental commissions, packing and shipping commissions, rent from leasing space
utilized for sales of locks and packing supplies to SUSA Management, Inc., a
Tennessee corporation ("Subsidiary Corp.") 5% of whose voting stock and 94% of
whose nonvoting stock (which together constitute 99% of the beneficial
economic interest therein) are owned by the Partnership, rent from vehicle and
boat storage leases (including additional first month rent and late charges
attributable thereto), and similar items (collectively, the "Ancillary
Revenues"). The Company also receives dividends from Subsidiary Corp. and
Storage USA Franchise Corp., a Tennessee corporation ("Franchise"), 100% of
whose nonvoting stock, which represents 97.5% of the beneficial economic
interest therein, is owned by the Partnership. The Company believes that,
other than the late charges attributable to rent, which are treated as
interest that qualifies for the 95%, but not the 75% gross income test, the
Primary Revenues qualify as rents from real property for purposes of both the
75% test and the 95% test and that dividends from Subsidiary Corp. and
Franchise (the "Nonqualified Subsidiaries") qualify as dividends for purposes
of the 95% test. Furthermore, the Company believes that the Ancillary
Revenues and other types of potentially nonqualifying gross income earned for
each taxable year by the Company are equal to, and will continue to be equal
to, less than 5% of the Company's total gross income and, thus, that such
items do not adversely affect the Company's qualification as a REIT.
Other than with respect to its leasing arrangement with Subsidiary
Corp. with respect to the sale of lock and packing supplies (the revenue from
which the Company will treat as nonqualifying revenue for purposes of the 95%
test), the Company does not own directly or indirectly 10% or more of any
tenant, or lease any space in a manner based on the income or profits of any
tenant. Furthermore, the Company believes that any personal property rented
in connection with its storage facilities is well within the 15% restriction.
However, in order for the Primary Revenues to constitute "rents from real
property," the Company must not provide services to its tenants that are not
customarily furnished or rendered in connection with the rental of the
self-storage units.
The Company, through the Partnership (which is not an independent
contractor), provides certain services with respect to the facilities and any
newly acquired self-storage facilities. Such services include (i) common area
services, such as cleaning and maintaining public entrances, exits, stairways,
walkways, lobbies and restrooms, removing snow and debris, collecting trash,
and painting the exteriors of the facilities and common areas, (ii) providing
general security for the facilities, (iii) cleaning and repairing of units at
the facilities as tenants move in and out, (iv) at the request of the tenant,
and without additional charge, accepting delivery of goods from carriers or
unlocking a particular unit when goods are delivered to a facility (however,
the Partnership does not otherwise assist tenants in the storage or removal of
goods or belongings from the units), (v) permitting tenants to use the fax
machine at a facility for occasional local faxes without additional charge and
for occasional long-distance faxes for a nominal charge, (vi) maintaining
underground utilities and structural elements of the facilities, (vii) paying
real and personal property taxes or the cost of replacing or refurbishing
personal property with respect to real and personal property owned by the
Partnership at a facility, (viii) for a fee, acting as agent for moving truck
rental companies for tenants of certain facilities and walk-in customers, (ix)
for a fee, providing packing and shipping services to tenants of certain
facilities and walk-in customers, and (x) at a few facilities, allowing
tenants to use trucks owned by the Company or the Partnership to move their
goods and belongings into and out of the units without additional charge. The
Company believes that the services provided by the Partnership are customarily
furnished or rendered in connection with the rental of space for occupancy
only by self-storage facilities in the geographic areas in which its
facilities are located.
The Company's investment in the facilities, through the Partnership,
in major part gives rise to rental income qualifying under the 75% and 95%
gross income tests. Gains on sales of the facilities or of the Company's
interest in the Partnership will generally qualify under the 75% and 95% gross
income tests. The Company anticipates that income on its other investments,
including its indirect investments in the Nonqualified Subsidiaries, will not
result in the Company failing the 75% or 95% gross income test for any year.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
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
"interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Any gross income derived from a prohibited transaction is taken into
account in applying the 30% income test necessary to qualify as a REIT (and
the net income from that transaction is subject to a 100% tax). The term
"prohibited transaction" generally includes a sale or other disposition of
property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. The Company and the
Partnership believe that no asset owned by the Company or the Partnership is
held for sale to customers and that a sale of any such asset will not be in
the ordinary course of business of the Company or the Partnership. Whether
property is held "primarily for sale to customers in the ordinary course of a
trade or business" depends, however, on the facts and circumstances in effect
from time to time, including those related to a particular property.
Nevertheless, the Company and the Partnership have complied, and will continue
to comply, with the terms of safe-harbor provisions in the Code prescribing
when asset sales will not be characterized as prohibited transactions.
Complete assurance cannot be given, however, that the Company or the
Partnership can comply with the safe-harbor provisions of the Code or avoid
owning property that may be characterized as property held "primarily for sale
to customers in the ordinary course of a trade or business."
It is possible that, from time to time, the Company or the Partnership
will enter into hedging transactions with respect to one or more of its assets
or liabilities. Any such hedging transactions could take a variety of forms,
including interest rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, and options. To the extent that the Company or
the Partnership enters into an interest rate swap or cap contract to hedge any
variable rate indebtedness incurred to acquire or carry real estate assets,
any periodic income or gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. Furthermore, any such contract would be considered a
"security" for purposes of applying the 30% gross income test. To the extent
that the Company or the Partnership hedges with other types of financial
instruments or in other situations, it may not be entirely clear how the
income from those transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. The Company intends to
structure any hedging transactions in a manner that does not jeopardize its
status as a REIT.
If the Company fails to satisfy one or both of the 75% or 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.
Those relief provisions generally will be available if (i) the Company's
failure to meet such tests is due to reasonable cause and not due to willful
neglect, (ii) the Company attaches a schedule of the sources of its income to
its return, and (iii) any incorrect information on the schedule was not due to
fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of those
relief provisions. As discussed above in "Federal Income Tax
Considerations-Taxation of the Company," even if those relief provisions
apply, a 100% tax would be imposed with respect to the net income attributable
to the excess of 75% or 95% of the Company's gross income over its qualifying
income in the relevant category, whichever is greater. No such relief is
available for violations of the 30% income test.
Asset Tests
The Company, at the close of each quarter of its taxable year, also
must satisfy two tests relating to the nature of its assets. First, at least
75% of the value of the Company's total assets must be represented by cash or
cash items (including certain receivables), government securities, or "real
estate assets," including, in cases where the Company raises new capital
through stock or long-term (at least five-year) debt offerings, temporary
investments in stock or debt instruments during the one-year period following
the Company's receipt of such capital. The term "real estate assets" also
includes real property (including interests in real property and interests in
mortgages on real property) and shares of other REITs. For purposes of the
75% asset requirement, the term "interest in real property" includes an
interest in land or improvements thereon, such as buildings or other
inherently permanent structures (including items that are structural
components of such buildings or structures), a leasehold in land or
improvements thereon, and an option to acquire land or improvements thereon
(or a leasehold in land or improvements thereon). Second, of the investments
not included in the 75% asset class, the value of any one issuer's securities
owned by the Company may not exceed 5% of the value of the Company's total
assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities (except for its ownership interest in the
Partnership, the Trust, or any other qualified REIT subsidiary).
The Partnership owns 5% of the voting stock and 94% of the nonvoting
stock of Subsidiary Corp. (which together constitute 99% of the beneficial
economic interest therein). In addition, the Partnership owns 100% of the
nonvoting stock of Franchise, which represents 97.5% of the beneficial
economic interest therein. By virtue of its partnership interest in the
Partnership, the Company is deemed to own its pro rata share of the assets of
the Partnership, including the stock of Subsidiary Corp. and Franchise held by
the Partnership.
The Partnership does not own more than 10% of the voting securities of
either Nonqualified Subsidiary. In addition, based upon its analysis of the
estimated value of the stock of each Nonqualified Subsidiary owned by the
Partnership relative to the estimated value of the other assets owned by the
Company, the Company believes that neither its pro rata share of the stock of
Subsidiary Corp., nor its pro rata share of the stock of Franchise, exceeds 5%
of the total value of the Company's assets. No independent appraisals have
been obtained to support this conclusion. This 5% limitation must be
satisfied at the end of each quarter in which the Company or the Partnership
increases its interest in a Nonqualified Subsidiary (including as a result of
the Company increasing its interest in the Partnership in connection with a
stock offering or as Limited Partners of the Partnership exercise their
Redemption Rights). Although the Company plans to take steps to ensure that
it satisfies the 5% asset test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Partnership's overall
interest in a Nonqualified Subsidiary. The Company does not expect to own
securities of any other issuer in excess of the restrictions set forth above.
Nevertheless, if the Service were to challenge successfully the tax status of
the Partnership as a partnership for federal income tax purposes, since the
Company owns more than 10% of the voting interests in such entity, the Company
likely would cease to qualify as a REIT. See "Federal Income Tax
Considerations - Tax Aspects of the Company's Investments in the Partnership
and Subsidiary Partnerships."
If the Company should fail to satisfy the asset requirements at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status if (i) it satisfied all of the asset tests at the close of the
preceding calendar quarter and (ii) the discrepancy between the value of the
Company's assets and the asset requirements either did not exist immediately
after the acquisition of any particular asset or was not wholly or partly
caused by such an acquisition (i.e., the discrepancy arose from changes in the
market values of its assets). If the condition described in clause (ii) of
the preceding sentence were not satisfied, the Company still could avoid
disqualification by eliminating any discrepancy within 30 days after the close
of the quarter in which it arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates.
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% nondeductible excise tax on the excess of such required distribution
over the amounts actually distributed. The Company has made, and will
continue to make, timely distributions sufficient to satisfy all annual
distribution requirements.
It is possible that, from time to time, the Company may experience
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. Therefore, the Company may
have less cash available for distribution than is necessary to meet its annual
95% distribution requirement or to avoid corporate income tax or the excise
tax imposed on certain undistributed income. In such a situation, the Company
may find it necessary to arrange for short-term (or possibly long-term)
borrowings or to raise funds through the issuance of additional shares of
common or preferred stock.
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 its shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest based upon the
amount of any deduction taken for deficiency dividends.
Special Distribution Requirement
Prior to becoming a REIT, the Company and all corporations previously
merged into the Company were taxable as S corporations pursuant to elections
made at the inception of each such corporation. The Code provides that, in
the case of a corporation that succeeded to the "earnings and profits" of a
corporation that was not taxed as a REIT for all of its taxable years
beginning after February 28, 1986, such corporation is eligible to make a REIT
election for a taxable year only if, as of the close of such year, it has no
earnings and profits accumulated in any year in which it was not a REIT. If
the Company had any such non-REIT earnings and profits, it would have to make
a distribution equal to the non-REIT earnings and profits to preserve its REIT
status. Since the Company was taxable as an S corporation from its inception
and has not succeeded to the non-REIT earnings and profits of any other
corporation, this special distribution requirement will not apply.
Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, in order to be able to
elect to be taxed as a REIT, the Company must maintain certain records and
request on an annual basis certain information from its shareholders designed
to disclose the actual ownership of its outstanding stock. The Company has
complied, and will continue to comply, with such requirements.
Partnership Anti-Abuse Rule
A final regulation (the "Anti-Abuse Rule") under the partnership
provisions of the Code (the "Partnership Provisions") authorizes the Service,
in certain abusive transactions involving partnerships, to disregard the form
of the transaction and recast it for federal tax purposes as the Service deems
appropriate. The Anti-Abuse Rule applies where a partnership is formed or
utilized in connection with a transaction (or series of related transactions)
with a principal purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner inconsistent with the
intent of the Partnership Provisions. The Anti-Abuse Rule states that the
Partnership Provisions are intended to permit taxpayers to conduct joint
business (including investment) activities through a flexible arrangement that
accurately reflects the partners' economic agreement and clearly reflects the
partners' income without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined based on all
of the facts and circumstances, including a comparison of the purported
business purpose for a transaction and the claimed tax benefits resulting from
the transaction. A reduction in the present value of the partners' aggregate
federal tax liability through the use of a partnership does not, by itself,
establish inconsistency with the intent of the Partnership Provisions. The
Anti-Abuse Rule generally is effective for all transactions relating to a
partnership occurring on and after May 12, 1994.
The Anti-Abuse Rule contains an example in which a corporation that
elects to be taxed as a REIT contributes substantially all of the proceeds
from a public offering to a partnership in exchange for a general partnership
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, some of the limited partners
have the right, beginning two years after the formation of the partnership, to
require the redemption of their limited partnership interests in exchange for
cash or REIT stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the redemption.
The example concludes that the use of the partnership is not inconsistent with
the intent of the Partnership Provisions and, thus, cannot be recast by the
Service. However, because the Anti-Abuse Rule is extraordinarily broad in
scope and is applied based on an analysis of all of the facts and
circumstances, there can be no assurance that the Service will not attempt to
apply the Anti-Abuse Rule to the Company. If the conditions of the Anti-Abuse
Rule are met, the Service is authorized to take appropriate enforcement
action, including disregarding the Partnership for federal tax purposes or
treating one or more of the partners as nonpartners. Any such action
potentially could jeopardize the Company's status as a REIT.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable
year and the relief provisions do not apply, the Company will be subject to
tax (including any applicable alternative minimum tax) on its taxable income
at regular corporate rates. Distributions to the shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company
also will be disqualified from taxation as a REIT for the four taxable years
following the year during which the Company ceased to qualify as a REIT. It
is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Common Stock that
for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is
subject to U.S. federal income taxation regardless of its source.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held his Common Stock. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as
ordinary income. Distributions in excess of current and accumulated earnings
and profits will not be taxable to a shareholder to the extent that they do
not exceed the adjusted basis of the shareholder's Common Stock, but rather
will reduce the adjusted basis of such stock. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a shareholder's Common Stock, such distributions will be
included in income as long-term capital gain (or short-term capital gain if
the Common Stock has been held for one year or less) assuming the Common Stock
is a capital asset in the hands of the shareholder. In addition, any
distribution declared by the Company in October, November, or December of any
year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the distribution is
actually paid by the Company during January of the following calendar year.
Shareholders may not include in their individual income tax returns
any net operating losses or capital losses of the Company. Instead, such
losses would be carried over by the Company for potential offset against its
future income (subject to certain limitations). Taxable distributions from
the Company and gain from the disposition of the Common Stock will not be
treated as passive activity income and, therefore, shareholders generally will
not be able to apply any "passive activity losses" (such as losses from
certain types of limited partnerships in which the shareholder is a limited
partner) against such income. In addition, taxable distributions from the
Company and gain from the disposition of Common Stock generally will be
treated as investment income for purposes of the investment interest
limitations. The Company will notify shareholders after the close of the
Company's taxable year as to the portions of the distributions attributable to
that year that constitute ordinary income, return of capital, and capital
gain.
Taxation of Shareholders on the Disposition of the Common Stock
In general, any gain or loss realized upon a taxable disposition of
the Common Stock by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Stock has been held
for more than one year and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange of Common Stock by a shareholder who
has held such stock for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the Common Stock may be disallowed if other Common Stock is
purchased within 30 days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one year in order
for gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is
39.6%, and the tax rate on net capital gains applicable to individuals is 28%.
Thus, the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income
as capital or ordinary may affect the deductibility of capital losses.
Capital losses not offset by capital gains may be deducted against an
individual's ordinary income only up to a maximum annual deduction of $3,000.
Unused capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains, with
unused losses being carried back three years and forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. shareholders and to the Service
the amount of distributions 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
distributions paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the applicable
requirements of the backup withholding rules. A shareholder who does not
provide the Company with his correct taxpayer identification number also may
be subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
In addition, the Company may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their nonforeign status
to the Company. The Service issued proposed regulations in April 1996
regarding the backup withholding rules as applied to Non-U.S. Shareholders (as
defined herein). Those proposed regulations would alter the current system of
backup withholding compliance. See "Federal Income Tax Considerations -
Taxation of Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject
to taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions by a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee
pension trust. Based on that ruling, amounts distributed by the Company to
Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of the Common Stock with debt, a
portion of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, in certain circumstances
a pension trust that owns more than 10% of the Company's stock is required to
treat a percentage of the dividends from the Company as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived from an
unrelated trade or business (determined as if the Company were a pension
trust) divided by the gross income of the Company for the year in which the
dividends are paid. The UBTI rule applies to a pension trust holding more
than 10% of the Company's stock only if (i) the UBTI Percentage is at least
5%, (ii) the Company qualifies as a REIT by reason of the modification of the
5/50 Rule that allows the beneficiaries of the pension trust to be treated as
holding shares of the Company in proportion to their actuarial interests in
the pension trust, and (iii) either (A) one pension trust owns more than 25%
of the value of the Company's shares or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's shares
collectively own more than 50% of the value of the Company's shares.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX
LAWS WITH
REGARD TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING ANY
REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by the Company of U.S. real property interests
and are not designated by the Company as capital gains dividends will be
treated as dividends of ordinary income to the extent that they are made out
of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces
or eliminates that tax. However, if income from the investment in the Common
Stock is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distributions (and also may
be subject to the 30% branch profits tax in the case of a Non-U.S. Shareholder
that is a foreign corporation). The Company expects to withhold U.S. income
tax at the rate of 30% on the gross amount of any such distributions made to a
Non-U.S. Shareholder unless (i) a lower treaty rate applies and any required
form evidencing eligibility for that reduced rate is filed with the Company or
(ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming
that the distribution is effectively connected income. The Service issued
proposed regulations in April 1996 that would modify the manner in which the
Company complies with the withholding requirements. Distributions in excess
of current and accumulated earnings and profits of the Company will not be
taxable to a shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's Common Stock, but rather will reduce
the adjusted basis of such stock. To the extent that distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Stock, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Stock, as described below. In
August 1996, the U.S. Congress passed the Small Business Job Protection Act of
1996, which would require the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits. That
statute will be effective for distributions made after the date of enactment.
However, 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. However, amounts so withheld are
refundable to the extent it is determined subsequently that such distribution
was, in fact, in excess of the current and accumulated earnings and profits of
the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder as if such
gain were effectively connected with a U.S. business. Non-U.S. Shareholders
thus would be taxed at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to a 30% branch profits
tax in the hands of a foreign corporate shareholder not entitled to treaty
relief or exemption. The Company is required by currently applicable Treasury
Regulations to withhold 35% of any distribution that is designated by the
Company as a capital gains dividend. The amount withheld is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common
Stock generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock
was held directly or indirectly by foreign persons. It is currently
anticipated that the Company will be a "domestically controlled REIT" and,
therefore, the sale of the Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock will be publicly traded, no
assurance can be given that the Company will continue to be a "domestically
controlled REIT." Furthermore, gain not subject to FIRPTA will be taxable to
a Non-U.S. Shareholder if (i) investment in the Common Stock is effectively
connected with the Non-U.S. Shareholder's U.S. trade or business, in which
case the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and certain other conditions apply, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of the Common Stock were
to be subject to taxation under FIRPTA, the Non-U.S. Shareholder will be
subject to the same treatment as U.S. shareholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of foreign corporations). IN
ADDITION, NON-U.S. SHAREHOLDERS SHOULD BE AWARE THAT, IN THE PAST, LEGISLATIVE
PROPOSALS HAVE BEEN MADE THAT WOULD HAVE SUBJECTED NON-U.S. PERSONS TO U.S.
TAX IN CERTAIN CIRCUMSTANCES ON THEIR GAINS FROM THE SALE OF STOCK IN U.S.
CORPORATIONS. THERE CAN BE NO ASSURANCE THAT A SIMILAR PROPOSAL WILL NOT BE
ENACTED INTO LAW IN A FORM DETRIMENTAL TO FOREIGN HOLDERS OF THE COMMON STOCK.
Other Tax Consequences
State and Local Taxes
The Company, the Partnership, a Subsidiary Partnership, or the
Company's shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they own
property, transact business, or reside. The state and local tax treatment of
the Company and its shareholders may not conform to the federal income tax
consequences discussed above. In addition, the Company, the Partnership, or a
Subsidiary Partnership may be subject to certain state and local taxes imposed
on owners of property, such as ad valorem property taxes, transfer taxes, and
rent taxes. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT
IN THE COMPANY.
Tax Aspects of the Company's Investments in the Partnership and Subsidiary
Partnerships
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investments in
the Partnership and the Subsidiary Partnerships (each individually a
"Partnership" and, collectively, the "Partnerships"). The discussion does not
cover state or local tax laws or any federal tax laws other than income tax
laws.
Classification as Partnerships
The Company is entitled to include in its income its distributive
share of each Partnership's income and to deduct its distributive share of
each Partnership's losses only if the Partnerships are classified for federal
income tax purposes as partnerships rather than as associations taxable as
corporations. An organization formed as a partnership will be treated as a
partnership, rather than as a corporation, for federal income tax purposes if
it (i) has no more than two of the four corporate characteristics that the
Treasury Regulations use to distinguish a partnership from a corporation for
tax purposes and (ii) is not a "publicly traded" partnership. Those four
corporate characteristics are continuity of life, centralization of
management, limited liability, and free transferability of interests. A
publicly traded partnership is a partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market
(or the substantial equivalent thereof). A publicly traded partnership will
not, however, be treated as a corporation for any taxable year if 90% or more
of the partnership's gross income for such year consists of certain
passive-type income, including (as may be relevant here) real property rents,
gains from the sale or other disposition of real property, interest, and
dividends.
The U.S. Department of the Treasury recently issued regulations
effective for taxable years beginning after December 31, 1995 (the "PTP
Regulations") that provide limited safe harbors from the definition of a
publicly traded partnership. Pursuant to one of those safe harbors, (the
"Private Placement Exclusion"), interests in a partnership will not be treated
as readily tradable on a secondary market or the substantial equivalent
thereof if (i) all interests in the partnership were issued in a transaction
(or transactions) that was not required to be registered under the Securities
Act of 1933, as amended, and (ii) the partnership does not have more than 100
partners at any time during the partnership's taxable year. In determining
the number of partners in a partnership, a person owning an interest in a
flow-through entity (i.e., a partnership, grantor trust, or S corporation)
that owns an interest in the partnership is treated as a partner in such
partnership only if (i) substantially all of the value of the owner's interest
in the flow-through entity is attributable to the flow-through entity's
interest (direct or indirect) in the partnership and (ii) a principal purpose
of the use of the tiered arrangement is to permit the partnership to satisfy
the 100- partner limitation. Each Partnership qualifies for the Private
Placement Exclusion.
If a Partnership is considered a publicly traded partnership under the
PTP Regulations because it is deemed to have more than 100 partners, such
Partnership should not be treated as a corporation because it should be
eligible for the 90% passive-type income exception. If, however, for any
reason a Partnership were taxable as a corporation, rather than as a
partnership, for federal income tax purposes, the Company would not be able to
satisfy the income and asset requirements for REIT status. See "Federal
Income Tax Considerations -- Requirements for Qualification -- Income Tests"
and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in a Partnership's status for tax purposes might be treated as a
taxable event, in which case the Company might incur tax liability without any
related cash distribution. See "Federal Income Tax Considerations --
Requirements for Qualification -- Distribution Requirements." Further, items
of income and deduction of such Partnership would not pass through to its
partners, and its partners would be treated as stockholders for tax purposes.
Consequently, such Partnership would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing such
Partnership's taxable income.
Income Taxation of the Partnerships and their Partners
Partners, Not the Partnerships, Subject to Tax. A partnership is not
a taxable entity for federal income tax purposes. Rather, the Company is
required to take into account its allocable share of each Partnership's
income, gains, losses, deductions, and credits for any taxable year of such
Partnership ending within or with the taxable year of the Company, without
regard to whether the Company has received or will receive any distribution
from such Partnership.
Partnership Allocations. Although a partnership agreement generally
will determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under section 704(b) of the
Code if they do not comply with the provisions of section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. If an allocation is not
recognized for federal income tax purposes, the item subject to the allocation
will be reallocated in accordance with the partners' interests in the
partnership, which will be determined by taking into account all of the facts
and circumstances relating to the economic arrangement of the partners with
respect to such item. Each Partnership's allocations of taxable income, gain,
and loss are intended to comply with the requirements of section 704(b) of the
Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of such unrealized gain or unrealized
loss is generally equal to the difference between the fair market value of
contributed property at the time of contribution, and the adjusted tax basis
of such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. The Partnership was formed by way of contributions of appreciated
property and has received contributions of appreciated property since the
Company's initial public offering. Consequently, the Partnership Agreement
requires such allocations to be made in a manner consistent with section
704(c) of the Code.
In general, the carryover basis of the facilities contributed by the
Company to the Partnership will cause the Company to be allocated lower
depreciation and other deductions, and possibly amounts of taxable income, in
the event of a sale of such a facility, in excess of the economic or book
income allocated to it as a result of such sale. While this will tend to
eliminate the Book-Tax Differences over the life of the Partnership, the
special allocation rules of section 704(c) do not always entirely rectify the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Therefore, elimination of Book-Tax Differences
with respect to the facilities contributed by the Company may cause the
Company to recognize taxable income in excess of its proportionate share of
the cash proceeds, which might adversely affect the Company's ability to
comply with the REIT distribution requirements. See "Federal Income Tax
Considerations -- Requirements for Qualification -- Distribution
Requirements."
The U.S. Department of the Treasury recently issued regulations
requiring partnerships to use a "reasonable method" for allocating items
affected by section 704(c) of the Code and outlining several reasonable
allocation methods. The Partnership has elected to use the "traditional
method" for allocating Code Section 704(c) items with respect to the
properties it acquired in 1994 in exchange for Units. Under the Partnership
Agreement, depreciation or amortization deductions of the Partnership
generally will be allocated among the partners in accordance with their
respective interests in the Partnership, except to the extent that the
Partnership is required under Code section 704(c) to use a method for
allocating tax depreciation deductions attributable to contributed properties
that results in the Company receiving a disproportionate share of such
deductions. In addition, gain on sale of a facility that has been contributed
(in whole or in part) to the Partnership will be specially allocated to the
contributing partners to the extent of any "built-in" gain with respect to
such facility for federal income tax purposes. The application of section
704(c) to the Partnership is not entirely clear, however, and may be affected
by Treasury Regulations promulgated in the future.
Basis in Partnership Interest. The Company's adjusted tax basis in
its partnership interest in the Partnership generally is equal to (i) the
amount of cash and the basis of any other property contributed to the
Partnership by the Company, (ii) increased by (A) its allocable share of the
Partnership's income and (B) its allocable share of indebtedness of the
Partnership, and (iii) reduced, but not below zero, by (A) the Company's
allocable share of the Partnership's loss and (B) the amount of cash
distributed to the Company, and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Partnership.
If the allocation of the Company's distributive share of the
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Partnership below zero, the recognition of such
loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that
the Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Partnership (such decrease being considered a constructive
cash distribution to the partners), would reduce the Company's adjusted tax
basis below zero, such distributions (including such constructive
distributions) constitute taxable income to the Company. Such distributions
and constructive distributions normally will be characterized as capital gain,
and, if the Company's partnership interest in the Partnership has been held
for longer than the long- term capital gain holding period (currently one
year), the distributions and constructive distributions will constitute
long-term capital gain.
Depreciation Deductions Available to the Partnerships. The
Partnerships have acquired equity interests in facilities, and expect to
acquire additional facilities in the future, for cash. To that extent, a
Partnership's initial basis in such a facility for federal income tax purpose
generally equals the purchase price paid by the Partnership. The Partnerships
depreciate or will depreciate such depreciable property for federal income tax
purposes under the alternative depreciation system of depreciation ("ADS").
Under ADS, the Partnerships generally depreciate or will depreciate
furnishings and equipment over a 10-year recovery period using a straight line
method and a half-year convention. If, however, a Partnership places more
than 40% of its furnishings and equipment in service during the last three
months of a taxable year, a mid-quarter depreciation convention must be used
for the furnishings and equipment placed in service during that year. Under
ADS, the Partnerships generally depreciate or will depreciate buildings and
improvements over a 40-year recovery period using a straight line method and a
mid-month convention. However, to the extent that a Partnership has acquired
or will acquire equity interests in facilities in exchange for partnership
interests in the Partnership, the Partnership's initial basis in each such
facility for federal income tax purposes should be the same as the
transferor's basis in that facility on the date of acquisition. The
Partnerships depreciate or will depreciate such depreciable property for
federal income tax purposes under ADS. Although the law is not entirely
clear, the Partnerships depreciate or will depreciate such depreciable
property for federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors. A Partnership's tax
depreciation deductions will be allocated among the partners in accordance
with their respective interests in the Partnership (except to the extent that
the Partnership is required under Code section 704(c) to use a method of
allocating depreciation deductions attributable to the contributed properties
that results in the Company receiving a disproportionate share of such
deductions.)
Sale of a Partnership's Property
Generally, any gain realized by a Partnership on the sale of property
held by the Partnership for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any gain recognized by a Partnership on the disposition
of contributed properties will be allocated first to the partners of the
Partnership under section 704(c) of the Code to the extent of their "built-in
gain" on those properties for federal income tax purposes. The partners'
"built-in gain" on the contributed properties sold will equal the excess of
the partners' proportionate share of the book value of those properties over
the partners' tax basis allocable to those properties at the time of the sale.
Any remaining gain recognized by the Partnership on the disposition of the
contributed properties, and any gain recognized by the Partnership or the
disposition of the other properties, will be allocated among the partners in
accordance with their respective percentage interests in the Partnership.
The Company's share of any gain realized by a Partnership on the sale
of any property held by the Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of the Partnership's
trade or business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income also may
have an adverse effect upon the Company's ability to satisfy the income tests
for REIT status. See "Federal Income Tax Considerations -- Requirements for
Qualification -- Income Tests." The Company, however, does not presently
intend to allow any Partnership to acquire or hold any property that
represents inventory or other property held primarily for sale to customers in
the ordinary course of the Company's or such Partnership's trade or business.
Nonqualified Subsidiaries
The Operating Partnership owns 94% of the nonvoting stock, and 5% of
the voting stock, of Subsidiary Corp., representing in the aggregate a 99%
economic interest therein. In addition, the Operating Partnership owns 100%
of the nonvoting stock of Franchise, which represents a 97.5% economic
interest therein. By virtue of its ownership of the Operating Partnership,
the Company is considered to own its pro rata share of the stock of the
Nonqualified Subsidiaries.
As noted above, for the Company to qualify as a REIT the Company's
proportionate share of the value of the securities of each Nonqualified
Subsidiary held by the Operating Partnership may not exceed 5% of the total
value of the Company's assets. In addition, the Company's proportionate share
of each Nonqualified Subsidiary's equity securities may not constitute more
than 10% of the voting securities of such Nonqualified Subsidiary. The
Company owns 5% of the voting securities of Subsidiary Corp., but does not
own, directly or through the Operating Partnership, any of the voting
securities of Franchise. In addition, the Company believes that neither its
proportionate share of the value of the securities of Subsidiary Corp. held by
the Operating Partnership, nor its proportionate share of the value of the
securities of Franchise held by the Operating Partnership exceeds 5% of the
total value of the Company's assets. If the Service were to challenge
successfully these determinations, however, the Company likely would fail to
qualify as a REIT.
Each Nonqualified Subsidiary will be organized as a corporation and
will pay federal, state, and local income taxes on its taxable income at
normal corporate rates. Any such taxes will reduce amounts available for
distribution by such Nonqualified Subsidiary, which in turn will reduce
amounts available for distribution to the Company's stockholders.
PLAN OF DISTRIBUTION
This Prospectus relates to the possible issuance by the Company of the
Redemption Shares if, and to the extent that, the holders of Units tender such
Units for redemption and the Company elects to redeem the Units for shares of
Common Stock. On April 21, 1995, 27,280 of the Units were issued by the
Partnership to the holders, and, on May 19, 1995, 407,610 of the Units were
issued by the Partnership to the holders. The Company is registering the
issuance of the Redemption Shares to make it possible to provide the Unit
holders with freely tradeable securities upon redemption of their Units.
However, registration of such shares does not necessarily mean that any of
such shares will be issued by the Company or offered or sold by such Unit
holder.
The Company may from time to time issue Redemption Shares upon
redemption of Units tendered for redemption. The Company will acquire the
exchanging partner's Units in exchange for each Redemption Share that the
Company issues in connection with these acquisitions. Consequently, with each
such redemption, the Company's interest in the Partnership will increase.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in its annual report on Form 10-K for the period ended December 31,
1995, and the financial summaries included in the Current Reports on Form 8-K,
dated April 5, 1996, and Form 8-K/A, dated July 17, 1996, have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
pursuant to this Prospectus will be passed upon for the Company by Hunton &
Williams.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering covered by this Prospectus. If
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the Common Stock, in any
jurisdiction where, or to any person to whom, it is unlawful to make any such
offer or solicitation. Neither the delivery of this Prospectus nor any offer
or sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus
or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION. . . 1 STORAGE USA, INC.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE. .. 1 434,890 Shares
THE COMPANY. . . . . . . . 2 COMMON STOCK
DESCRIPTION OF CAPITAL
STOCK . . . . . . . . . . . 2
RESTRICTIONS ON TRANSFER
OF CAPITAL STOCK. . . . . . 3
REDEMPTION OF UNITS. . . . 4 PROSPECTUS
FEDERAL INCOME TAX
CONSIDERATIONS. . . . . . . 13
PLAN OF DISTRIBUTION . . . 28 August ___, 1996
EXPERTS. . . . . . . . . . 28
LEGAL MATTERS. . . . . . . 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission registration fee $ 4,845.27
Accounting fees and expenses. . . . . . . . 500.00
Blue Sky fees and expenses. . . . . . . . . 75.00
Legal fees and expenses . . . . . . . . . . 3,000.00
Miscellaneous . . . . . . . . . . . . . . . 25.73
TOTAL. . . . . . . . . . . . . . . . . $8,446.00
Item 15. Indemnification of Officers and Directors.
The Company's Charter obligates it to indemnify and advance expenses to
present and former directors and officers to the maximum extent permitted by
Tennessee law. The Tennessee Business Corporation Act permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, settlements, penalties, fines or reasonable expenses
incurred with respect to a proceeding to which they may be made a party by
reason of their service in those or other capacities if (i) such persons
conducted themselves in good faith, (ii) they reasonably believed, in the case
of conduct in their official capacities with the corporation, that their
conduct was in its best interests and, in all other cases, that their conduct
was at least not opposed to its best interests, and (iii) in the case of any
criminal proceeding, they had no reasonable cause to believe that their
conduct was unlawful.
Any indemnification by the Company pursuant to the provisions of the
Charter described above shall be paid out of the assets of the Company and
shall not be recoverable from the shareholders. To the extent that the
foregoing indemnification provisions purport to include indemnification for
liabilities arising under the Securities Act of 1933, in the opinion of the
Securities and Exchange Commission such indemnification is contrary to public
policy and, therefore, unenforceable. The Company has purchased director and
officer liability insurance for the purpose of providing a source of funds to
pay any indemnification described above.
The TCBA permits the charter of a Tennessee corporation to include a
provision eliminating or limiting the personal liability of its directors to
the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except that such provision cannot eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of the law, or (iii) for unlawful distributions that exceed what could have
been distributed without violating the TBCA or the corporation's charter. The
Company's Charter contains a provision eliminating the personal liability of
its directors or officers to the Company or its shareholders for money damages
to the maximum extent permitted by Tennessee law from time to time.
The Second Amended and Restated Agreement of Limited Partnership of the
Partnership provides, generally, for the indemnification of an "indemnitee"
against losses, claims, damages, liabilities, judgments, fines, settlements
and other amounts (including reasonable expenses) that relate to the
operations of the Partnership unless it is established that (i) the act or
omission of the Indemnitee was material and either was committed in bad faith
or pursuant to active and deliberate dishonesty, (ii) the Indemnitee actually
received an improper personal benefit in money, property or services, or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. For this purpose, the term
"Indemnitee" includes any person made a party to a proceeding by reason of his
status as a director or officer of the Partnership, SUSA Management, Inc. or
the Company, and such other persons (including affiliates of the Company or
the Partnership) as the Company, may designate from time to time in its
discretion. Any such indemnification will be made only out of assets of the
Partnership, and in no event may an Indemnitee subject the limited partners of
the Partnership to personal liability by reason of the indemnification
provisions in the Partnership Agreement. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted pursuant
to the foregoing provisions or otherwise, the Partnership has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and, therefore, unenforceable. The
Partnership has purchased liability insurance for the purpose of providing a
source of funds to pay the indemnification described above.
Item 16. Exhibits.
4.1* Specimen Common Stock Certificate.
4.2 Amended Charter of the Company.
4.3* Restated and Amended Bylaws of the Company.
5** Opinion of Hunton & Williams.
10.1 Third Amendment to Second Amended and Restated Agreement of
Limited Partnership of SUSA Partnership, L.P.
10.2 Amendment No. 1 to Strategic Alliance Agreement.
10.3 Amendment No. 1 to Stock Purchase Agreement.
23.1 Consent of Hunton & Williams (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney (located on the signature page of this
Registration Statement)
_________________________
* Filed as an Exhibit to the Company's Registration Statement on Form S-
11, File No. 33-74072, as amended, and incorporated by reference herein.
** Previously filed.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement (Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.); and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in subparagraphs (i) and
(ii) above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that the in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant further hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Columbia, State of Maryland on August 27, 1996.
STORAGE USA, INC.
By: /s/ Thomas E. Robinson
Thomas E. Robinson
President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on August 27, 1996.
Signature Title & Capacity
/s/ Dean Jernigan* Chairman of the Board, Chief
Dean Jernigan Executive Officer and Director
(Principal Executive Officer)
/s/ Thomas E. Robinson President, Chief Financial Officer
Thomas E. Robinson and Director
(Principal Financial and Accounting
Officer)
Howard P. Colhoun Director
/s/ Mark Jorgensen*
Mark Jorgensen Director
/s/ John P. McCann*
John P. McCann Director
/s/ Dennis A. Reeve*
Dennis A. Reeve Director
/s/ Harry J. Thie*
Harry J. Thie Director
* By: /s/ Thomas E. Robinson
Thomas E. Robinson
Attorney-in-Fact
EXHIBIT INDEX
Exhibit
Number Exhibit Page
4.1* Specimen Common Stock Certificate
4.2 Amended Charter of the Company.
4.3* Restated and Amended Bylaws of the Company.
5** Opinion of Hunton & Williams.
10.1 Third Amendment to Second Amended and Restated Agreement of
Limited Partnership of SUSA Partnership, L.P.
10.2 Amendment No. 1 to Strategic Alliance Agreement.
10.3 Amendment No. 1 to Stock Purchase Agreement.
23.1 Consent of Hunton & Williams (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney (located on the signature page of
this Registration Statement)
_________________________
* Filed as an Exhibit to the Company's Registration Statement on Form S-
11, File No. 33-74072, as amended, and incorporated by reference herein.
** Previously filed.
EXHIBIT 4.2
AMENDED CHARTER
OF
STORAGE-USA, INC.
1. Name. The name of the Corporation is Storage USA, Inc. (the
"Corporation").
2. Perpetual Existence. The duration of the Corporation is perpetual.
3. Principal Office. The address of the Corporation's principal office
is 10 Corporation Center, Suite 400, Columbia, Maryland 21044.
4. For Profit. The Corporation is for profit.
5. Corporation Purposes. The purposes for which the Corporation is
organized are to carry on any business permitted corporations and to have and
exercise all powers conferred upon corporations by the laws of the State of
Tennessee, including without limitation, the rental of self-service storage
units to the public.
6. Authorized Capital Stock. The total number of shares of stock which
the Corporation has authority to issue is one hundred fifty million
(150,000,000) shares of common stock, one-cent ($0.01) par value per share,
which shall be designated "Common Stock," and five million (5,000,000) shares
of preferred stock, one-cent ($0.01) par value per share, which shall be
designated "Preferred Stock."
6.1 Preferred Stock. The Preferred Stock may be issued from time
to time by the Board of Directors of the Corporation, in such series and with
such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions as may be
fixed by the Board of Directors.
6.2 Common Stock. The following is a description of the
preferences, conversion and other rights, voting rights, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the Common Stock of the Corporation:
(a) Voting Rights. Subject to the provisions of
Paragraph 12.5 hereof regarding Excess Shares (as
defined herein), each share of Common Stock shall have
one (1) vote and, except as otherwise provided in
respect of any class or series of Preferred Stock
hereafter classified or reclassified, the exclusive
voting power for all purposes shall be vested in the
holders of the Common Stock on all matters permitted or
required by the Tennessee Business Corporation Act.
(b) Payment of Dividends. Subject to the
provisions of law and any preferences of any class or
series of Preferred Stock hereafter classified or
reclassified, dividends, including dividends payable in
shares of another class of the Corporation's stock, may
be paid on the Common Stock of the Corporation at such
time and in such amounts as the Board of Directors may
deem advisable out of the assets of the Corporation
legally available therefor.
(c) Rights Upon Dissolution of Corporation. In
the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary,
the holders of Common Stock then outstanding shall be
entitled, after payment or provision for payment of the
debts and other liabilities of the Corporation and the
amount to which the holders of any class or series of
Preferred Stock hereafter classified or reclassified
shall be entitled, to share ratably in the net assets
of the Corporation.
7. Registered Office and Registered Agent. The address of the
Corporation's registered office is 889 Ridge Lake Blvd., Suite 105, Memphis,
Shelby County, Tennessee 38120, and the name of its registered agent at that
office is Dean Jernigan.
8. Directors.
8.1 Number and Qualification. The Corporation shall have a Board
of Directors consisting of not less than three (3) nor more than nine (9)
members unless otherwise determined from time to time by resolution adopted by
the affirmative vote of at least eighty percent (80%) of the members of the
Board of Directors. However, the number of directors shall never be less
than the minimum number required by the Tennessee Business Corporation Act. A
director need not be a shareholder of the corporation or a resident of the
State of Tennessee.
8.2 Classes of Directors. Directors shall be divided into three
(3) classes as nearly equal in number as possible. The initial term of Class
I directors shall expire at the annual meeting of shareholders in 1995. The
initial term of the Class II directors shall expire at the annual meeting of
shareholders in 1996 and the initial term of the Class III directors shall
expire at the annual meeting of shareholders in 1997. At each annual meeting
of shareholders, the shareholders shall elect one (1) or more directors to
serve a three-year term of the class of directors whose term is expiring at
such annual meeting and until their successors are duly elected and qualified.
8.3 Independent Directors. Notwithstanding anything herein to the
contrary, at all times (except during a period not to exceed sixty (60) days
following the death, resignation, incapacity or removal from office of a
director prior to the expiration of such director's term of office) a majority
of the Board of Directors shall be comprised of persons who are not
officers or employees of the Corporation or Affiliates (as defined below) of
(i) any advisor to the Corporation under an advisory agreement, (ii) any
lessee of any property of the Corporation, (iii) any subsidiary of the
Corporation, or (iv) any partnership which is an Affiliate of the Corporation.
For purposes of this Paragraph 8.3, (a) an "Affiliate" of a person shall mean
(i) any person that, directly or indirectly, controls or is controlled by or
is under common control with such person, (ii) any other person that owns,
beneficially, directly or indirectly, five percent (5%) or more of the
outstanding capital stock, shares or equity interests of such person, or (iii)
any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person), (b) the term "person" shall mean and
include individuals, corporations, general and limited partnerships, stock,
companies or associations, joint ventures, associations, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof, and (c) "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, through the ownership of voting
securities, partnership interests or other equity interests.
8.4 Amendment of Paragraph. Notwithstanding any other provisions
of this Charter or the Bylaws of the Corporation (and notwithstanding that
some lesser percentage may be specified by law, this Charter or the Bylaws of
the Corporation), the provisions of this Paragraph 8 shall not be amended,
altered, changed or repealed without the affirmative vote of at least eighty
percent (80%) of the members of the Board of Directors or the affirmative vote
of the holders of not less than seventy-five percent (75%) of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting separately as a class.
9. Limitation on Liability to Shareholders. To the maximum extent that
Tennessee law in effect from time to time permits limitation of the liability
of directors and officers, no director or officer of the Corporation shall be
liable to the Corporation or its shareholders for money damages. Neither the
amendment nor repeal of this provision, nor the adoption or amendment of any
other provision of the Charter or Bylaws inconsistent with this provision,
shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption.
10. Indemnification; Insurance. The Corporation shall indemnify and
advance expenses to a director, officer, employee or agent of the Corporation
in connection with a proceeding to the fullest extent permitted by and in
accordance with Tennessee Code Annotated Section 48-18-501 et seq., as
amended. The Corporation may purchase and maintain insurance on behalf of any
person who is or was director, officer, employee or agent of the Corporation
or who, while a director, officer, employee or agent of the Corporation is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against liability asserted against or incurred by such person in that capacity
or arising from such person's status as a director, officer, employee or
agent, whether or not the Corporation would have power to indemnify such
person against the same liability under the provisions of Tennessee Code
Annotated Section 48-18-501 et seq., as amended.
11. REIT Status. The Corporation shall seek to elect and maintain
status as a real estate investment trust ("REIT") under Sections 856-860 of
the Internal Revenue Code of 1986, as amended (the "Code"). It shall be the
duty of the Board of Directors to ensure that the Corporation satisfies the
requirements for qualification as a REIT under the Code, including, but not
limited to, the ownership of its outstanding stock, the nature of its assets,
the sources of its income, and the amount and timing of its distributions to
its shareholders.
12. Restrictions on Transfer.
12.1. Definitions. For the purposes of this Paragraph 12 the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean, except as provided below in the
following sentence, ownership of Shares by a Person who would be treated as an
owner of such Shares either directly or constructively through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Own" and
"Beneficially Owned" shall have the correlative meanings.
"Charitable Beneficiary" shall mean an organization or
organizations described in Sections 170(b)(1)(A) and 170(c) of the Code and
identified by the Board of Directors as the beneficiary or beneficiaries of
the Excess Share Trust.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Common Stock" shall mean the Corporation's Common Stock as may be
authorized and issued from time to time pursuant to Paragraph 6.
"Excess Shares" shall mean Shares resulting from an exchange
described in Section 12.3 of this Paragraph 12.
"Excess Share Trust" shall mean the trust created pursuant to
Section 12.3 and Section 12.15 of this Paragraph 12.
"Excess Share Trustee" shall mean a person, who shall be
unaffiliated with the Corporation, any Purported Beneficial Transferee and any
Purported Record Transferee, identified by the Board of Directors as the
trustee of the Excess Share Trust.
"Market Price" shall mean the last reported sales price, regular
way, reported on the New York Stock Exchange for Shares on the trading day
immediately preceding the relevant date, or if not then traded on the New York
Stock Exchange, the last reported sales price, regular way, for Shares on the
trading day immediately preceding the relevant date as reported on any
exchange or quotation system over or through which such Shares may be traded,
or if not then traded over or through any exchange or quotation system, then
the market price of such Shares on the relevant date as determined in good
faith by the Board of Directors.
"Non-U.S. Person" shall mean any Person who is not (a) a citizen
or resident of the United States, (b) a partnership created or organized in
the United States or under the laws of the United States or any state therein
(including the District of Columbia), (c) a corporation created or organized
in the United States or under the laws of the United States or any state
therein (including the District of Columbia), or (d) any estate or trust
(other than a foreign estate or foreign trust, within the meaning of Section
7701(a)(31) of the Code).
"Ownership Limit" shall initially mean 9.8%, in number of Shares
or value, of the outstanding Shares, after any adjustment as set forth in
Section 12.9 of this Paragraph 12, shall mean such greater percentage of the
outstanding Shares as so adjusted.
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17)
of the Code), portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity.
"Preferred Stock" shall mean the Corporation's Preferred Stock as
may be authorized and issued from time to time pursuant to Paragraph 6.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
12.3 of this Paragraph 12, the beneficial holder of the Excess Shares, if such
Transfer had been valid under Section 12.2 of this Paragraph 12.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
12.3 of this Paragraph 12, the record holder of the Excess Shares, if such
Transfer had been valid under Section 12.2 of this Paragraph 12.
"REIT" shall mean a real estate investment trust under Section 856
of the Code.
"REIT Provisions of the Code" means Sections 856 through 860 of
the Code and any successor or other provisions of the Code relating to real
estate investment trusts (including provisions as to the attribution of
ownership of beneficial interests therein) and the regulations promulgated
thereunder.
"Restriction Termination Date" shall mean the first day on which
the Board of Directors determines that it is no longer in the best interests
of the Corporation to attempt to, or continue to, qualify as a REIT.
"Shares" shall mean the shares of either the Common Stock or the
Preferred Stock.
"Special Shareholder" shall mean Security Capital U.S. Realty,
Security Capital Holdings S.A. and any Affiliate of Security Capital U.S.
Realty and/or Security Capital Holdings S.A., or, to the extent permitted by
Section 5.8 of the Strategic Alliance Agreement, any bona fide financial
institution.
"Special Shareholder Limit" shall mean 37.5% of the outstanding
Shares of the Corporation; provided, however, that if any Person shall be
given the right to Beneficially Own more than 37.5% of the outstanding Shares
of the Corporation, the definition of "Special Shareholder Limit" shall be
revised in accordance with Section 5.8 of the Strategic Alliance Agreement;
provided, further, that if, as the result of any Special Shareholder's
Beneficial Ownership Shares, any Person who is an individual within the
meaning of Section 542(a)(2) of the Code (taking into account the ownership
attribution rules under Section 544 of the Code, as modified by Section 856(h)
of the Code) and who is the Beneficial Owner of any interest in a Special
Shareholder would be considered to Beneficially Own more than 9.8% of the out-
standing Shares, the Special Shareholder Limit shall be reduced to such
percentage as would result in such Person not being considered to Beneficially
Own more than 9.8% of the outstanding Shares. Notwithstanding anything con-
tained herein to the contrary, in no event shall the Special Shareholder Limit
be reduced below the Ownership Limit.
"Stock Purchase Agreement" shall mean that Stock Purchase
Agreement dated as of March 1, 1996, by and among the Corporation, Security
Capital Holdings S.A., and Security Capital U.S. Realty, as the same may be
amended from time to time.
"Strategic Alliance Agreement" shall mean that Strategic Alliance
Agreement dated as of March 19, 1996, by and among the Corporation, Guardian
Partnership, L.P., Security Capital Holdings S.A., and Security Capital U.S.
Realty, as the same may be amended from time to time.
"Transfer" shall mean any sale, transfer, gift, assignment, devise
or other disposition of Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but
excluding the exchange of Units, debt or any security of the Corporation for
Shares and (c) any transfer or other disposition of any interest in Shares as
a result of a change in the marital status of the holder thereof), whether
voluntary or involuntary, whether of record, constructively or beneficially
and whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have the correlative meanings.
"Units" shall mean units of any partnership that are convertible
into Shares.
12.2. Ownership Limitation.
(A) Except as provided in Section 12.12 and Section 12.20
of this Paragraph 12 and subject to clause (F) of this Section 12.2, no Person
or Persons acting as a group (other than a Special Shareholder) shall
Beneficially Own Shares in excess of the Ownership Limit.
(B) Except as provided in Section 12.12 and Section 12.20
of this Paragraph 12 and subject to clause (F) of this Section 12.2, any
Transfer that, if effective, would result in any Person (other than a Special
Shareholder) Beneficially Owning Shares in excess of the Ownership Limit shall
be void ab initio as to the Transfer of such Shares which would be otherwise
Beneficially Owned by such Person in excess of the Ownership Limit; and the
intended transferee shall acquire no rights in such Shares.
(C) Except as provided in Section 12.12 and Section 12.20
of this Paragraph 12 and subject to clause (F) of this Section 12.2, until the
Restriction Termination Date, any Transfer that, if effective, would result in
any Special Shareholder Beneficially Owning Shares in excess of the applicable
Special Shareholder Limit shall be void ab initio as to the Transfer of such
Shares which would be otherwise Beneficially Owned by such Special Shareholder
in excess of the applicable Special Shareholder Limit; and such Special Share-
holder shall acquire no rights in such Shares.
(D) Except as provided in Section 12.12 and Section 12.20
of this Paragraph 12 and subject to Clause (F) of this Section 12.2, until the
Restriction Termination Date, any Transfer that, if effective, would result in
the Shares being Beneficially Owned (as provided in Section 856(a) of the
Code) by less than 100 Persons (determined without reference to any rules of
attribution) shall be void ab initio as to the Transfer of such Shares which
would be otherwise Beneficially Owned (as provided in Section 856(a) of the
Code) by the Transferee; and the intended Transferee shall acquire no rights
in such Shares.
(E) Subject to Section 12.12 of this Paragraph 12, until
the Restriction Termination Date, any Transfer that, if effective, would
result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer of the Shares
which would cause the Corporation to be "closely held" within the meaning of
Section 856(h) of the Code; and the intended transferee shall acquire no
rights in such Shares.
(F) Nothing contained in this Paragraph 12 shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange. The fact that the settlement of any transaction is
permitted shall not negate the effect of any other provision of this Paragraph
12 and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Paragraph 12.
12.3. Excess Shares.
(A) If, notwithstanding the other provisions contained in
this Paragraph 12, at any time prior to the Restriction Termination Date,
there is a purported Transfer such that (i) any Person (other than a Special
Shareholder) would Beneficially Own Shares in excess of the applicable
Ownership Limit or (ii) any Special Shareholder would Beneficially Own Shares
in excess of the applicable Special Shareholder Limit, then, except as
otherwise provided in Section 12.12 of this Paragraph 12, Shares directly
owned by such Person or Special Shareholder, as the case may be, shall be
automatically exchanged for an equal number of Excess Shares until such Person
or Special Shareholder, as the case may be, does not own Shares in excess of
the applicable Ownership Limit or Special Shareholder Limit. Such exchange
shall be effective as of the close of business on the business day prior to
the date of the purported Transfer. If, after exchanging all of the Shares
owned directly by a Person or Special Shareholder such Person or Special
Shareholder still owns Shares in excess of the applicable Ownership Limit or
Special Shareholder Limit, Shares Beneficially Owned by such Person or Special
Shareholder shall be exchanged for an equal number of Excess Shares until such
Person or Special Shareholder, as the case may be, does not own Shares in
excess of the applicable Ownership Limit or Special Shareholder Limit. Where
such Person or Special Shareholder owns Shares constructively or beneficially
through one or more Persons and the Shares held by such other Persons must be
exchanged for an equal number of Excess Shares, the exchange of Shares by such
other Persons shall be pro rata.
(B) If, notwithstanding the other provisions contained in
this Paragraph 12, at any time prior to the Restriction Termination Date,
there is a purported Transfer of Shares or any sale, transfer, gift, assign-
ment, devise or other disposition of shares or other interests of a direct or
indirect shareholder of the Corporation which, if effective, would cause the
Corporation to become "closely held" within the meaning of Section 856(h) of
the Code, then any Shares being Transferred which would cause the Corporation
to be "closely held" within the meaning of Section 856(h) of the Code (rounded
up to the nearest whole Share) shall be automatically exchanged for an equal
number of Excess Shares and be treated as provided in this Paragraph 12. Such
designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer. If, after the
exchange of any such Shares, the Corporation is still "closely held" within
the meaning of Section 856(h) of the Code, any individual whose Beneficial
Ownership of Shares in the Corporation increased as a result of the sale,
transfer, gift, assignment, devise or other disposition of shares or other
interests of a direct or indirect shareholder of the Corporation and is one of
the five individuals who caused the Corporation to be "closely held" within
the meaning of Section 856(h) of the Code, shall exchange Shares owned
directly for an equal number of Excess Shares until the Corporation is not
"closely held" within the meaning of Section 856(h) of the Code. Where
several similarly situated individuals exist, the exchange shall be pro rata.
If, after applying the foregoing provisions, the Corporation is still "closely
held" within the meaning of Section 856(h) of the Code, any Shares construc-
tively owned by such individuals shall be exchanged for Excess Shares, on a
pro rata basis among similarly situated individuals, until the Corporation is
not "closely held" within the meaning of Section 856(h) of the Code.
(C) If, at any time prior to the Restriction Termination
Date, an event other than a purported Transfer (an "Event") occurs which would
(i) cause any Person (other than a Special Shareholder) to Beneficially Own
Shares in excess of the Ownership Limit or (ii) cause a Special Shareholder to
Beneficially Own Shares in excess of the Special Shareholder Limit, then,
except as otherwise provided in Section 12.12 of this Paragraph 12, Shares
Beneficially Owned by such Person or Special Shareholder, as the case may be,
shall be automatically exchanged for an equal number of Excess Shares to the
extent necessary to eliminate such excess ownership. Such exchange shall be
effective as of the close of business on the business day prior to the date of
the Event. In determining which Shares are exchanged, Shares Beneficially
Owned by any Person who caused the Event to occur shall be exchanged before
any Shares not so held are exchanged. Where several similarly situated
Persons exist, the exchange shall be pro rata. If any Person is required to
exchange Shares pursuant to this Clause (C) of this Section 12.3 of this Para-
graph 12, such Person shall first exchange Shares, directly held by such
Person before exchanging Shares Beneficially Owned. Where such Person or Spe-
cial Shareholder owns Shares constructively through one or more Persons and
the Shares held by such other Persons must be exchanged for an equal number of
Excess Shares, the exchange of Shares by such other Persons shall be pro rata.
12.4. Prevention of Transfer. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer has taken
place in violation of Section 12.2 of this Paragraph 12 or that a Person
intends to acquire or has attempted to acquire Beneficial Ownership
(determined without reference to any rules of attribution) of any Shares in
violation of Section 12.2 of this Paragraph 12, the Board of Directors or its
designee shall take such action as it deems advisable to refuse to give effect
to or to prevent such Transfer, including, but not limited to, refusing to
give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers or
attempted Transfers in violation of Section 12.2 of this Paragraph 12 shall
automatically result in the designation and treatment described in Section
12.3 of this Paragraph 12, irrespective of any action (or non-action) by the
Board of Directors.
12.5. Affidavits of Proposed Transferees; Notice to Corporation.
(A) Whenever the Board of Directors deems it to be prudent
in protecting the tax status of the Corporation as a REIT under the Code and
regulations issued under the Code, the Board of Directors may require to be
filed with the Corporation a statement or affidavit from each proposed
transferee of shares of capital stock of the Corporation setting forth the
number of such shares already owned by the transferee and any related
Person(s) specified in the form prescribed by the Board of Directors for that
purpose. Any contract for the sale or other transfer of shares of capital
stock of the Corporation shall be subject to this provision.
(B) Any Person who acquires or attempts to acquire Shares
in violation of Section 12.2 of this Paragraph 12, or any Person who is a
transferee such that Excess Shares result under Section 12.3 of this Paragraph
12, shall immediately give written notice or, in the event of a proposed or
attempted Transfer, give at least 15 days prior written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or attempted Transfer on the Corporation's status as
a REIT.
12.6. Information for Corporation. Prior to the Restriction
Termination Date:
(A) every Beneficial Owner of more than 5% (or such other
percentage, between 1/2 of 1% and 5%, as provided in the income tax
regulations promulgated under the Code) of the number or value of outstanding
Shares of the Corporation shall, within 30 days after January 1 of each year,
give written notice to the Corporation stating the name and address of such
Beneficial Owner, the number of Shares Beneficially Owned, and a description
of how such Shares are held. Each such Beneficial Owner shall provide to the
Corporation such additional information as the Corporation may reasonably
request in order to determine the effect, if any, of such Beneficial Ownership
on the Corporation's status of REIT.
(B) each Person who is a Beneficial Owner of Shares and
each Person (including the shareholder of record) who is holding Shares for a
Beneficial Owner shall provide to the Corporation in writing such information
with respect to direct, indirect and constructive ownership of Shares as the
Board of Directors deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to determine the Corporation's status as a
REIT, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
12.7. Other Action by Board. Subject to Section 12.2 of this
Paragraph 12, nothing contained in this Paragraph 12 shall limit the authority
of the Board of Directors to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its shareholders by
preservation of the Corporation's status as a REIT, provided, however, that no
provision of this Section 12.7 shall preclude the settlement of any transac-
tion entered into through the facilities of the New York Stock Exchange.
12.8. Ambiguities. In the case of an ambiguity in the
application of any of the provisions of this Paragraph 12, including any
definition contained in Section 12.1, the Board of Directors shall have the
power to determine the application of the provisions of this Paragraph 12 with
respect to any situation based on the facts known to it.
12.9. Modification of Special Shareholder Limits. The Special
Shareholder Limit may be modified as follows:
(A) The Special Shareholder Limit shall be increased, from
time to time, whenever there is an increase in the percentage Beneficial
Ownership of the Shares (or any other capital stock) of the Corporation due to
any event other than the purchase of Shares (or any other capital stock) of
the Corporation by a Special Shareholder, by an amount equal to such
percentage increase multiplied by the Special Shareholder Limit.
(B) Subject to the limitations provided in Section 12.11 of
this Paragraph 12, the Board of Directors may grant options which result in
Beneficial Ownership of Shares by a Special Shareholder pursuant to an option
plan approved by the Board of Directors and/or the shareholders. Any such
grant shall increase the Special Shareholder Limit for the affected Special
Shareholder to the maximum extent possible under Section 12.11 to permit the
Beneficial Ownership of the Shares issuable upon the exercise of such option.
(C) Subject to the limitations provided in Section 12.11 of
this Paragraph 12, a Special Shareholder may elect to participate in a
dividend reinvestment plan approved by the Board of Directors which results in
Beneficial Ownership of Shares by such participating Special Shareholder and
any comparable reinvestment plan of any partnership, wherein those Special
Shareholders holding Units are entitled to purchase additional Units. Any
such participation shall increase the Special Shareholder Limit for the
affected Special Shareholder to the maximum extent possible under Section
12.11 of this Paragraph 12 to permit Beneficial Ownership of the Shares
acquired as a result of such participation.
(D) The Board of Directors will reduce the Special
Shareholder Limit for any Special Shareholder after any Transfer permitted in
this Paragraph 12 by such Special Shareholder by the percentage of the
outstanding Shares so Transferred or after the lapse (without exercise) of an
option described in Clause (B) of this Section 12.9 of this Paragraph 12 by
the percentage of the Shares that the option, if exercised, would have repre-
sented, but in either case no Special Shareholder Limit shall be reduced to a
percentage which is less than the Ownership Limit.
(E) The Board of Directors may reduce the Special
Shareholder Limit pursuant to Section 5.8 of the Strategic Alliance Agreement.
12.10. Increase or Decrease in Ownership Limit. Subject to the
limitations provided in Section 12.11 of this Paragraph 12, the Board of
Directors may from time to time increase or decrease the Ownership Limit;
provided, however, that any decrease may only be made prospectively as to
subsequent holders (other than a decrease as a result of a retroactive change
in existing law that would require a decrease to retain REIT status, in which
case such decrease shall be effective immediately).
12.11. Limitations on Changes in Special Shareholder and
Ownership Limits.
(A) Neither the Ownership Limit nor the Special Shareholder
Limit may be increased (nor may any additional Special Shareholder Limit be
created) if, after giving effect to such increase (or creation), five
individual Beneficial Owners of Shares (including all of the then Special
Shareholders) could Beneficially Own, in the aggregate, more than 49.9% in
number or value of the outstanding Shares.
(B) Prior to the modification of any Special Shareholder
Limit or Ownership Limit pursuant to Sections 12.9 or 12.10 of this Paragraph
12, the Board of Directors may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure the Corporation's status as a REIT.
(C) No Ownership Limit may be increased to a percentage
which is greater than 9.8%.
12.12. Waivers by the Board. The Board of Directors, with a
ruling from the Internal Revenue Service, an opinion of counsel to the effect
that such exemption will not result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code, or such other evidence as
the Board of Directors deems necessary in its sole discretion, may exempt, on
such conditions and terms as the Board of Directors deems necessary in its
sole discretion, a Person from the Ownership Limit or the Special Shareholder
Limit, as the case may be, if the Board of Directors obtains such
representations and undertakings from such Person as the Board of Directors
may deem appropriate and such Person agrees that any violation or attempted
violation will result in, to the extent necessary, the exchange of Shares held
by such Person for Excess Shares in accordance with Section 12.3 of this
Paragraph 12.
12.13. Legend. Each certificate for Shares in the Board of
Directors' discretion, may bear substantially the following legend:
The securities represented by this certificate are
subject to restrictions on ownership and transfer for
the purpose of the Corporation's maintenance of its
status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended. No person
may (1) except as otherwise provided pursuant to the
Articles of Amendment to the Charter of the
Corporation, Beneficially Own Shares in excess of 9.8%
(or such greater or lesser percentage as may be deter-
mined by the Board of Directors of the Corporation) of
the number or value of the outstanding Shares of the
Corporation (unless such Person is a Special
Shareholder) (2) Beneficially Own Shares that would
result in the Corporation's being "closely held"
(within the meaning of Section 856(h) of the Code) or
the Corporation's having less than 100 shareholders
(as determined for purposes of Section 856(a)(5) of
the Code), or (3) unless such Person is a Special
Shareholder, Beneficially Own Shares if as a result
thereof the Corporation would fail to qualify as a
"domestically controlled REIT" (within the meaning of
Section 897(h)94) of the Code) (determined assuming
that the Special Shareholders are Non-U.S. Persons and
own a percentage (by value) of the Corporation's
Shares corresponding to 37.5%). Separate Restrictions
set forth in Paragraph 12 of the Articles of Amendment
to the Charter apply to Special Shareholders. Any
Person who attempts or proposes to Beneficially Own
Shares in excess of the above limitations must notify
the Corporation in writing at least 30 days prior to
such proposed or attempted Transfer. All capitalized
terms in this legend have the meanings defined in the
Articles of Amendment to the Charter of the Corpora-
tion, a copy of which, including the restrictions on
transfer, will be furnished to each shareholder on
request and without charge. If the restrictions on
transfer are violated, transfers causing such viola-
tions amy be void ab initio and the securities
represented hereby will be designated and treated as
Excess Shares which will be held in trust by the Ex-
cess Share Trustee for the benefit of the Charitable
Beneficiary.
12.14. Severability. If any provision of this Paragraph 12
or any application of any such provision is determined to be void, invalid
or unenforceable by any court having jurisdiction over the issue, the
validity and enforceability of the remaining provisions shall be affected
only to the extent necessary to comply with the determination of such
court.
12.15. Transfer of Excess Shares. Upon any purported
Transfer that results in Excess Shares pursuant to Section 12.3 of this
Paragraph 12, such Excess Shares shall be deemed to have been transferred
to the Excess Share Trustee, as trustee of a special trust for the
exclusive benefit of the Charitable Beneficiary or Charitable
Beneficiaries to whom an interest in such Excess Shares may later be
transferred pursuant to Section 12.3 of this Paragraph 12. Excess Shares
so held in trust shall be issued and outstanding Shares of the Corpora-
tion. The Purported Record Transferee or Purported Record Holder shall
have no rights in such Excess Shares except as provided in Section 12.18
of this Paragraph 12.
12.16. Distributions on Excess Shares. Any dividends
(whether taxable as a dividend, return of capital or otherwise) on Excess
Shares shall be paid to the Excess Share trust for the benefit of the
Charitable Beneficiary. Upon liquidation, dissolution or winding up, the
Purported Record Transferee shall receive the lesser of (1) the amount of
any distribution made upon liquidation, dissolution or winding up or (2)
the price paid by the Purported Record Transferee for the Shares, or if
the Purported Record Transferee did not give value for the Shares, the
Market Price of the Shares on the day of the event causing the Shares to
be held in trust. Any such dividend paid or distribution paid to the
Purported Record Transferee in excess of the amount provided in the
preceding sentence prior to the discovery by the Corporation that the
Shares with respect to which the dividend or distribution was made had
been exchanged for Excess Shares shall be repaid to the Excess Share Trust
for the benefit of the Charitable Beneficiary.
12.17. Voting of Excess Shares. The Excess Share Trustee
shall be entitled to vote the Excess Shares for the benefit of the
Charitable Beneficiary on any matter. Any vote taken by a Purported
Record Transferee prior to the discovery by the Corporation that the
Excess Shares were held in trust will be rescinded ab initio. The owner
of the Excess Shares will be deemed to have given an irrevocable proxy to
the Excess Share Trustee to vote the Excess Shares for the benefit of the
Charitable Beneficiary.
12.18. Non-Transferability of Excess Shares. Excess Shares
shall be transferable only as provided in this Section 12.18. At the
direction of the Corporation, the Excess Share Trustee shall transfer the
Shares held in the Excess Share Trust to a Person whose ownership of the
Shares will not violate the Ownership Limit or Special Shareholder Limit.
If such a transfer is made to a Person, the interest of the Charitable
Beneficiary shall terminate and proceeds of the sale shall be payable to
the Purported Record Transferee and to the Charitable Beneficiary. The
Purported Record Transferee shall receive the lesser of (1) the price paid
by the Purported Record Transferee for the Shares or, if the Purported
Record Transferee did not give value for the Shares, the Market Price of
the Shares on the day of the event causing the Shares to be held in trust,
and (2) the price received by the Excess Share trust from the sale or
other disposition of the Shares. Any proceeds in excess of the amount
payable to the Purported Record Transferee will be paid to the Charitable
Beneficiary. Prior to any transfer of any Excess Shares by the Excess
Share Trustee, the Corporation must have waived in writing its purchase
rights under Section 12.19. It is expressly understood that the Purported
Record Transferee may enforce the provisions of this Section against the
Charitable Beneficiary.
If any of the foregoing restrictions on transfer of Excess
Shares is determined to be void, invalid or unenforceable by any court of
competent jurisdiction, then the Purported Record Transferee may be
deemed, at the option of the Corporation, to have acted as an agent of the
Corporation in acquiring such Excess Shares and to hold such Excess Shares
on behalf of the Corporation.
12.19. Call by Corporation on Excess Shares. Excess Shares
shall be deemed to have been offered for sale to the Corporation, or its
designee, at a price per Share equal to the lesser of (a) the price per
Share in the transaction that created such Excess Shares (or, in the case
of a devise, gift or other transaction in which no value was given for
such Excess Shares, the Market Price at the time of such devise, gift or
other transaction) and (b) the Market Price of the Shares to which such
Excess Shares relates on the date the Corporation, or its designee,
accepts such offer (the "Redemption Price"). The Corporation shall have
the right to accept such offer for a period of ninety days after the later
of (x) the date of the Transfer which resulted in such Excess Shares and
(y) the date the Board of Directors determines in good faith that a
Transfer resulting in Excess Shares has occurred, if the Corporation does
not receive a notice of such Transfer pursuant to Section 12.5 of this
Paragraph 12, but in no event later than a permitted Transfer pursuant to
and in compliance with the terms of Section 12.18 of this Paragraph 12.
Unless the Board of Directors determines that it is in the interests of
the Corporation to make earlier payments of all of the amount determined
as the Redemption Price per Share in accordance with the preceding
sentence, the Redemption Price may be payable at the option of the Board
of Directors at any time up to but not later than the five years after the
date the Corporation accepts the offer to purchase the Excess Shares. In
no event shall the Corporation have an obligation to pay interest to the
Purported Record Transferee.
12.20. Underwritten Offerings. The Ownership Limit shall not
apply to the acquisition of Shares or rights, options or warrants for, or
securities convertible into, Shares by an underwriter in a public
offering; provided that the underwriter makes a timely distribution of
such Shares or rights, options or warrants for, or securities convertible
into, Shares.
12.21. Certain Transfers to Non-U.S. Persons Void. Any
Transfer of shares of capital stock of the Corporation to any Person
(other than a Special Shareholder) that results in the fair market value
of the shares of capital stock of the Corporation owned directly and
indirectly by Non-U.S. Persons to comprise 50% or more of the fair market
value of the issued and outstanding shares of capital stock of the
Corporation (determined assuming that the Special Shareholders are Non-
U.S. Persons and own a percentage of the outstanding shares of capital
stock of the Corporation (by value) equal to 37.5%), shall be void ab
initio to the fullest extent permitted under applicable law and the in-
tended Transferee shall be deemed never to have had an interest therein.
If the foregoing provision is determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the shares held
or purported to be held by the Transferee shall, automatically and without
the necessity of any action by the Board of Directors or otherwise, (i) be
prohibited from being voted at any time such securities result in the fair
market value of the shares of capital stock of the Corporation owned
directly and indirectly by Non-U.S. Persons to comprise 50% or more of the
fair market value of the issued and outstanding shares of capital stock of
the Corporation (determined assuming that the Special Shareholders are
Non-U.S. Persons and own a percentage of the outstanding shares of capital
stock of the Corporation (by value) equal to 37.5%), (ii) not be entitled
to dividends with respect thereto, (iii) be considered held in trust by
the Transferee for the benefit of the Corporation and shall be subject to
redemption by the Corporation as set forth in Paragraph 12.10 hereof, and
(iv) not be considered outstanding for the purpose of determining a quorum
at any meeting of stockholders.
12.22. Interpretation of REIT Qualifications. In applying the
provisions of this Paragraph 12, the Board of Directors may take into
account the lack of certainty in the REIT provisions of the Code relating
to the ownership of stock that may prevent a corporation from qualifying
as a REIT and may make interpretations concerning the Ownership Limit and
Excess Shares and attributed ownership and related matters on as con-
servative a basis as the Board of Directors may deem advisable to minimize
or eliminate uncertainty as to the Corporation's qualification or
continued qualification as a REIT. In the case of ambiguities in the
application of any of the provisions of this Paragraph 12, including any
definition contained in Paragraph 12 hereof, the Board of Directors shall
have the power to determine the application of the provisions of this
Paragraph 12 with respect to any situations based on the facts known to
it.
12.23. Application of Paragraph. Nothing contained in this
Paragraph 12 or in any other provision hereof shall limit the authority of
the Board of Directors to take any and all other action as it, in its sole
discretion, deems necessary or advisable to protect the Corporation and
the interests of its shareholders by maintaining the Corporation's eligi-
bility to be, and preserving the Corporation's status as, a REIT under the
Code.
12.24. New York Stock Exchange Transactions. Notwithstanding
any provision contained herein to the contrary, nothing in these Article
of Amendment to the Charter shall preclude the settlement of any
transaction concerning the Corporation's capital stock effected on the New
York Stock Exchange.
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF SUSA PARTNERSHIP, L.P.
This SECOND AMENDMENT, dated as of August 14, 1996, to the Second
Amended and Restated Agreement of Limited Partnership of SUSA Partnership,
L.P., dated as of September 21, 1994 (the "Partnership Agreement"), recites
and provides as follows:
A. Storage USA, Inc. ("Storage USA") is the general partner of SUSA
Partnership, L.P. ("SUSA") and owns 4,960,692 units of general partnership
interest in SUSA.
B. Storage USA desires to convert 4,745,945 of such units into units of
limited partnership interest in SUSA (the "Conversion Units") and to transfer
the Conversion Units to Storage USA Trust, a Maryland business trust of which
Storage USA is the sole beneficial owner (the "Trust").
NOW, THEREFORE, pursuant to Article XI of the Partnership Agreement,
Storage USA, as general partner of SUSA, amends the Partnership Agreement as
follows:
1. Section 7.01(b) is amended and restated in its entirety as follows:
(b) The General Partner agrees that it will at all
times own at least 20% of the Partnership Interests,
either directly or through a wholly-owned
subsidiary that is a qualified REIT subsidiary within
the meaning of Section 856(i) of the Code.
2. 4,745,945 units of general partnership interest in SUSA held by
Storage USA as of the date hereof are converted into 4,745,945 units of
limited partnership interest in SUSA.
3. Upon the transfer to the Trust of the Conversion Units, the
execution by the Trust of a counterpart of the Partnership Agreement and the
delivery by the Trust to Storage USA of the documents referred to in Section
9.03(a)(iii) and (v) of the Partnership Agreement and Exhibit A to the
Partnership Agreement shall be amended and restated to reflect the transfer of
the Conversion Units to the Trust and the admission of the Trust as a Limited
Partner.
IN WITNESS WHEREOF, Storage USA has caused this Second Amendment to be
duly executed, as of the date first set forth above.
AS GENERAL PARTNER:
STORAGE USA, INC.
By: /s/ Thomas E. Robinson
Thomas E. Robinson
President and Chief Financial Officer
AMENDMENT NO. 1 TO STRATEGIC ALLIANCE AGREEMENT
THIS AMENDMENT NO. 1 TO STRATEGIC ALLIANCE AGREEMENT
(the "Amendment"), dated as of June 14, 1996, is made by and among Storage
USA, Inc., a Tennessee corporation (the "Company"), SUSA Partnership, L.P., a
Tennessee limited partnership (the "Operating Partnership"), Storage USA
Trust, a Maryland real estate investment trust and a wholly owned subsidiary
of the Company (the "Trust"), Security Capital U.S. Realty, a Luxembourg
corporation ("USREALTY"), and Security Capital Holdings S.A., a Luxembourg
corporation and a wholly owned subsidiary of USREALTY ("Buyer").
RECITALS:
WHEREAS, the parties hereto entered into a Strategic Alliance
Agreement, dated as of March 19, 1996 (the "Agreement"), as part of an initial
closing pursuant to a Stock Purchase Agreement, dated as of March 1, 1996 (the
"Stock Purchase Agreement"), by and among the Company, USREALTY and Buyer; and
WHEREAS, the Company has created the Trust, which is a wholly owned
subsidiary of the Company and to which the Company desires to transfer
16,514,000 units of limited partnership interest in the Operating Partnership;
and
WHEREAS, USREALTY and Buyer desire to amend the Agreement to provide
that the Trust become a party to the Agreement and to provide that all of
USREALTY's and Buyer's rights therein with respect to the Company or the
Operating Partnership apply to the Trust;
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Agreement.
2. Applicability of Rights. It is the intention of the parties
hereto that all of Investor's rights, privileges and benefits with respect to
the Company or the Operating Partnership set forth in the Agreement shall also
apply in favor of Investor with respect to the Trust to the same extent that
such rights, privileges and benefits apply to the Company or the Operating
Partnership and that the creation of the Trust shall in no way prejudice or
impair any of Investor's rights, privileges or benefits.
3. Agreement to be Bound. The Trust hereby absolutely,
unconditionally and irrevocably agrees to be bound by the terms and
provisions of the Agreement and this Amendment.
4. Amendments to the Agreement.
(a) The Agreement is hereby amended by adding a new Section 1.40a
following Section 1.40, as follows:
Section 1.40a "Trust" shall mean Storage USA Trust, a Maryland
real estate investment trust and a wholly owned subsidiary of
the Company.
(b) Section 5.1(a)(viii) of the Agreement is hereby amended by
deleting such Section 5.1(a)(viii) in its entirety and replacing it with the
following:
(viii) any breach of this Agreement by the Company, the Trust or
the Operating Partnership which is neither cured nor desisted from
within 30 days of receipt of written notice of such breach and which
would reasonably be expected to materially adversely affect Investor
or cause a Material Adverse Effect; or
(c) The lead-in to Section 6.1(a) of the Agreement is hereby
amended by deleting such lead-in in its entirety and replacing it with the
following:
Section 6.1 Limitations on Corporate Actions. (a) The
Company agrees that from and after the Shareholder Approval
Date, until the earlier of (i) the termination of the
Standstill Period or any Standstill Extension Term or
(ii) the 20% Termination Date, if any, it will not, and will
not permit its Subsidiaries, the Operating Partnership or any
of the Operating Partnership's Subsidiaries to:
(d) Section 6.1(a)(B) of the Agreement is hereby amended by
deleting such Section 6.1(a)(B) in its entirety and replacing it with the
following:
(B) cause or permit the sum of (w) stocks, securities, partnership
interests or any similar investments or instruments of or in any
other Person, (x) assets held other than directly by the Company or
the Operating Partnership, (y) loans made by the Company to the
Operating Partnership or any other Subsidiary, or loans made by the
Operating Partnership or any other Subsidiary to the Company, and
(z) assets managed by Persons other than employees of the Company or
the Operating Partnership, as the case may be, whichever shall own
such assets (excluding retention of a third party manager that is
desisted prior to the fifth day immediately preceding the end of the
calendar quarter in which it arises and provided that any asset
managed by a third party shall be considered a passive asset to be
included in the calculations pursuant to Section 6.1(b)), to, at any
time constitute more than 10%, at cost, of the consolidated assets
owned by the Company, the Trust and the Operating Partnership;
(e) Section 6.1(a)(E) of the Agreement is hereby amended by
deleting such Section 6.1(a)(E) in its entirety and replacing it with the
following:
(E)(i) except as permitted or required by any agreements or
commitments existing as of the date of the Stock Purchase Agreement
and disclosed to Investor pursuant thereto, own any interest in any
partnership unless the Company is the sole managing general partner
of such partnership, (ii) cause or permit the Operating Partnership
to issue or grant (x) any additional Operating Partnership Units,
(y) any securities convertible into any Operating Partnership Units,
or (z) any options, warrants, calls, purchase rights, subscription
rights, conversion rights, exchange rights or any other contractual
commitments or agreements by which the holder thereof or any other
contractual commitments or agreements by which the holder thereof or
the party thereto may purchase or otherwise acquire Operating
Partnership Units if, as a result of any of the actions described in
the foregoing clauses (x), (y) or (z) of this paragraph (E), the
Company and the Trust will own or hold less than 90% of the
Operating Partnership Units, on a fully diluted basis, unless
any such issuances or grants are revoked to the extent necessary
prior to the fifth day immediately preceding the end of the calendar
quarter in which they are made, or (iii) take or fail to take, or
permit or cause the Operating Partnership to take or fail to take,
any other action if, as a result of such action or failure to act,
the Company and the Trust will own or hold less than 90% of the
Operating Partnership Units, on a fully diluted basis.
(f) The Agreement is hereby amended by adding a new Section
6.1(a)(F) following Section 6.1(a)(E), as follows:
(F)(i) cause or permit the Trust to issue or grant (x) any
additional shares of beneficial interest in the Trust, (y) any
securities convertible into any shares of beneficial interest in
the Trust, or (z) any options, warrants, calls, purchase rights,
subscription rights, conversion rights, exchange rights or any
other contractual commitments or agreements by which the holder
thereof or the party thereto may purchase or otherwise acquire
shares of beneficial interest in the Trust if, as a result of any
of the actions described in the foregoing clauses (x), (y) or (z)
of this paragraph (F), the Company will own or hold less than 100%
of the shares of beneficial interest in the Trust, on a fully
diluted basis, unless any such issuances or grants are revoked to
the extent necessary prior to the fifth day immediately preceding
the end of the calendar quarter in which they are made, or (iii)
take or fail to take, or permit or cause the Trust to take or fail
to take, any other action if, as a result of such action or failure
to act, the Company will own or hold less than 100% of the shares
of beneficial interest in the Trust, on a fully diluted basis.
(g) The lead-in to Section 6.1(b) of the Agreement is hereby
amended by deleting such lead-in in its entirety and replacing it with the
following:
(b) from and after Shareholder Approval Date, until the first date,
if any, following the date on which the Remaining Equity Commitment
shall have been reduced to zero on which Investor's ownership of
Company Common Stock shall have been below 20% by value of the
actually outstanding shares of Company Common Stock for a continuous
period of 180 days (or if Investor's ownership of Company Common
Stock shall, following the date on which the Remaining Equity
Commitment shall have been reduced to zero, have fallen below 20% by
value of the actually outstanding shares of Company Common Stock as
a result of a Transfer by Investor of Company Common Stock or a
failure of Investor to exercise its rights under Section 4.2 during
the 60 days immediately prior to the expiration of such 180-day
period, if any such rights are exercisable during such period, to
the extent necessary to (and provided that it shall be possible by
such exercise to) raise its ownership of the actually outstanding
Company Common Stock above such 20% threshold, then until such
Transfer or failure to exercise its rights under Section 4.2, as the
case may be), the Company and the Trust
(h) Section 6.1(b)(ii) of the Agreement is hereby amended by deleting
such Section 6.1(b)(ii) in its entirety and replacing it with the following:
(ii) will otherwise consider in good faith suggestions made by
Investor as to the structure of the operations of the Company, the
Trust and the Operating Partnership and their respective
subsidiaries in order to permit Investor or any shareholder of
Investor to avoid being classified as a "passive foreign investment
company" under the Code.
5. No Effect on Consistent Terms. All terms of the Agreement not
inconsistent with this Amendment shall remain in place and in full force and
effect and shall be unaffected by this Amendment.
6. Headings. The headings contained in this Amendment are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Amendment.
IN WITNESS WHEREOF, this Amendment has been signed by or on behalf
of each of the parties hereto as of the day first above written.
STORAGE USA, INC.
By:
Name:
Title:
SUSA PARTNERSHIP, L.P.
By: Storage USA, Inc., General Partner
By:
Name:
Title:
STORAGE USA TRUST
By:
Name:
Title:
SECURITY CAPITAL HOLDINGS S.A.
By:
Name:
Title:
SECURITY CAPITAL U.S. REALTY
By:
Name:
Title:
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (the
"Amendment"), dated as of July 1, 1996, is made by and among Storage USA,
Inc., a Tennessee corporation (the "Company"), Security Capital U.S. Realty, a
Luxembourg corporation ("USREALTY"), and Security Capital Holdings S.A., a
Luxembourg corporation and a wholly owned subsidiary of USREALTY ("Buyer").
RECITALS:
WHEREAS, the parties hereto entered into a Stock Purchase Agreement,
dated as of March 1, 1996 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain terms of the
Agreement with respect to purchases of Company Common Stock following the
Initial Closing and with respect to certain public releases or announcements;
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meaning ascribed to them in the Agreement.
2. Amendments to the Agreement.
(a) Section 1.80 of the Agreement is hereby amended by deleting
such Section 1.80 in its entirety and replacing it with the following:
Section 1.80 "Remaining Equity Commitment" shall mean, on any
given date after the Initial Closing, the Total Equity Commitment
minus the sum of the Initial Purchase Price and all of the
Subsequent Purchase Prices of all Subsequent Purchases effected
prior to the given date. The Remaining Equity Commitment shall be
deemed to be zero on the earlier of (i) the date that the Remaining
Equity Commitment equals zero pursuant to the previous sentence, or
(ii) the later of (A) September 30, 1996 or (B) if Buyer timely
notifies the Company that it is, pursuant to Section 2.4(b),
exercising its right to make a Subsequent Purchase equal to the then
amount of the Remaining Equity Commitment, then, the date as soon
thereafter as (x) all conditions to Buyer's obligations to effect
such purchase shall have been satisfied or waived, and (y) such
purchase shall have been effected.
(b) Section 1.83 of the Agreement is hereby amended by deleting
such Section 1.83 in its entirety and replacing it with the following:
Section 1.83 "Second Closing" shall have the meaning set forth
in Section 2.4(a).
(c) The Agreement is hereby amended by adding a new Section 1.87a
following Section 1.87, as follows:
Section 1.87a "Subsequent Closings" shall mean, collectively,
the Second Closing and all Closings occurring thereafter.
(d) Section 1.88 of the Agreement is hereby amended by deleting the
third to last word thereof and replacing such deleted word with "any".
(e) Section 1.89 of the Agreement is hereby amended by deleting
such Section 1.89 in its entirety and replacing it with the following:
Section 1.89 Subsequent Purchase" shall have the meaning set
forth in Section 2.4(b).
(f) Section 2.4 of the Agreement is hereby amended by deleting such
Section 2.4 in its entirety and replacing it with the following:
Section 2.4 Subsequent Purchases and Sales. (a) Subject to
the terms and conditions hereof and subject to satisfaction or
waiver of the applicable conditions set forth in Sections 7.2 and
7.3 at a Closing to be held on July 8, 1996 (the "Second Closing"),
Buyer shall purchase and acquire (and the Advancing Party shall
advance sufficient funds for such purchase) from the Company, and
the Company will sell, convey, assign, transfer and deliver to
Buyer, 1,916,933 shares of Company Common Stock, and Buyer will pay
to the Company $60,000,002.90 for such shares of Company Common
Stock.
(b) Subject to the terms and conditions hereof and subject to
satisfaction or waiver of the applicable conditions set forth in
Sections 7.2 and 7.3, from time to time following the Second
Closing, the Company shall have the right to require Buyer to
purchase and acquire (and the Advancing Party to advance sufficient
funds for such purchase) from the Company, and the Company will
sell, convey, assign, transfer and deliver to Buyer, additional
shares of Company Common Stock (such purchases together with the
purchases effected at the Second Closing, the "Subsequent
Purchases"), the number of which shares of Company Common Stock
shall be determined by the Company; provided, however, that each
Subsequent Purchase other than the purchase effected at the Second
Closing shall be made at the Per Share Purchase Price and, except
with respect to the purchase effected at the Second Closing, shall
consist of a sufficient number of shares of Company Common Stock so
that each such Subsequent Purchase Price is equal to or greater than
$15 million, and provided further that the Subsequent Purchase Price
to be paid at any Closing is not greater than the Remaining Equity
Commitment immediately prior to such Closing. In no event shall
Buyer be required to purchase shares of Company Common Stock
pursuant hereto so that it shall have expended more than the Total
Equity Commitment. Subject to the terms and conditions hereof, each
Closing of a Subsequent Purchase other than the Second Closing shall
be on the first Business Day following the 19th day of the month
following any month in which the Company provides Buyer with written
notice of its desire to effect a Closing in the following month, if
such written notice is given to Buyer at least five Business Days
prior to the end of such preceding month.
(c) If the Remaining Equity Commitment on September 1, 1996 is
greater than zero, then Buyer shall have the right, subject to the
satisfaction or waiver of the applicable conditions set forth in
Sections 7.2, 7.3 and 7.4, to make a single Subsequent Purchase from
the Company of a sufficient number of shares of Company Common Stock
at the Per Share Purchase Price so that the Remaining Equity
Commitment equals zero by September 30, 1996, or as soon thereafter
as all conditions to Buyer's obligation to effect any purchase of
Company Common Stock hereunder shall have been satisfied or waived.
(g) Clause (iii) of Section 2.5(b) of the Agreement is hereby
amended by deleting such Clause in its entirety and replacing it with the
following:
(iii) evidence or copies of any consents, approvals, orders,
qualifications or waivers required pursuant to Section 7.1, as to
the Initial Closing only, and pursuant to Sections 7.2 and 7.3, as
to all Closings.
(h) Section 5.4(a) of the Agreement is hereby amended by adding
after the last sentence thereof the following:
The Company agrees that until the 20% Termination Date (as defined
in the Strategic Alliance Agreement), it shall endeavor to provide
to Buyer advance notice of its intention to make, any material
public release or announcement concerning the Company or any of its
Affiliates, in each case, if possible, at least one Business Day
prior to such release or announcement.
(i) Section 7.2 of the Agreement is hereby amended by (i) changing
the first reference therein to "the Second Closing" to "each Subsequent
Closing" and (ii) by changing all other references therein to "the Second
Closing" to "such Subsequent Closing."
(j) Section 7.3 of the Agreement is hereby amended by changing the
first reference therein to "the Second Closing" to "each Subsequent Closing."
(k) Section 7.4 of the Agreement is hereby amended by changing the
first reference therein to "the Second Closing" to "each Subsequent Closing."
(l) The first sentence of sentence of Section 8.1 of the Agreement
is hereby amended by deleting such sentence in its entirety and replacing it
with the following:
All representations, warranties and (except as provided by the last
sentence of this Section 8.1) covenants and agreements of the
parties contained herein, including indemnity or indemnification
agreements contained herein, or in any Schedule or Exhibit hereto,
or any certificate, document or other instrument delivered in
connection herewith shall survive the First Closing and all
Subsequent Closings until the first anniversary of the last
Subsequent Closing.
3. No Effect on Consistent Terms. All terms of the Agreement not
inconsistent with this Amendment shall remain in place and in full force and
effect and shall be unaffected by this Amendment.
4. Headings. The headings contained in this Amendment are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Amendment.
5. Counterparts. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party.
IN WITNESS WHEREOF, this Amendment has been signed by or on behalf
of each of the parties hereto as of the day first above written.
STORAGE USA, INC.
By:
Name:
Title:
SECURITY CAPITAL HOLDINGS S.A.
By:
Name:
Title:
SECURITY CAPITAL U.S. REALTY
By:
Name:
Title:
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration
Statement on Form S-3 (File No. 333-4556) of Storage USA, Inc., of (1) our
report dated January 26, 1996, except for Note 5 and Note 13, as to which
the date is March 21, 1996, on our audit of the consolidated financial
statements of Storage USA, Inc. (the "Company") as of December 31, 1995
and 1994, and for the year ended December 31, 1995 and for the period from
March 24, 1994 (inception) through December 31, 1994, and the combined
results of Storage USA, Inc. (the "Predecessor") for the period from
January 1, 1994 through March 23, 1994, and for the year ended December
31, 1993, which report is incorporated by reference in the Company's 1995
Form 10-K/A-1; (2) our report dated January 26, 1996, on our audit of the
financial statement schedule of Storage USA, Inc. as of December 31, 1995,
wh8ich reporti s included in the Company's 1995 Form 10-K/A-1, (3) our
report dated December 29, 1995, on our audits of the Historical Summaries
of Combined Gross Revenue and Direct Operating Expenses for certain self-
storage facilities (the "Acquisition Facilities") for the year ended
December 31, 1994, which report is included in the Company's 8-K dated
April 5, 1996, and (4) our report dated June 28, 1996, on our audits of
the Historical Summaries of Combined Gross Revenue and Direct Operating
Expenses for certain self-storage facilities (the "Acquisition
Facilities") for the year ended December 31, 1995, which report is
included in the Company's 8-K/A dated July 17, 1996.
We also consent to the reference to our firm under the caption
"Experts".
COOPERS & LYBRAND, L.L.P.
Baltimore, Maryland
August 22, 1996
