As filed with the Securities and Exchange Commission on May 21, 1999
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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STORAGE USA, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1251239
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
(901) 252-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John W. McConomy
Executive Vice President and General Counsel
Storage USA, Inc.
165 Madison Avenue,
Suite 1300
Memphis, Tennessee 38103
(901) 252-2000
(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
(804) 788-7375
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
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]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Title of Each Class of Aggregate Maximum Maximum Amount of
Securities to be Amount Offering Aggregate Registration
Registered to be Price Per Offering Fee
Registered Unit(1) Price(1)
===============================================================================
Common Stock, $.01 par 12,413 $33.875 $420,490 $117
value, per share
===============================================================================
(1) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based upon the prices of the Common Stock on the New York Stock
Exchange on May 16, 1999.
--------------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 21, 1999
Prospectus
12,413 Shares
Storage USA, Inc.
Common Stock
------------
Storage USA Common Stock trades on the New York Stock Exchange under the
symbol "SUS."
We may issue up to 12,413 shares of Common Stock to Storage Developers,
L.P. (the "Unitholder") which sold self-storage facilities to SUSA Partnership,
L.P. on May 15, 1998. As partial consideration for its properties, the
Unitholder received a total of 12,413 units of limited partnership interest in
SUSA Partnership.
We will issue shares of Common Stock if:
1. the Unitholder chooses to redeem its partnership units, and
2. Storage USA elects to exchange the units for shares of Common
Stock.
The Unitholder will receive one share of Common Stock for each unit
exchanged. The Unitholder will not pay, and we will not receive, any cash for
the shares of Common Stock.
In part so that we can continue to qualify as a "real estate investment
trust" under the Internal Revenue Code, our Charter does not permit anyone to
own more than 9.8% of our outstanding Common Stock. This and other limits on who
can own Common Stock are described in this prospectus under "Restrictions on
Ownership and Transfer."
------------
Neither the Securities and Exchange Commission nor any State securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------
The date of this Prospectus is May 21, 1999.
<PAGE>
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION..........................................1
A WARNING ABOUT FORWARD-LOOKING STATEMENTS...................................1
DESCRIPTION OF CAPITAL STOCK.................................................2
RESTRICTIONS ON OWNERSHIP AND TRANSFER.......................................3
REDEMPTION OF UNITS..........................................................4
COMPARISON OF OWNERSHIP OF UNITS AND SHARES..................................5
FEDERAL INCOME TAX CONSEQUENCES
OF STORAGE USA'S STATUS AS A REIT.....................................14
PLAN OF DISTRIBUTION........................................................34
LEGAL OPINIONS..............................................................34
EXPERTS.....................................................................34
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus:
o Annual Report on Form 10-K for the year ended December 31, 1998;
o Quarterly Report on Form 10-Q for the period ended March 31, 1999; and
o The description of the Common Stock contained in our Registration
Statement on Form 8-A, filed with the SEC on March 15, 1994.
You may request a copy of these filings, at no cost, by writing or
telephoning:
Storage USA, Inc.
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Attention: Secretary
Telephone: 901/252-2000
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. We will not make an offer of
these shares in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference, may contain
"forward-looking" statements as described in Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements usually include words like "believes," "anticipates"
and "expects" and describe our expectations for the future. Of course, these
expectations may not be met in important ways for a variety of reasons. We have
described these reasons in our most recent Annual Report on Form 10-K under the
heading "Forward Looking Statements and Risk Factors" and the other reports we
file with the SEC, and you should review them before you decide to buy our
stock. We are not required to update any forward-looking statements we make and
we may not.
<PAGE>
STORAGE USA, INC.
Storage USA, Inc. ("Storage USA") is a self-managed, self-advised real
estate investment trust ("REIT"). We manage, acquire, develop and franchise
self-storage facilities. We do business through SUSA Partnership, L.P. ("SUSA
Partnership"), of which we are the sole general partner and in which we owned an
approximate 88.6% partnership interest as of March 31, 1999. Our 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 our 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.
We are a Tennessee corporation. Our executive offices are located at 165
Madison Avenue, Suite 1300, Memphis, Tennessee 38103, and our telephone number
is (410) 730-9500.
DESCRIPTION OF CAPITAL STOCK
Storage USA 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, 650,000
shares of which have been designated as 8 7/8% Series A Cumulative Redeemable
Preferred Stock. As of March 31, 1999, there were 27,875,377 shares of Common
Stock outstanding. No shares of Preferred Stock were outstanding. The following
is only a summary of some of the rights of shareholders that might be important
to you. You should refer to our Charter and By-laws for a complete statement of
your rights as a shareholder. Both the Charter and the By-laws are filed with
the SEC as exhibits to the registration statement of which this prospectus is a
part.
Common Stock. As a holder of Common Stock you will have 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, only holders
of Common Stock have voting rights. The Charter does not provide for cumulative
voting in the election of directors or for preemptive rights to acquire new
shares issued by Storage USA. Common shareholders will receive dividends if the
Board declares them out of available funds.
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."
Preferred Stock. Under the Charter, the Board of Directors is authorized,
without further stockholder action, to issue up to 5,000,000 shares of Preferred
Stock. The Board may issue Preferred Stock in series, with different
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions.
<PAGE>
The Board has designated 650,000 shares of Preferred Stock as 8 7/8%
Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock").
Series A Preferred Stock is issuable in certain circumstances in exchange for
units of 8 7/8% Series A Cumulative Redeemable Preferred partnership interest in
SUSA Partnership, which have terms essentially identical to those of the Series
A Preferred Stock. If issued, the Series A Preferred Stock will be entitled to
receive cumulative preferential dividends at the rate of $8.78 per share per
year and will have a liquidation preference of $100 per share. Series A
Preferred Stock will be redeemable at the option of Storage USA beginning
November 1, 2003 at a redemption price of $100 per share, plus accrued but
unpaid dividends. The Series A Preferred Stock has voting rights only with
respect to certain matters that would adversely affect its rights.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Charter provides that, subject to certain exceptions, no stockholder
may own, or be deemed to own by virtue of the attribution provisions of the
Internal Revenue Code of 1986 as amended (the "Code"), more than 9.8% of the
outstanding shares of Common Stock or 9.8% of the outstanding shares of any
series of Preferred Stock (the "Ownership Limitation"). Pursuant to a Strategic
Alliance Agreement, dated as of March 19, 1996, as amended, among Storage USA,
Security Capital U.S. Realty and Security Capital Holdings S.A. (together with
Security Capital U.S. Realty, "Security Capital"), Security Capital and its
affiliates may beneficially own, in the aggregate, up to 42.5% of the Common
Stock outstanding (the "Special Stockholder Limit"). At January 1, 1999,
Security Capital held 11,765,654 shares, or approximately 42.2% of the Common
Stock outstanding. The Ownership Limitation prevents any non-U.S. holder (other
than Security Capital and its affiliates) from acquiring additional shares of
Storage USA's capital stock if, as a result of such acquisition, Storage USA
would fail to qualify as a domestically-controlled REIT (determined assuming
that Security Capital owns the maximum percentage of Storage USA's capital stock
that it is permitted to own under the Special Stockholder Limit).
The Charter provides that if any holder of capital stock of Storage USA
purports to transfer shares to a person or there is a change in the capital
structure of Storage USA, and either the purported transfer or the change in
capital structure would result in Storage USA 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 Storage USA 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.
<PAGE>
The Board of Directors may grant an exemption from the Ownership
Limitation to any person so requesting, so long as (A) the Board has determined
that such exemption will not result in Storage USA 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
Under the Second Amended and Restated Agreement of Limited Partnership for
SUSA Partnership (the "Partnership Agreement"), the limited partners of SUSA
Partnership generally have the right to redeem their units of partnership
interest (the "Units"). Each limited partner may, subject to certain
limitations, require that SUSA Partnership redeem all or a portion of his Units
at any time after one year from the date he acquired the Units by delivering a
redemption notice to Storage USA. The form of the notice is an exhibit to the
Partnership Agreement.
A Limited Partner must request the redemption of at least 500 Units. If
the limited partner owns less than 500 Units, he must request the redemption of
all of his Units.
When a limited partner redeems his Units, SUSA Partnership can choose to
exchange the Units for either:
o a number of shares of Common Stock equal to the number of Units redeemed
(subject to certain adjustments), or
o cash in an amount equal to the market value of the number of shares
of Common Stock he would have received pursuant to clause (1) above.
To determine the amount of cash that SUSA Partnership will pay under
clause (2), SUSA Partnership will assume that the market value of the Common
Stock is equal to the average of the closing trading prices of the Common Stock
for the ten consecutive trading days before the day on which the redemption
notice was received by Storage USA.
The limited partner shall not receive Common Stock for his Units if the
issuance of Common Stock to him would:
o result in any person owning, directly or indirectly, Common Stock in
excess of the Ownership Limitation,
o result in Common Stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution),
o result in Storage USA being "closely held" within the meaning of Section
856(h) of the Code,
<PAGE>
o cause Storage USA to own, actually or constructively, 10% or more of
the ownership interests in a tenant of Storage USA's or SUSA
Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Code, or
o cause the acquisition of Common Stock by the redeeming limited
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.
Instead of SUSA Partnership redeeming the Units, Storage USA may, in its
sole discretion, elect to purchase the Units directly from the limited partner
for either shares of Common Stock or cash, as described above. Storage USA
anticipates that it generally will elect to exchange the Units for the shares of
Common Stock being offered by this prospectus. This transaction will be treated
as a sale of the Units to Storage USA for federal income tax purposes. See "--
Tax Consequences of Redemption." After a limited partner redeems Units, he will
no longer have a right to receive distributions with respect to those Units.
COMPARISON OF OWNERSHIP OF UNITS AND SHARES
Generally, an investment in shares of Common Stock of Storage USA is
substantially equivalent economically to an investment in Units in SUSA
Partnership. Since SUSA Partnership makes distributions to its partners on a per
Unit basis and Storage USA 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. Shareholders and SUSA
Partnership's limited partners generally share in the risks and rewards of
ownership in the enterprise being conducted by Storage USA (through SUSA
Partnership). However, there are some differences between ownership of Units and
ownership of shares of Common Stock, some of which may be important to you.
The information below highlights a number of the significant differences
between SUSA Partnership and Storage USA and compares certain legal rights
associated with the ownership of Units and Common Stock, respectively. These
comparisons are intended to help SUSA Partnership's limited partners understand
how their investment will be changed if they redeem their Units for Common
Stock.
This discussion is summary in nature and does not constitute a complete
discussion of these matters. If you own Units, you should carefully review all
of this Prospectus and the registration statement of which this Prospectus is a
part for additional important information about Storage USA.
Form of Organization and Assets Owned. SUSA Partnership is organized as a
Tennessee limited partnership, and Storage USA is its General Partner. Storage
USA is a Tennessee corporation. Storage USA 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. SUSA Partnership has a stated termination date of
December 31, 2054, although it may be terminated earlier under certain
circumstances. Storage USA has a perpetual term and intends to continue its
operations indefinitely.
<PAGE>
Additional Equity. SUSA 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, Storage USA, in its
sole discretion, may deem appropriate. In addition, if Storage USA offers
securities and contributes the proceeds from the sale of those securities to
SUSA Partnership, the General Partner may cause SUSA Partnership to issue
additional Units, or another class or series of partnership interest having
substantially similar rights as the new securities, to the General Partner.
Consideration for additional partnership interests may be cash or other property
or other assets permitted by Tennessee law.
Under the Charter, Storage USA has the authority to issue up to
150,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As
long as SUSA Partnership is in existence, all equity capital raised by Storage
USA will be contributed to SUSA Partnership in exchange for Units or other
interests in SUSA Partnership.
Management and Control. The General Partner of SUSA Partnership has the
exclusive power to manage and control all of SUSA Partnership's business. No
limited partner has any right to participate in or exercise management or
control over the SUSA Partnership's business. Upon the occurrence of an event of
bankruptcy or the dissolution of the General Partner, the General Partner will
be deemed to be removed automatically; otherwise, the limited partners may not
remove the General Partner with or without cause.
The Board of Directors has exclusive control over Storage USA'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 conflicts 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 Storage USA.
Fiduciary Duties. Under Tennessee law, the General Partner of SUSA
Partnership is accountable to SUSA Partnership as a fiduciary and, consequently,
must exercise good faith in all of its dealings with respect to partnership
affairs. However, under the Partnership Agreement, the General Partner is not
required to consider the tax consequences to any limited partner of any action
taken by it. So long as it acts in good faith, the General Partner is not liable
to a limited partner if the limited partner suffers damages or does not receive
certain benefits as a result of action or inaction of the General Partner.
Under Tennessee law, Storage USA'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 Storage USA who act in such a
manner generally will not be liable to Storage USA or its shareholders for
monetary damages arising from their activities.
Management Limitation of Liability and Indemnification. The Partnership
Agreement generally provides that the General Partner will not be liable for
monetary damages to SUSA Partnership or any limited partner for losses sustained
or liabilities incurred as a result 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. Any action it takes or omits to take while relying on the opinion of
such persons, as to matters which the General Partner reasonably believes to be
within their professional or expert competence, are conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
<PAGE>
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 liabilities (joint or several and including reasonable legal fees and
expenses) arising from claims that relate to the operations of SUSA Partnership.
However, SUSA Partnership may not indemnify any such person (1) for an act or
omission that was material to the matter giving rise to the claim and either was
committed in bad faith or was the result of active and deliberate dishonesty,
(2) if such person actually received an improper benefit in money, property or
services or (3) 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 the assets of SUSA Partnership.
Storage USA'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 (1) such persons
conducted themselves in good faith, (2) 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 (3) in the case of any criminal
proceeding, they had no reasonable cause to believe that their conduct was
unlawful. Any indemnification by Storage USA pursuant to the provisions of the
Charter described above will be paid out of the assets of Storage USA 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. However, a corporation cannot eliminate or limit the
liability of a director (1) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law, or
(3) for unlawful distributions that exceed what could have been distributed
without violating the TBCA or the corporation's charter. Storage USA's Charter
contains a provision eliminating the personal liability of its directors or
officers to Storage USA 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, SUSA
Partnership's General Partner has exclusive management power over the
partnership's business and affairs. The limited partners may not remove the
General Partner 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 SUSA Partnership.
<PAGE>
As described above under "Restrictions on Ownership and Transfer," the
Charter contains provisions restricting the acquisition of shares of Common
Stock.
In addition, Tennessee has adopted a series of statutes which 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 a
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 of 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 (1) merger or
consolidation; (2) share exchange; (3) 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;
(4) issuance or transfer of shares from the corporation to the interested
shareholder; (5) plan of liquidation or dissolution proposed by the interested
shareholder; (6) transaction or recapitalization which increases the
proportionate share of any outstanding voting securities owned or controlled by
the interested shareholder; or (7) financing arrangement whereby any interested
shareholder receives, directly or indirectly, a benefit, except proportionately
as a shareholder.
<PAGE>
"Interested shareholder" is defined as (1) 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 (2) 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 (A) is approved by the
holders of two-thirds of the voting stock not beneficially owned by the
interested shareholder, or (B) 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: (A) one-fifth
(1/5) or more but less than one-third (1/3) of all voting power; (B) one-third
(1/3) or more but less than a majority of all voting power; or (C) 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.
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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.
Storage USA's Bylaws contain a provision exempting from the Tennessee
Control Share Acquisition Act any and all such acquisitions by any person of
Storage USA'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, limited partners have
voting rights only as to the continuation of SUSA 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 SUSA Partnership are made by the General Partner. As of December
31, 1998, Storage USA held approximately 88% of the outstanding interests in
SUSA Partnership. As limited partners redeem their Units, Storage USA's
percentage ownership of SUSA Partnership will increase. If additional Units are
issued to third parties, Storage USA's percentage ownership of SUSA Partnership
will decrease.
Shareholders of Storage USA have the right to vote on, among other things,
a merger or sale of substantially all of the assets of Storage USA, 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, 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 (1) affect the redemption rights, (2) adversely affect the rights of
limited partners to receive distributions payable to them under The Partnership
Agreement, (3) alter SUSA Partnership's profit and loss allocations, or (4)
impose any obligation upon the limited partners to make additional capital
contributions to SUSA Partnership.
<PAGE>
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 by the written consent of such
majority if such a vote becomes permissible under Tennessee law). Storage USA'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 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 SUSA Partnership or Storage USA. At any time
prior to December 31, 2054 (upon which date SUSA Partnership will terminate),
the General Partner may elect to dissolve SUSA Partnership in its sole
discretion. Such dissolution shall also occur upon (1) the bankruptcy,
dissolution or withdrawal of the General Partner (unless the limited partners
unanimously elect to continue SUSA Partnership), (2) 90 days after the sale or
other disposition of all or substantially all the assets of SUSA Partnership or
(3) 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 Storage USA.
Vote Required to Sell Assets or Merge. Under The Partnership Agreement,
the sale, exchange, transfer or other disposition of all or substantially all of
SUSA 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 Storage USA 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
Storage USA's assets other 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 Storage USA's assets in the usual and regular course of business.
Compensation, Fees and Distributions. Storage USA does not receive any
compensation for its services as General Partner of SUSA Partnership. As a
partner in SUSA Partnership, however, the General Partner has the same right to
allocations and distributions as other partners. In addition, SUSA Partnership
will reimburse the General Partner for all of its expenses related to the
ongoing operation of SUSA Partnership and any offering of partnership interests
in SUSA Partnership or capital stock of Storage USA.
Liability of Investors. Under The Partnership Agreement and applicable
state law, the liability of the limited partners for SUSA 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 SUSA Partnership.
Under Tennessee law, Storage USA'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 SUSA Partnership. SUSA Partnership generally intends to
retain and reinvest in its business proceeds of the sale of property or excess
refinancing proceeds.
<PAGE>
The shares of Common Stock constitute equity interests in Storage USA.
Storage USA is entitled to receive its pro rata share of distributions made by
SUSA Partnership with respect to the Units owned by Storage USA, 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, Storage USA
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 SUSA 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 purpose at any time on terms and
conditions established by the General Partner.
Storage USA's Board of Directors may issue, in its discretion, additional
shares of Common Stock and a variety of other equity securities 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 any of his Units without (1) obtaining the prior written consent of the
General Partner, which consent may be withheld in its sole and absolute
discretion, and (2) meeting certain other requirements set forth in the
Partnership Agreement. However, subject to certain restrictions, a limited
partner may transfer Units (A) as a gift to a member of a his immediate family
or a trust for the benefit of a member of a his immediate family or (B) if the
limited partner is a corporation or other business entity, to any of its
affiliates or subsidiaries or to any successor in interest.
Limited partners should expect to hold their Units until they redeem them
for cash or shares of Common Stock, or until SUSA Partnership terminates. The
right of a transferee to become a substituted limited partner also is subject to
the consent of the General Partner, and the General Partner may withhold its
consent 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 SUSA
Partnership in connection with such transfer.
Federal Income Taxation. SUSA Partnership is not subject to federal income
taxes. Instead, each holder of an interest in SUSA Partnership takes into
account its allocable share of the partnership's taxable income or loss in
determining its federal income tax liability.
<PAGE>
Income and loss from SUSA Partnership generally is subject to the "passive
activity" limitations. Under the "passive activity" rules, income and loss from
SUSA 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." However, if
SUSA Partnership is considered a "publicly traded partnership," then income and
loss from SUSA Partnership can only be offset against other income and loss from
SUSA 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 SUSA Partnership are not taxable to a holder of
Units except to the extent they exceed such holder's basis in its Units (which
will include such holder's allocable share of SUSA 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 where SUSA Partnership owns
property, even if they are not residents of those states, and in some such
states SUSA Partnership is required to remit a withholding tax with respect to
distributions to such nonresidents.
Storage USA elected to be taxed as a REIT effective for its taxable year
ended December 31, 1994. So long as it qualifies as a REIT, Storage USA
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 Storage USA will be treated as "portfolio" income to its
shareholders and cannot be offset with losses from "passive activities."
Distributions made by Storage USA 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, Storage
USA shareholders (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 Storage USA's operations and
distributions. Storage USA may be required to pay state income and/or franchise
taxes in certain states.
FEDERAL INCOME TAX CONSEQUENCES OF
STORAGE USA'S STATUS AS A REIT
This section summarizes the federal income tax issues that you, as a
stockholder, may consider relevant. Because this section is a summary, it does
not address all of the tax issues that may be important to you. In addition,
this section does not address the tax issues that may be important to certain
types of stockholders that are subject to special treatment under the federal
income tax laws, such as insurance companies, tax-exempt organizations (except
to the extent discussed in "--Taxation of Tax-Exempt Stockholders" below),
financial institutions or broker-dealers, and non-U.S. individuals and foreign
corporations (except to the extent discussed in "--Taxation of Non-U.S.
Stockholders" below).
<PAGE>
The statements in this section are based on the current federal income tax
laws governing qualification as a REIT. We cannot assure you that new laws,
interpretations thereof, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.
We urge you to consult your own tax advisor regarding the specific tax
consequences to you of investing in the common stock and of Storage USA's
election to be taxed as a REIT. Specifically, you should consult your own tax
advisor regarding the federal, state, local, foreign, and other tax consequences
of such investment and election, and regarding potential changes in applicable
tax laws.
Taxation of Storage USA
Storage USA elected to be taxed as a REIT under the federal income tax
laws commencing with its taxable year ended December 31, 1994. Storage USA
believes that it has operated in a manner intended to qualify as a REIT since
its election to be a REIT and it intends to continue to so operate. This section
discusses the laws governing the federal income tax treatment of a REIT and its
stockholders. These laws are highly technical and complex.
Storage USA's qualification as a REIT depends on its ability to meet on a
continuing basis certain qualification tests set forth in the federal tax laws.
Those qualification tests involve the percentage of income that Storage USA
earns from specified sources, the percentage of its assets that fall within
certain categories, the diversity of its share ownership, and the percentage of
its earnings that it distributes. We describe the REIT qualification tests in
more detail below. For a discussion of the tax treatment of Storage USA and its
stockholders if Storage USA fails to qualify as a REIT, see "--Failure to
Qualify."
If Storage USA qualifies as a REIT, it generally will not be subject to
federal income tax on the taxable income that it distributes to its
stockholders. The benefit of that tax treatment is that it avoids the "double
taxation" (i.e., at both the corporate and stockholder levels) that generally
results from owning stock in a corporation. However, Storage USA will be subject
to federal tax in the following circumstances:
o Storage USA will pay federal income tax on taxable income (including
net capital gain) that it does not distribute to its stockholders
during, or within a specified time period after, the calendar year
in which the income is earned.
o Storage USA may be subject to the "alternative minimum tax" on any
items of tax preference that it does not distribute or allocate to
its stockholders.
o Storage USA will pay income tax at the highest corporate rate on (1)
net income from the sale or other disposition of property acquired
through foreclosure ("foreclosure property") that it holds primarily
for sale to customers in the ordinary course of business and (2)
other non-qualifying income from foreclosure property.
<PAGE>
o Storage USA will pay a 100% tax on net income from certain sales or
other dispositions of property (other than foreclosure property)
that it holds primarily for sale to customers in the ordinary course
of business.
o If Storage USA fails to satisfy the 75% gross income test or the 95%
gross income test (as described below under "--Requirements for
Qualification--Income Tests"), and nonetheless continues to qualify
as a REIT because it meets certain other requirements, it will pay a
100% tax on (1) the gross income attributable to the greater of the
amounts by which it fails the 75% and 95% gross income tests,
multiplied by (2) a fraction intended to reflect its profitability.
o If Storage USA fails to distribute during a calendar year at least
the sum of (1) 85% of its REIT ordinary income for such year, (2)
95% of its REIT capital gain net income for such year, and (3) any
undistributed taxable income from prior periods, it will pay a 4%
excise tax on the excess of such required distribution over the
amount it actually distributed.
o Storage USA may elect to retain and pay income tax on its net
long-term capital gain.
o If Storage USA acquires any asset from a C corporation, or a
corporation generally subject to full corporate-level tax, in a
merger or other transaction in which it acquires a basis in the
asset that is determined by reference to the C corporation's
basis in the asset, or another asset, it will pay tax at the
highest regular corporate rate applicable if it recognizes gain on
the sale or disposition of such asset during the 10-year period
after it acquires such asset. The amount of gain on which it
will pay tax is the lesser of (1) the amount of gain that it
recognizes at the time of the sale or disposition and (2) the
amount of gain that it would have recognized if it had sold the
asset at the time it acquired the asset. The rule described in this
paragraph will apply assuming that Storage USA makes an election
under IRS Notice 88-19 upon its acquisition of an asset from a
C corporation.
<PAGE>
Requirements for Qualification
A REIT is a corporation, trust, or association that meets the following
requirements:
o it is managed by one or more trustees or directors;
o its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
o it would be taxable as a domestic corporation, but for the REIT
provisions of the federal income tax laws;
o it is neither a financial institution nor an insurance company subject
to special provisions of the federal income tax laws;
o at least 100 persons are beneficial owners of its shares or ownership
certificates;
o not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, as defined in the federal income tax laws to include
certain entities, during the last half of any taxable year;
o it elects 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 Internal Revenue
Service that must be met to elect and maintain REIT status;
o it uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the federal income tax laws;
and
o it meets certain other qualification tests, described below,
regarding the nature of its income and assets.
Storage USA must meet requirements 1 through 4 during its entire taxable
year and must meet requirement 5 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. If Storage USA complies with all the requirements for ascertaining the
ownership of its outstanding shares in a taxable year and has no reason to know
that it violated requirement five, it will be deemed to have satisfied
requirement five for such taxable year. For purposes of determining share
ownership under requirement five, an "individual" generally includes a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes. An "individual," however, generally does not include a trust that is a
qualified employee pension or profit sharing trust under the federal income tax
laws, and beneficiaries of such a trust will be treated as holding shares of
Storage USA in proportion to their actuarial interests in the trust for purposes
of requirement five.
<PAGE>
Storage USA believes that it has issued sufficient common stock with
sufficient diversity of ownership to satisfy requirements 5 and 6 set forth
above. In addition, Storage USA's Charter restricts the ownership and transfer
of the common stock so that Storage USA should continue to satisfy requirements
5 and 6. The provisions of the Charter restricting the ownership and transfer of
the common stock are described in "Restrictions on Ownership and Transfer."
Storage USA currently has one direct corporate subsidiary, Storage USA
Trust, a Maryland real estate investment trust (the "Trust"), and may have
additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated as a corporation separate from its
parent REIT. All assets, liabilities, and items of income, deduction, and credit
of a "qualified REIT subsidiary" are 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 is owned by the REIT. Thus, in
applying the requirements described herein, any "qualified REIT subsidiary" of
Storage USA will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiary will be treated as assets, liabilities,
and items of income, deduction, and credit of Storage USA. The Trust is a
qualified REIT subsidiary. Accordingly, it is not subject to federal corporate
income taxation, though it may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
treated as owning its proportionate share of the assets of the partnership and
as earning its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. Thus, Storage USA's
proportionate share of the assets, liabilities, and items of income of SUSA
Partnership and of any other partnership in which Storage USA has acquired or
will acquire an interest, directly or indirectly (a "Subsidiary Partnership"),
are treated as assets and gross income of Storage USA for purposes of applying
the various REIT qualification requirements.
Income Tests
Storage USA must satisfy two gross income tests annually to maintain its
qualification as a REIT. First, at least 75% of its gross income for each
taxable year must consist of defined types of income that it derives, directly
or indirectly, from investments relating to real property or mortgages on real
property or temporary investment income. Qualifying income for purposes of that
75% gross income test includes:
o rents from real property;
o interest on debt secured by mortgages on real property or on
interests in real property; and
o dividends or other distributions on and gain from the sale of shares in
other REITs.
Second, at least 95% of its gross income for each taxable year must
consist of income that is qualifying income for purposes of the 75% gross income
test, dividends, other types of interest, gain from the sale or disposition of
stock or securities, or any combination of the foregoing. Gross income from
Storage USA's sale of property that it holds primarily for sale to customers in
the ordinary course of business is excluded from both income tests. The
following paragraphs discuss the specific application of these tests to Storage
USA.
<PAGE>
Rent that Storage USA receives from real property that it owns and leases
to tenants will qualify as "rents from real property," which is qualifying
income for purposes of the 75% and 95% gross income tests, only if the following
conditions are met:
o First, the rent must not be based, in whole or in part, on the
income or profits of any person, but may be based on a fixed
percentage or percentages of receipts or sales.
o Second, neither Storage USA nor a direct or indirect owner of 10% or
more of its stock may own, actually or constructively, 10% or more
of a tenant from whom it receives rent.
o Third, all of the rent received under a lease of real property will
not qualify as "rents from real property" unless the rent
attributable to the personal property leased in connection with such
lease is no more than 15% of the total rent received under the
lease.
o Finally, Storage USA generally must not operate or manage its
real property or furnish or render services to its tenants,
other than through an "independent contractor" who is adequately
compensated and from whom Storage USA does not derive revenue.
However, Storage USA need not provide services through an
"independent contractor," but instead may provide services
directly, if the services are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not
considered to be provided for the tenants' convenience. In addition,
Storage USA may provide a minimal amount of "non-customary"
services to the tenants of a property, other than through an
independent contractor, as long as its income from the services
does not exceed 1% of its income from the related property.
Storage USA, through SUSA Partnership, derives most of its revenues from
rent from storage unit leases, additional first month rent, and late charges
attributable to such rents. We believe that, other than the late charges
attributable to rent, which are treated as interest that qualifies for the 95%
gross income test, but not the 75% gross income test, those revenues qualify as
rents from real property for purposes of both gross income tests. 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, 5% of whose voting stock and 100% of whose nonvoting stock are
owned by SUSA Partnership, rent from vehicle and boat storage leases (including
additional first month rent and late charges attributable thereto) and similar
items. We believe that those revenues and other types of potentially
nonqualifying gross income earned by Storage USA in each taxable year are equal
to, and will continue to be equal to, less than 5% of Storage USA's total gross
income and, thus, that such items of income do not adversely affect Storage
USA's qualification as a REIT. Storage USA also receives dividends from SUSA
Management, Inc. and Storage USA Franchise Corp., a Tennessee corporation of
which SUSA Partnership owns 100% of the nonvoting stock. We believe that those
dividends are qualifying income for purposes of the 95% test.
<PAGE>
Storage USA does not receive any rent that is based on the income or
profits of any person. In addition, other than with respect to its leasing
arrangement with SUSA Management, Inc. with respect to the sale of lock and
packing supplies, the revenue from which Storage USA will treat as nonqualifying
income for purposes of the 75% and 95% tests, Storage USA does not own, directly
or indirectly, 10% or more of any tenant or receive any rent based on the income
or profits of any tenant. Furthermore, we believe that any personal property
rented in connection with our storage facilities is well within the 15%
restriction. However, in order for our rental income to constitute "rents from
real property," Storage USA must not provide services, other than within the 1%
de minimis exception described above, to its tenants that are not customarily
furnished or rendered in connection with the rental of the self-storage units,
other than through an independent contractor.
Storage USA, through SUSA Partnership, which is not an independent
contractor, provides certain services with respect to the facilities and will
provide certain services with respect to any newly acquired self-storage
facilities. Such services include:
o common area services, such as cleaning and maintaining public
entrances, exits, stairways, walkways, lobbies and rest rooms,
removing snow and debris, collecting trash, and painting the
exteriors of the facilities and common areas;
o providing general security for the facilities;
o cleaning and repairing of units at the facilities as tenants move in
and out;
o 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, SUSA
Partnership does not otherwise assist tenants in the storage or
removal of goods or belongings from the units);
o 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;
o maintaining underground utilities and structural elements of the
facilities;
o paying real and personal property taxes or the cost of replacing or
refurbishing personal property with respect to real and personal
property owned by SUSA Partnership at a facility;
o for a fee, acting as an agent for moving truck rental companies
for tenants of certain facilities and walk-in customers;
o for a fee, providing packing and shipping services to tenants of
certain facilities and walk-in customers; and
o at a few facilities, allowing tenants to use trucks owned by Storage
USA or SUSA Partnership to move their goods and belongings into and
out of the units without additional charge.
<PAGE>
Storage USA believes that the services provided by SUSA 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.
Storage USA's investment, through SUSA Partnership, in the facilities in
major part gives rise to rental income that is qualifying income for purposes of
both gross income tests. Gains on sales of the facilities or of Storage USA's
interest in SUSA Partnership generally will be qualifying income for purposes of
both gross income tests. Storage USA anticipates that income on its other
investments, including its indirect investments in SUSA Management, Inc. and
Storage USA Franchise Corp., will not result in Storage USA failing either gross
income test for any year.
A REIT will incur a 100% tax on the net income derived from any sale or
other disposition of property, other than foreclosure property, that the REIT
holds primarily for sale to customers in the ordinary course of a trade or
business. We believe that none of Storage USA's or SUSA Partnership's assets is
held for sale to customers and that a sale of any such asset would not be in the
ordinary course of its business. Whether a REIT holds an asset "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 asset. Nevertheless, we will attempt to comply
with the terms of safe-harbor provisions in the federal income tax laws
prescribing when an asset sale will not be characterized as a prohibited
transaction. We cannot provide assurance, however, that we can comply with such
safe-harbor provisions or that Storage USA or SUSA Partnership will avoid owning
property that may be characterized as property that it holds "primarily for sale
to customers in the ordinary course of a trade or business."
From time to time, Storage USA or SUSA Partnership may enter into hedging
transactions with respect to one or more of its assets or liabilities. Its
hedging activities may include entering into interest rate swaps, caps, and
floors, options to purchase such items, and futures and forward contracts. To
the extent that Storage USA or SUSA Partnership enters into an interest rate
swap or cap contract, option, futures contract, forward rate agreement, or any
similar financial instrument to hedge its 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. To the extent that Storage USA or SUSA
Partnership hedges with other types of financial instruments, or in other
situations, it is not entirely clear how the income from those transactions will
be treated for purposes of the gross income tests. We intend to structure any
hedging transactions in a manner that does not jeopardize Storage USA's status
as a REIT.
If Storage USA fails to satisfy one or both of the gross income tests for
any taxable year, it nevertheless may qualify as a REIT for such year if it
qualifies for relief under certain provisions of the Code. Those relief
provisions generally will be available if:
o its failure to meet such tests is due to reasonable cause and not due
to willful neglect;
o we attach a schedule of the sources of its income to its tax return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
<PAGE>
We cannot predict, however, whether in all circumstances Storage USA would
qualify for the relief provisions. In addition, as discussed above in
"--Taxation of Storage USA," even if the relief provisions apply, Storage USA
would incur a 100% tax on the gross income attributable to the greater of the
amounts by which it fails the 75% and 95% gross income tests, multiplied by a
fraction intended to reflect its profitability.
Asset Tests
To maintain its qualification as a REIT, Storage USA also must satisfy two
asset tests at the close of each quarter of each taxable year. First, at least
75% of the value of its total assets must consist of:
o cash or cash items, including certain receivables;
o government securities;
o interests in real property, including leaseholds and options to acquire
real property and leaseholds;
o interests in mortgages on real property;
o stock in other REITs; and
o investments in stock or debt instruments during the one-year period
following Storage USA's receipt of new capital that it raises
through equity offerings or offerings of debt with at least a
five-year term.
The second asset test has two components:
o First, of Storage USA's investments not included in the 75% asset
class, the value of its interest in any one issuer's securities may
not exceed 5% of the value of its total assets; and
o Second, Storage USA may not own more than 10% of any one issuer's
outstanding voting securities.
For purposes of both components of the second asset test, "securities"
does not include Storage USA's stock in any qualified REIT subsidiary or in
other REITs or its interest in any partnership.
The Clinton Administration's budget proposal for fiscal year 2000 would
allow Storage USA to own up to 100% of the stock in two types of taxable REIT
subsidiaries: (1) qualified business subsidiaries, which could perform
activities unrelated to Storage USA's tenants, such as third-party management,
development, and other independent business activities, as well as provide
"customary" services to Storage USA's tenants, and (2) qualified independent
contractor subsidiaries, which could both perform activities that a qualified
business subsidiary could perform and provide "non-customary" services to
Storage USA's tenants. Storage USA would be subject to restrictions on its stock
ownership of those taxable subsidiaries. The taxable REIT subsidiary provision
would be effective after the date of enactment. There would be a transition
period during which Storage USA could convert its existing taxable subsidiaries
on a tax-free basis into qualified business subsidiaries or qualified
independent contractor subsidiaries. Existing taxable subsidiaries, however,
would not be grandfathered after the transition period.
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SUSA Partnership owns 5% of the voting stock and 100% of the nonvoting
stock of SUSA Management, Inc., which together constitute 99% of the beneficial
economic interest therein. In addition, SUSA Partnership owns 100% of the
nonvoting stock of Storage USA Franchise Corp., which represents 97.5% of the
beneficial economic interest therein. By virtue of its partnership interest in
SUSA Partnership, Storage USA is deemed to own its pro rata share of the assets
of SUSA Partnership, including the stock of SUSA Management, Inc. and Storage
USA Franchise Corp. held by SUSA Partnership.
SUSA Partnership does not own more than 10% of the voting securities of
SUSA Management, Inc. or Storage USA Franchise Corp. In addition, based upon its
analysis of the estimated value of the stock of each of SUSA Management, Inc.
and Storage USA Franchise Corp. relative to the estimated value of the other
assets owned by Storage USA, Storage USA believes that neither its pro rata
share of the stock of SUSA Management, Inc. nor its pro rata share of the stock
of Storage USA Franchise Corp. exceeds 5% of the total value of Storage USA'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 Storage
USA or SUSA Partnership increases its interest in SUSA Management, Inc. or
Storage USA Franchise Corp., including as a result of Storage USA increasing its
interest in SUSA Partnership in connection with a stock offering or as Limited
Partners of SUSA Partnership exercise their Redemption Rights. Although Storage
USA 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.
If Storage USA should fail to satisfy the asset tests at the end of a
calendar quarter, it would not lose its REIT status if (1) it satisfied the
asset tests at the close of the preceding calendar quarter and (2) the
discrepancy between the value of its assets and the asset test requirements
arose from changes in the market values of its assets and was not wholly or
partly caused by the acquisition of one or more non-qualifying assets. If
Storage USA did not satisfy the condition described in clause (2) of the
preceding sentence, it still could avoid disqualification as a REIT by
eliminating any discrepancy within 30 days after the close of the calendar
quarter in which the discrepancy arose.
Distribution Requirements
Each taxable year, Storage USA must distribute dividends, other than
capital gain dividends and deemed distributions of retained capital gain, to its
stockholders in an aggregate amount at least equal to:
o the sum of (1) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain or
loss) and (2) 95% of its after-tax net income, if any, from
foreclosure property; minus
o the sum of certain items of non-cash income.
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Storage USA must pay such distributions in the taxable year to which they
relate, or in the following taxable year if it declares the distribution before
it timely files its federal income tax return for such year and pays the
distribution on or before the first regular dividend payment date after such
declaration.
Storage USA will pay federal income tax on taxable income, including net
capital gain, that it does not distribute to stockholders. Furthermore, if it
fails to distribute during a calendar year, or by the end of January following
such calendar year in the case of distributions with declaration and record
dates falling in the last three months of the calendar year, at least the sum
of:
o 85% of its REIT ordinary income for such year;
o 95% of its REIT capital gain income for such year; and
o any undistributed taxable income from prior periods,
it will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts it actually distributed. Storage USA may elect to
retain and pay income tax on the net long-term capital gain it receives in a
taxable year. See "--Taxation of Taxable U.S. Stockholders." If it so elects, it
will be treated as having distributed any such retained amount for purposes of
the 4% excise tax described above. Storage USA has made, and Storage USA intends
to continue to make, timely distributions sufficient to satisfy the annual
distribution requirements.
It is possible that, from time to time, Storage USA may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, Storage USA may
not deduct recognized capital losses from its "REIT taxable income." Further, it
is possible that, from time to time, Storage USA 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. As a result of the foregoing,
Storage USA may have less cash than is necessary to distribute all of its
taxable income and thereby avoid corporate income tax and the excise tax imposed
on certain undistributed income. In such a situation, it may need to borrow
funds or issue preferred stock or additional common stock.
Under certain circumstances, Storage USA may be able to correct a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to its stockholders in a later year. Storage USA may include such deficiency
dividends in its deduction for dividends paid for the earlier year. Although
Storage USA may be able to avoid income tax on amounts distributed as deficiency
dividends, it will be required to pay interest to the Service based upon the
amount of any deduction it takes for deficiency dividends.
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Recordkeeping Requirements
Storage USA must maintain certain records in order to qualify as a REIT.
In addition, to avoid a monetary penalty, it must request on an annual basis
certain information from its stockholders designed to disclose the actual
ownership of its outstanding stock. Storage USA has complied, and Storage USA
intends to continue to comply, with such requirements.
Failure to Qualify
If Storage USA failed to qualify as a REIT in any taxable year, and no
relief provision applied, it would be subject to federal income tax and any
applicable alternative minimum tax on its taxable income at regular corporate
rates. In calculating its taxable income in a year in which it failed to qualify
as a REIT, Storage USA would not be able to deduct amounts paid out to
stockholders. In fact, Storage USA would not be required to distribute any
amounts to stockholders in such year. In such event, to the extent of its
current and accumulated earnings and profits, all distributions to stockholders
would be taxable as ordinary income. Subject to certain limitations of the
federal income tax laws, corporate stockholders might be eligible for the
dividends received deduction. Unless Storage USA qualified for relief under
specific statutory provisions, it also would be disqualified from taxation as a
REIT for the four taxable years following the year during which it ceased to
qualify as a REIT. We cannot predict whether in all circumstances Storage USA
would qualify for such statutory relief.
Taxation of Taxable U.S. Stockholders
As long as Storage USA qualifies as a REIT, a taxable "U.S. stockholder"
must take into account distributions made out of Storage USA's current or
accumulated earnings and profits and that Storage USA does not designate as
capital gain dividends or retained long-term capital gain as ordinary income.
A U.S. stockholder will not qualify for the dividends received deduction
generally available to corporations. As used herein, the term "U.S. stockholder"
means a holder of common stock that for U.S. federal income tax purposes is:
o a citizen or resident of the United States;
o a corporation, partnership, or other entity created or organized in
or under the laws of the United States or of an political
subdivision thereof;
o an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States; or
o any trust with respect to which (1) a U.S. court is able to exercise
primary supervision over the administration of such trust and (2)
one or more U.S. persons have the authority to control all
substantial decisions of the trust.
<PAGE>
A U.S. stockholder generally will recognize distributions that Storage USA
designates as capital gain dividends as long-term capital gain without regard to
the period for which the U.S. stockholder has held its common stock. Subject to
certain limitations, Storage USA will designate its capital gain dividends as
either 20% or 25% rate distributions. A corporate U.S. stockholder, however, may
be required to treat up to 20% of certain capital gain dividends as ordinary
income.
Storage USA may elect to retain and pay income tax on the net long-term
capital gain that it receives in a taxable year. In that case, a U.S.
stockholder would be taxed on its proportionate share of Storage USA's
undistributed long-term capital gain. The U.S. stockholder would receive a
credit or refund for its proportionate share of the tax Storage USA paid. The
U.S. stockholder would increase the basis in its stock by the amount of its
proportionate share of Storage USA's undistributed long-term capital gain, minus
its share of the tax Storage USA paid.
A U.S. stockholder will not incur tax on a distribution in excess of
Storage USA's current and accumulated earnings and profits if such distribution
does not exceed the adjusted basis of the U.S. stockholder's common stock.
Instead, such distribution will reduce the adjusted basis of such common stock.
A U.S. stockholder will recognize a distribution in excess of both Storage USA's
current and accumulated earnings and profits and the U.S. stockholder's adjusted
basis in its common stock 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 U.S. stockholder. In addition, if
Storage USA declares a distribution in October, November, or December of any
year that is payable to a U.S. stockholder of record on a specified date in any
such month, such distribution shall be treated as both paid by Storage USA and
received by the U.S. stockholder on December 31 of such year, provided that
Storage USA actually pays the distribution during January of the following
calendar year.
Stockholders 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 generally. Taxable distributions from the Company and gain from the
disposition of the Common Stock will not be treated as passive activity income
and, therefore, stockholders 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 stockholders 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 U.S. Stockholders on the Disposition of the Common Stock
In general, a U.S. stockholder who is not a dealer in securities must
treat any gain or loss realized upon a taxable disposition of the common stock
as long-term capital gain or loss if the U.S. stockholder has held the common
stock for more than one year and otherwise as short-term capital gain or loss.
However, a U.S. stockholder must treat any loss upon a sale or exchange of
common stock held by such shareholder for six months or less as a long-term
capital loss to the extent of capital gain dividends and other distributions
from Storage USA that such U.S. stockholder treats as long-term capital gain.
All or a portion of any loss that a U.S. stockholder realizes upon a taxable
disposition of the common stock may be disallowed if the U.S. stockholder
purchases other shares of common stock within 30 days before or after the
disposition.
<PAGE>
Capital Gains and Losses
A taxpayer generally must hold a capital asset for more than one year 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%.
The maximum tax rate on long-term capital gain applicable to non-corporate
taxpayers is 20% for sales and exchanges of assets held for more than one year.
The maximum tax rate on long-term capital gain from the sale or exchange of
"section 1250 property," or depreciable real property, is 25% to the extent that
such gain would have been treated as ordinary income if the property were
"section 1245 property." With respect to distributions that Storage USA
designates as capital gain dividends and any retained capital gain that it is
deemed to distribute, Storage USA generally may designate whether such a
distribution is taxable to its non-corporate stockholders at a 20% or 25% rate.
Thus, the tax rate differential between capital gain and ordinary income for
non-corporate taxpayers may be significant. In addition, the characterization of
income as capital gain or ordinary income may affect the deductibility of
capital losses. A non-corporate taxpayer may deduct capital losses not offset by
capital gains against its ordinary income only up to a maximum annual amount of
$3,000. A non-corporate taxpayer may carry forward unused capital losses
indefinitely. A corporate taxpayer must pay tax on its net capital gain 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
Storage USA will report to its stockholders and to the Service the amount
of distributions it pays during each calendar year, and the amount of tax it
withholds, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to distributions
unless such holder (1) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (2) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide Storage USA with
its correct taxpayer identification number also may be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
Storage USA may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to Storage USA.
The Treasury Department has issued final regulations regarding the backup
withholding rules as applied to non-U.S. stockholders. Those regulations alter
certain procedural aspects of backup withholding compliance and are effective
for distributions made after December 31, 1999. See "--Taxation of Non-U.S.
Stockholders."
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities generally are
exempt from federal income taxation. However, they are subject to taxation on
their unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a published ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute unrelated business taxable income,
provided that the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based
on that ruling, amounts that Storage USA distributes to tax-exempt stockholders
generally should not constitute unrelated business taxable income. However, if a
tax-exempt shareholder were to finance its acquisition of the common stock with
debt, a portion of the income that it receives from Storage USA would constitute
<PAGE>
unrelated business taxable income 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 special provisions of the federal
income tax laws are subject to different unrelated business taxable income
rules, which generally will require them to characterize distributions that they
receive from Storage USA as unrelated business taxable income. Finally, in
certain circumstances, a qualified employee pension or profit sharing trust that
owns more than 10% of Storage USA's stock is required to treat a percentage of
the dividends that it receives from Storage USA as unrelated business taxable
income. Such percentage is equal to the gross income Storage USA derives from an
unrelated trade or business (determined as if it were a pension trust) divided
by its total gross income for the year in which it pays the dividends. That rule
applies to a pension trust holding more than 10% of Storage USA's stock only if:
o the percentage of its dividends that the tax-exempt trust must treat
as unrelated business taxable income is at least 5%;
o Storage USA qualifies as a REIT by reason of the modification of the
rule requiring that no more than 50% of Storage USA's shares be
owned by five or fewer individuals that allows the beneficiaries of
the pension trust to be treated as holding Storage USA's stock in
proportion to their actuarial interests in the pension trust; and
o either (1) one pension trust owns more than 25% of the value of
Storage USA's stock or (2) a group of pension trusts individually
holding more than 10% of the value of Storage USA's stock
collectively owns more than 50% of the value of Storage USA's stock.
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "non-U.S. stockholders") are complex. This section
is only a summary of such rules. We urge non-U.S. stockholders to consult their
own tax advisors to determine the impact of federal, state, and local income tax
laws on ownership of the common stock, including any reporting requirements.
A non-U.S. stockholder that receives a distribution that is not
attributable to gain from Storage USA's sale or exchange of U.S. real property
interests (as defined below) and that Storage USA does not designate as a
capital gain dividend or retained capital gain will recognize ordinary income to
the extent that Storage USA pays such distribution out of its current or
accumulated earnings and profits. A withholding tax equal to 30% of the gross
amount of the distribution ordinarily will apply to such distribution unless an
applicable tax treaty reduces or eliminates the tax. However, if a distribution
is treated as effectively connected with the non-U.S. stockholder's conduct of a
U.S. trade or business, the non-U.S. stockholder generally will be subject to
federal income tax on the distribution at graduated rates, in the same manner as
U.S. stockholders 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. stockholder that
is a non-U.S. corporation. Storage USA plans to withhold U.S. income tax at the
rate of 30% on the gross amount of any such distribution paid to a non-U.S.
stockholder unless either:
<PAGE>
o a lower treaty rate applies and the non-U.S. stockholder files
the required form evidencing eligibility for that reduced rate
with Storage USA; or
o the non-U.S. stockholder files an IRS Form 4224 with Storage USA
claiming that the distribution is effectively connected income.
The U.S. Treasury Department has issued final regulations that modify the
manner in which Storage USA will comply with the withholding requirements. Those
regulations are effective for distributions made after December 31, 1999.
A non-U.S. stockholder will not incur tax on a distribution in excess of
Storage USA's current and accumulated earnings and profits if such distribution
does not exceed the adjusted basis of its common stock. Instead, such a
distribution will reduce the adjusted basis of such common stock. A non-U.S.
stockholder will be subject to tax on a distribution that exceeds both Storage
USA's current and accumulated earnings and profits and the adjusted basis of its
common stock, if the non-U.S. stockholder otherwise would be subject to tax on
gain from the sale or disposition of its common stock, as described below.
Because Storage USA generally cannot determine at the time it makes a
distribution whether or not the distribution will exceed its current and
accumulated earnings and profits, it normally will withhold tax on the entire
amount of any distribution at the same rate as it would withhold on a dividend.
However, a non-U.S. stockholder may obtain a refund of amounts that Storage USA
withholds if it later determines that a distribution in fact exceeded its
current and accumulated earnings and profits.
Storage USA must withhold 10% of any distribution that exceeds its current
and accumulated earnings and profits. Consequently, although it intends to
withhold at a rate of 30% on the entire amount of any distribution, to the
extent that it does not do so, it will withhold at a rate of 10% on any portion
of a distribution not subject to withholding at a rate of 30%.
For any year in which Storage USA qualifies as a REIT, a Non-U.S.
Stockholder will incur tax on distributions that are attributable to gain from
its sale or exchange of "U.S. real property interests" under special provisions
of the federal income tax laws. The term "U.S. real property interests" includes
certain interests in real property and stock in corporations at least 50% of
whose assets consists of interests in real property, but excludes mortgage
loans. Under those rules, a non-U.S. stockholder is taxed on distributions
attributable to gain from sales of U.S. real property interests as if such gain
were effectively connected with a U.S. business of the non-U.S. stockholder. A
non-U.S. stockholder thus would be taxed on such a distribution at the normal
capital gain rates applicable to U.S. stockholders, subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of a
nonresident alien individual. A non-U.S. corporate stockholder not entitled to
treaty relief or exemption also may be subject to the 30% branch profits tax on
such a distribution. Storage USA must withhold 35% of any distribution that it
could designate as a capital gain dividend. A non-U.S. stockholder may receive a
credit against its tax liability for the amount Storage USA withholds.
<PAGE>
A non-U.S. stockholder generally will not incur tax under the provisions
applicable to distributions that are attributable to gain from the sale of U.S.
real property interests on gain from the sale of its common stock as long as at
all times non-U.S. persons hold, directly or indirectly, less than 50% in value
of Storage USA's stock. We cannot assure you that that test will be met.
However, a non-U.S. stockholder that owned, actually or constructively, 5% or
less of the common stock at all times during a specified testing period will not
incur tax under the provisions applicable to distributions that are attributable
to gain from the sale of U.S. real property interests if the common stock is
"regularly traded" on an established securities market. If the gain on the sale
of the common stock were taxed under those provisions, a non-U.S. stockholder
would be taxed in the same manner as U.S. stockholders 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 non-U.S. corporations.
Furthermore, a non-U.S. stockholder will incur tax on gain not subject to the
provisions applicable to distributions that are attributable to gain from the
sale of U.S. real property interests if (1) the gain is effectively connected
with the non-U.S. stockholder's U.S. trade or business, in which case the
non-U.S. stockholder will be subject to the same treatment as U.S. stockholders
with respect to such gain, or (2) the non-U.S. stockholder is a nonresident
alien individual who was present in the U.S. for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
non-U.S. stockholder will incur a 30% tax on his capital gains.
Other Tax Consequences
State and Local Taxes
Storage USA and/or you may be subject to state and local tax in various
states and localities, including those states and localities in which Storage
USA or you transact business, own property, or reside. The state and local tax
treatment in such jurisdictions may differ from the federal income tax treatment
described above. Consequently, you should consult your own tax advisor regarding
the effect of state and local tax laws upon an investment in the common stock.
Tax Aspects of the Company's Investments in SUSA Partnership and Subsidiary
Partnerships
The following discussion summarizes certain federal income tax
considerations applicable to our direct or indirect investments in SUSA
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
Storage USA 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 corporations or associations taxable
as corporations. An organization will be classified as a partnership, rather
than as a corporation, for federal income tax purposes if it (1) is treated as a
partnership under Treasury Regulations, effective January 1, 1997, relating to
entity classification (the "check-the-box regulations") and (2) is not a
"publicly traded" partnership.
<PAGE>
Under the check-the-box regulations, an unincorporated entity with at
least two members may elect to be classified either as an association taxable as
a corporation or as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income tax purposes.
The federal income tax classification of an entity that was in existence prior
to January 1, 1997, such as the Partnerships, will be respected for all periods
prior to January 1, 1997 if:
o the entity had a reasonable basis for its claimed classification;
o the entity and all members of the entity recognized the federal tax
consequences of any changes in the entity's classification within
the 60 months prior to January 1, 1997; and
o neither the entity nor any member of the entity was notified in
writing by a taxing authority on or before May 8, 1996 that the
classification of the entity was under examination.
Each Partnership reasonably claimed partnership classification under the
Treasury Regulations relating to entity classification in effect prior to
January 1, 1997. In addition, the Partnerships intend to continue to be
classified as partnerships for federal income tax purposes and no Partnership
will elect to be treated as an association taxable as a corporation under the
check-the-box regulations.
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 real property rents, gains from the sale or other disposition
of real property, interest, and dividends (the "90% passive income exception").
Treasury regulations (the "PTP regulations") 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 (1) 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 (2) 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 partnership, grantor trust, or S corporation that owns an interest in the
partnership is treated as a partner in such partnership only if (1)
substantially all of the value of the owner's interest in the entity is
attributable to the entity's direct or indirect interest in the partnership and
(2) a principal purpose of the use of the entity is to permit the partnership to
satisfy the 100-partner limitation. Each Partnership qualifies for the private
placement exclusion.
<PAGE>
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 income exception. If, however, for any reason a Partnership
were taxable as a corporation, rather than as a partnership, for federal income
tax purposes, Storage USA would not be able to qualify as a REIT. See "Federal
Income Tax Consequences of Storage USA's Status as a REIT -- 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 Storage USA might incur tax
liability without any related cash distribution. See "Federal Income Tax
Consequences of Storage USA's Status as a REIT -- 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, Storage USA 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 Storage USA, without regard to whether
Storage USA 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 if they do not comply with the provisions
of the federal income tax laws governing partnership allocations. 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 the federal
income tax laws governing partnership allocations.
Tax Allocations With Respect to Contributed Properties. 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. SUSA Partnership was formed by way of contributions of
appreciated property and has received contributions of appreciated property
since Storage USA's initial public offering. SUSA Partnership's partnership
agreement requires such allocations to be made in a manner consistent with the
federal income tax laws governing partnership allocations.
<PAGE>
In general, the carryover basis of the facilities contributed by Storage
USA to SUSA Partnership will cause Storage USA 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 federal income tax
laws governing partnership allocations 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 Storage USA may cause Storage USA to
recognize taxable income in excess of its proportionate share of the cash
proceeds, which might adversely affect Storage USA's ability to comply with the
REIT distribution requirements. See "Federal Income Tax Consequences of Storage
USA's Status as a REIT -- Requirements for Qualification -- Distribution
Requirements."
Under SUSA Partnership's partnership agreement, depreciation or
amortization deductions of SUSA Partnership generally will be allocated among
the partners in accordance with their respective interests in SUSA Partnership,
except to the extent that SUSA Partnership is required under the federal income
tax laws governing partnership allocations to use a method for allocating tax
depreciation deductions attributable to contributed properties that results in
Storage USA 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
SUSA 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.
Basis in Partnership Interest. Storage USA's adjusted tax basis in its
partnership interest in SUSA Partnership generally is equal to (1) the amount of
cash and the basis of any other property contributed to SUSA Partnership by
Storage USA, (2) increased by (A) its allocable share of SUSA Partnership's
income and (B) its allocable share of indebtedness of SUSA Partnership, and (3)
reduced, but not below zero, by (A) Storage USA's allocable share of SUSA
Partnership's loss and (B) the amount of cash distributed to Storage USA, and by
constructive distributions resulting from a reduction in Storage USA's share of
indebtedness of SUSA Partnership.
If the allocation of Storage USA's distributive share of SUSA
Partnership's loss would reduce the adjusted tax basis of Storage USA's
partnership interest in SUSA Partnership below zero, the recognition of such
loss will be deferred until such time as the recognition of such loss would not
reduce Storage USA's adjusted tax basis below zero. To the extent that SUSA
Partnership's distributions, or any decrease in Storage USA's share of the
indebtedness of SUSA Partnership (such decrease being considered a constructive
cash distribution to the partners), would reduce Storage USA's adjusted tax
basis below zero, such distributions (including such constructive distributions)
constitute taxable income to Storage USA. Such distributions and constructive
distributions normally will be characterized as capital gain, and, if Storage
USA's partnership interest in SUSA 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.
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 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.
<PAGE>
Storage USA'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 Storage USA's ability to satisfy the income tests
for REIT status. See "Federal Income Tax Consequences of Storage USA's Status as
a REIT -- Requirements for Qualification -- Income Tests." Storage USA, 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 Storage USA's or such Partnership's trade or
business.
Taxable Subsidiaries
SUSA Partnership owns 100% of the nonvoting stock, and 5% of the voting
stock, of SUSA Management, Inc., representing in the aggregate a 99% economic
interest therein. In addition, SUSA Partnership owns 100% of the nonvoting stock
of Storage USA Franchise Corp. which represents a 97.5% economic interest
therein. By virtue of its ownership of SUSA Partnership, Storage USA is
considered to own its pro rata share of the stock of SUSA Management Inc. and
Storage USA Franchise Corp. held by SUSA Partnership.
As noted above, for Storage USA to qualify as a REIT, Storage USA's
proportionate share of the value of the securities of each of SUSA Management
Inc. and Storage USA Franchise Corp. may not exceed 5% of the total value of
Storage USA's assets. In addition, Storage USA's proportionate share of the
equity securities of each of SUSA Management Inc. and Storage USA Franchise
Corp. may not constitute more than 10% of the voting securities of such entity.
Storage USA does not own, directly or indirectly, more than 10% of the voting
securities of SUSA Management, Inc. or Storage USA Franchise Corp., and it
believes that its proportionate share of the value of the securities of each of
SUSA Management Inc. and Storage USA Franchise Corp. does not exceed 5% of the
total value of Storage USA's assets. If the Internal Revenue Service were to
challenge successfully those determinations, however, Storage USA likely would
fail to qualify as a REIT.
SUSA Management Inc. and Storage USA Franchise Corp. are organized as
corporations and pay federal, state, and local income taxes on their taxable
income at normal corporate rates. Any such taxes reduce amounts available for
distribution by SUSA Management Inc. and Storage USA Franchise Corp., which in
turn will reduce amounts available for distribution to Storage USA's
stockholders.
The Clinton Administration's budget proposal for fiscal year 2000 would
allow Storage USA to own up to 100% of the stock in two types of taxable REIT
subsidiaries: (1) qualified business subsidiaries, which could perform
activities unrelated to Storage USA's tenants, such as third-party management,
development, and other independent business activities, as well as provide
"customary" services to Storage USA's tenants, and (2) qualified independent
contractor subsidiaries, which could both perform activities that a qualified
<PAGE>
business subsidiary could perform and provide "non-customary" services to
Storage USA's tenants. Storage USA would be subject to restrictions on its stock
ownership of those taxable subsidiaries. The taxable REIT subsidiary provision
would be effective after the date of enactment. There would be a transition
period during which Storage USA could convert its existing taxable subsidiaries
on a tax-free basis into qualified business subsidiaries or qualified
independent contractor subsidiaries. Existing taxable subsidiaries, however,
would not be grandfathered after the transition period.
PLAN OF DISTRIBUTION
This Prospectus relates to the possible issuance by Storage USA of the
shares of Common Stock if, and to the extent that, the Unitholder tenders its
Units for redemption and Storage USA elects to redeem the Units for shares of
Common Stock. SUSA Partnership issued 12,413 Units to the Unitholder in exchange
for interests in self-storage facilities on May 15, 1998. The Units became
redeemable on May 15, 1999. Storage USA is registering the issuance of 12,413
shares of Common Stock so that the Unitholder will have freely tradable
securities upon redemption of its Units. However, registration of these shares
does not necessarily mean that any of such shares will be issued by Storage USA
or offered or sold by the Unitholder.
Storage USA may from time to time issue shares of Common Stock upon
redemption of Units. Storage USA will exchange the redeeming partner's Units for
shares of Common Stock. Consequently, with each such redemption, Storage USA's
interest in SUSA Partnership will increase.
LEGAL OPINIONS
Hunton & Williams, Richmond, Virginia, has delivered to Storage USA a
legal opinion as to the validity of the Common Stock covered by this prospectus.
EXPERTS
The consolidated balance sheets of Storage USA as of December 31, 1998 and
1997, and the consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1998,
and the financial statement schedule of Storage USA as of December 31, 1998 have
been incorporated herein in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
<PAGE>
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 $ 116.00
Accounting fees and expenses 2,000.00
---------
TOTAL $2,116.00
Item 15. Indemnification of Officers and Directors.
Storage USA'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 Storage USA pursuant to the provisions of the
Charter described above shall be paid out of the assets of Storage USA 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. Storage USA 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. Storage USA's Charter
contains a provision eliminating the personal liability of its directors or
officers to Storage USA 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 SUSA
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
SUSA 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
<PAGE>
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 SUSA Partnership, SUSA Management, Inc. or Storage USA,
and such other persons (including affiliates of Storage USA or SUSA Partnership)
as Storage USA, may designate from time to time in its discretion. Any such
indemnification will be made only out of assets of SUSA Partnership, and in no
event may an Indemnitee subject the limited partners of SUSA 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, SUSA Partnership has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy and, therefore, unenforceable. SUSA 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* Form of Common Stock Certificate
4.2** Amended Charter of Storage USA
4.3*** Articles of Amendment to the Amended Charter of Storage USA, Inc.,
designating and fixing the rights and preferences of the 8 7/8% Series
A Cumulative Redeemable Preferred Stock, as filed with the Secretary of
State of the State of Tennessee on November 12, 1998.
4.4* Restated and Amended Bylaws of Storage USA
5 Opinion of Hunton & Williams
8 Tax Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibits 5 and 8)
23.2 Consent of PricewaterhouseCoopers LLP
- -----------------------
* Filed as an Exhibit to Storage USA's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to Storage USA's Amendment No. 1 to Registration
Statement on Form S-3, File No. 333-4556, and incorporated by reference
herein.
*** Filed as an Exhibit to Storage USA's current report on Form 8-K, filed
with the Commission on November 20, 1998, and incorporated by reference
herein.
<PAGE>
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:
<PAGE>
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee on this 20th day of May, 1999.
STORAGE USA, INC.
By: /s/ John W. McConomy
---------------------------------
John W. McConomy
Executive Vice President and General
Counsel
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 20, 1999. Each of the undersigned officers and
directors of the registrant hereby constitutes Christopher P. Marr, John W.
McConomy and Randall S. Parks, any of whom may act, his true and lawful
attorneys-in-fact with full power to sign for him and in his name in the
capacities indicated below and to file any and all amendments to the
registration statement filed herewith, making such changes in the registration
statement as the registrant deems appropriate, and generally to do all such
things in his name and behalf in his capacity as an officer and director to
enable the registrant to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission.
Signature Title & Capacity
Chairman of the Board, Chief Executive
Officer and Director
/s/ Dean Jernigan (Principal Executive Officer)
- -----------------------------------
Dean Jernigan
Chief Financial Officer
/s/ Christopher P. Marr (Principal Financial and Accounting
Officer)
- -----------------------------------
Christopher P. Marr
/s/ C. Ronald Blankenship Director
- -----------------------------------
C. Ronald Blankenship
/s/ Howard P. Colhoun Director
- -----------------------------------
Howard P. Colhoun
/s/ Alan B. Graf, Jr. Director
- -----------------------------------
Alan B. Graf, Jr.
<PAGE>
/s/ Mark Jorgensen Director
- -----------------------------------
Mark Jorgensen
/s/ John P. McCann Director
- -----------------------------------
John P. McCann
/s/ Caroline S. McBride Director
- -----------------------------------
Caroline S. McBride
/s/ William D. Sanders Director
- -----------------------------------
William D. Sanders
/s/ Harry J. Thie Director
- -----------------------------------
Harry J. Thie
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
4.1* Form of Common Stock Certificate
4.2** Amended Charter of Storage USA
4.3*** Articles of Amendment to the Amended Charter of Storage USA, Inc.,
designating and fixing the rights and preferences of the 8 7/8%
Series A Cumulative Redeemable Preferred Stock, as filed with the
Secretary of State of the State of Tennessee on November 12, 1998.
4.4* Restated and Amended Bylaws of Storage USA
5 Opinion of Hunton & Williams
8 Tax Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibits 5 and 8)
23.2 Consent of PricewaterhouseCoopers LLP
- ----------------
* Filed as an Exhibit to Storage USA's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference herein.
** Filed as an Exhibit to Storage USA's Amendment No. 1 to Registration
Statement on Form S-3, File No. 333-4556, and incorporated by reference
herein.
*** Filed as an Exhibit to Storage USA's current report on Form 8-K, filed with
the Commission on November 20, 1998, and incorporated by reference herein.
Exhibit 5.1
May 20, 1999
Board of Directors
Storage USA, Inc.
165 Madison Avenue, Suite 1300
Memphis, Tennessee 38103
Registration Statement on Form S-3
Storage USA, Inc.
Ladies and Gentlemen:
We are acting as counsel for Storage USA, Inc. (the "Company") in
connection with its registration under the Securities Act of 1933 of 12,413
shares of its common stock (the "Shares") which are proposed to be offered and
sold as described in the Company's Registration Statement on Form S-3 (the
"Registration Statement") to be filed today with the Securities and Exchange
Commission (the "Commission").
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers and
of public officials as we have deemed necessary.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Tennessee.
2. The Shares have been duly authorized and legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and reference to our firm under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ HUNTON & WILLIAMS
Exhibit 8
[HUNTON & WILLIAMS LETTERHEAD]
May 20, 1999
Storage USA, Inc.
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Storage USA, Inc.
Qualification as
Real Estate Investment Trust
Ladies and Gentlemen:
We have acted as counsel to Storage USA, Inc., a Tennessee
corporation (the "Company"), in connection with the preparation of a Form S-3
registration statement filed with the Securities and Exchange Commission ("SEC")
on May 20, 1999 (the "Registration Statement") with respect to the possible
issuance by the Company of up to 12,413 shares (the "Redemption Shares") of the
common stock, par value $0.01 per share, of the Company (the "Common Stock") if,
and to the extent that, the current holders of 12,413 units of limited
partnership interest ("Units") in SUSA Partnership, L.P., a Tennessee limited
partnership (the "Operating Partnership"), tender such Units for redemption and
the Company elects to redeem the Units for shares of Common Stock. You have
requested our opinion regarding certain U.S. federal income tax matters.
The Company, through the Operating Partnership, owns interests
in self-storage facilities directly and through the following subsidiary
partnerships (the "Subsidiary Partnerships"): (i) Storage-USA of Palm Beach
County Limited Partnership, (ii) SUSA/38th Avenue, Capitola, L.P., (iii)
Clarendon Storage Associates Limited Partnership, (iv) Buzzman Partners I,
Limited Partnership, (v) Buzzman Partners II, Limited Partnership, (vi) Tamiami
Mini-Storage Partners, Ltd., (vii) 441 Mini-Storage Partners, Ltd., (viii)
Sunset Mini-Storage Partners, Ltd., (ix) Southeast Mini-Storage Limited
Partners, (x) Dade County Mini-Storage Associates, Ltd., (xi) Preston Self
Storage, Ltd., (xii) SUSA Hackensack, LP, (xiii) SUSA Harrison, LP, (xiv) SUSA
Secaucus, LP, (xv) SUSA Orange, LP, (xvi) Cole/Morgan, Ltd., (xvii) SUSA
Nashville, L.P., (xviii) SUSA Mesa, L.P., (xix) Prospect Heights Self Storage,
LLC, (xx) Storage Partners of Paoli, LP, (xxi) SUSA Germantown, LP, (xxii) SUSA
Columbia, LP, (xxiii) SUSA Whitney Mesa , LP, (xxiv) Frankford Road Self
Storage, Ltd., (xxv) Spring Creek Self Storage, Ltd., (xxvi) McNeil Drive Self
Storage, Ltd., (xxvii) SUSA/Poplar Partners, LP, (xxviii) Storage Partners of
Okeechobee, Ltd., (xxix) Parklawn Storage Partners, LP, (xxx) SUSA Investments
I, LLC, (xxxi) SUSA Investments II, LLC, and (xxxii) SUSA Hollywood, LP.
The Operating Partnership also owns 100% of the nonvoting
stock, and 5% of the voting stock, of SUSA Management, Inc., a Tennessee
corporation ("Management"), representing 99% of the economic interests in
Management. In addition, the Operating Partnership owns 100% of the nonvoting
stock of Storage USA Franchise Corp., a Tennessee corporation ("Franchise"),
representing 97.5% of the equity interests in Franchise.
In giving the opinions set forth below, we have examined the following:
1. the Company's Charter, as amended and restated;
2. the Company's Bylaws;
3. the prospectus contained as a part of the Registration Statement (the
"Prospectus");
4. the Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of September 21, 1994, among the Company, as
general partner, and several limited partners, as amended on March 19, 1996,
June 14, 1996, and August 14, 1996 (the "Operating Partnership Agreement");
5. the partnership agreements of the Subsidiary Partnerships listed on
Exhibit A attached hereto; and
6. such other documents as we have deemed necessary or appropriate for
purposes of this opinion.
<PAGE>
In connection with the opinions rendered below, we have
assumed generally that:
1. Each of the documents referred to above has been duly authorized,
executed, and delivered; is authentic, if an original, or is accurate, if a
copy; and has not been amended.
2. Each partner (a "Partner") of the Operating Partnership and the
Subsidiary Partnerships (each, a "Partnership"), other than the Company and
Storage USA Trust, that is a corporation or other entity has a valid legal
existence.
3. Each Partner has full power, authority, and legal right to enter into
and to perform the terms of the Operating Partnership Agreement and the
partnership agreements of the Subsidiary Partnerships (each, a "Partnership
Agreement"), and the transactions contemplated thereby.
4. Each Partnership operates in accordance with the governing law of the
state in which it was formed and the Partnership Agreement pursuant to which it
was formed.
5. Each Partnership Agreement has remained in substantially the same form
as it was upon the most recent amendment and restatement thereof, and has not
been amended in any material respect (except upon the substitution of partners
in accordance with the terms of such Partnership Agreement).
6. During its taxable year ending December 31, 1999, and subsequent
taxable years, the Company has operated and will continue to operate in such a
manner that makes and will continue to make the representations contained in a
certificate, dated May 20, 1999 and executed by a duly appointed officer of the
Company (the "Officer's Certificate"), true for such years.
7. The Company will not make any amendments to its organizational
documents or the organizational documents of the Operating Partnership, the
Subsidiary Partnerships, Management, or Franchise after the date of this opinion
that would affect its qualification as a real estate investment trust ("REIT")
for any taxable year.
8. No action will be taken by the Company, the Operating Partnership, the
Subsidiary Partnerships, the Partners, Management, or Franchise after the date
hereof that would have the effect of altering the facts upon which the opinions
set forth below are based.
<PAGE>
In connection with the opinions rendered below, we also have relied upon
the correctness of the representations contained in the Officer's Certificate.
Based on the factual matters in the documents and assumptions set forth
above, the representations set forth in the Officer's Certificate, the
discussions in the Prospectus under the caption "Federal Income Tax Consequences
of Storage USA's Status as a REIT" (which are incorporated herein by reference),
and without further investigation as to such factual matters, we are of the
opinion that:
(a) the Company qualified to be taxed as a REIT pursuant to sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), for its taxable years ended December 31, 1994 through
December 31, 1998, and the Company's organization and current and
proposed method of operation will enable it to continue to qualify as
a REIT for its taxable year ended December 31, 1999, and in the
future; and
(b) the descriptions of the law contained in the Prospectus under the
caption "Federal Income Tax Consequences of Storage USA's Status as a
REIT" are correct in all material respects, and the discussions
thereunder fairly summarize the federal income tax considerations
that are likely to be material to a holder of the Redemption Shares.
We have performed no due diligence and have made no efforts to verify the
accuracy and genuineness of the documents and assumptions set forth above, or
the representations set forth in the Officer's Certificate. We will not review
on a continuing basis the Company's compliance with the documents or assumptions
set forth above, or the representations set forth in the Officer's Certificate.
Accordingly, no assurance can be given that the actual results of the Company's
operations for its 1999 and subsequent taxable years will satisfy the
requirements for qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the Code and the
Treasury regulations thereunder (the "Regulations"), published administrative
interpretations thereof, and published court decisions. The Internal Revenue
Service has not issued Regulations or administrative interpretations with
respect to various provisions of the Code relating to REIT qualification. No
assurance can be given that the law will not change in a way that will prevent
the Company from qualifying as a REIT.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required by Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder by
the SEC.
The foregoing opinions are limited to the U.S. federal income tax matters
addressed herein, and no other opinions are rendered with respect to other
federal tax matters or to any issues arising under the tax laws of any other
country, or any state or locality. We undertake no obligation to update the
opinions expressed herein after the date of this letter. This opinion letter is
solely for the information and use of the addressee and the holders of
Redemption Shares, and it may not be distributed, relied upon for any purpose by
any other person, quoted in whole or in part or otherwise reproduced in any
document, or filed with any governmental agency without our express written
consent.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
EXHIBIT A
SUBSIDIARY PARTNERSHIP AGREEMENTS
1. The Agreement of Limited Partnership of Storage-USA of Palm Beach County
Limited Partnership, dated May 2, 1991, as amended by the Third Amendment to the
Agreement of Limited Partnership, dated June 30, 1996, among Storage USA, Inc.
(the "Company"), SUSA Partnership, L.P. (the "Operating Partnership"), Storage
USA Franchise Corp. ("Franchise"), and other limited partners;
2. the Limited Partnership Agreement of SUSA/38th Avenue, Capitola, L.P., dated
June 1, 1995, among the Operating Partnership, as general partner, and several
limited partners;
3. the Limited Partnership Agreement of Clarendon Storage Associates Limited
Partnership, dated as of November 11, 1994, among Highclar, L.L.C., a Virginia
limited liability company, as general partner, the Operating Partnership as
general partner, Highland Limited Partnership, a Virginia limited partnership,
as limited partner, and the Operating Partnership as limited partner;
4. the Second Amended Limited Partnership Agreement of Buzzman Partners I,
Limited Partnership, dated May 22, 1996, between among CRM Realty II Joint
Venture, a New York joint venture ("CRM"), the Operating Partnership, as general
and limited partner, and SUSA Management, Inc. ("Management"), as limited
partner;
5. the Second Amended Limited Partnership Agreement of Buzzman Partners II,
Limited Partnership, dated May 22, 1996, among CRM, the Operating Partnership,
as general and limited partner, and Management, as limited partner;
6. the Amended and Restated Agreement of Limited Partnership of Tamiami
Mini-Storage Partners, L.P., dated as of September 7, 1995, between the
Operating Partnership, as general partner, and the Company, as limited partner;
7. the Amended and Restated Agreement of Limited Partnership of 441 Mini-Storage
Partners, Ltd., dated as of September 7, 1995, between the Operating
Partnership, as general partner, and the Company, as limited partner;
8. the Amended and Restated Agreement of Limited Partnership of Sunset
Mini-Storage Partners, Ltd., dated as of September 7, 1995, between the
Operating Partnership, as general partner, and the Company, as limited partner;
<PAGE>
9. the Amended and Restated Agreement of Limited Partnership of Southeast
Mini-Storage Limited Partners, dated September 7, 1995, between the Operating
Partnership, as general partner, and Management, as limited partner;
10. the Amended and Restated Agreement of Limited Partnership of Dade County
Mini-Storage Associates, Ltd., dated September 7, 1995, between the Operating
Partnership, as general partner, and Management, as limited partner;
11. the Amended and Restated Agreement of Limited Partnership of Preston Self
Storage, Ltd., dated November 8, 1995, between Peachtree Development II, Inc., a
Texas corporation, as general partner, and the Operating Partnership, as limited
partner, as amended on November 9, 1995;
12. the Limited Partnership Agreement of SUSA Hackensack LP, dated November 27,
1996, between SUSA New Jersey, Inc., a wholly-owned subsidiary of Franchise, as
general partner ("New Jersey, Inc."), and the Operating Partnership, as limited
partner;
13. the Limited Partnership Agreement of SUSA Harrison LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
14. the Limited Partnership Agreement of SUSA Secaucus LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
15. the Limited Partnership Agreement of SUSA Orange LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
16. the Agreement of Limited Partnership of Cole/Morgan, Ltd., dated as of
September 13, 1994, as amended by the First Amendment to the Agreement of
Limited Partnership, dated as of December 31, 1996, among Jesse B. Morgan, Cole
Partners, Ltd., and the Operating Partnership;
17. the Limited Partnership Agreement of SUSA Nashville, L.P., dated October 4,
1996, between SUSA Tennessee, Inc., a wholly-owned subsidiary of Franchise, as
general partner, and the Operating Partnership, as limited partner;
18. the Limited Partnership Agreement of SUSA Mesa, L.P., dated October 17,
1996, between SUSA Arizona, Inc., a wholly-owned subsidiary of Franchise, as
general partner, and the Operating Partnership, as limited partner;
<PAGE>
19. the Agreement of Limited Partnership of McNeil Drive Self Storage, Ltd.,
dated as of July 11, 1996, among Peachtree Development V, Inc., a Texas
corporation, as general partner, and the Operating Partnership, as limited
partner;
20. the Agreement of Limited Partnership of Storage Partners of Okeechobee,
Ltd., dated as of September 30, 1996, among the Operating Partnership, as
general partner, and Storage Developers, L.P. and VM Storage, L.P., as limited
partners;
21. the Agreement of Limited Partnership of SUSA Germantown, L.P., dated as of
February __, 1998, between SUSA Maryland, Inc., as general partner, and the
Operating Partnership, as limited partner;
22. the Limited Partnership Agreement of SUSA Poplar Partners, L.P., dated as of
July 16, 1996, among the Operating Partnership, as general partner, and Stanley
H. Trezevant, III, as limited partner;
23. the Operating Agreement of Prospect Heights Self Storage, L.L.C., dated as
of April 16, 1996, between Franchise, as general partner, and the Operating
Partnership, as limited partner;
24. the Agreement of Limited Partnership of Frankford Road Self Storage, Ltd.,
dated as of July 1, 1996, among Peachtree Development VI, Inc., a Texas
corporation, as general partner, and several limited partners;
25. the Limited Partnership Agreement of Parklawn Storage Partners, L.P., dated
as of June __, 1996, between Jesse B. Morgan, as general partner, and the
Operating Partnership, as limited partner;
26. the Agreement of Limited Partnership of Spring Creek Self Storage, Ltd.,
dated as of November 28, 1995, among Peachtree Development IV, Inc., a Texas
corporation, as general partner, and the Operating Partnership, as limited
partner;
27. the Agreement of Limited Partnership of Storage Partners of Paoli, L.P.,
dated as of June 22, 1996, among the Operating Partnership, as general partner,
and Storage Developers, L.P. and VM Storage, L.P., as limited partners;
28. the Limited Partnership Agreement of SUSA Whitney Mesa, Limited Partnership,
dated as of June 3, 1998, between SUSA Nevada, Inc., as general partner, and the
Operating Partnership, as limited partner;
29. the Limited Partnership Agreement of SUSA Columbia, LP, dated as of February
__, 1998, between SUSA Maryland, Inc., as general partner, and the Operating
Partnership, as limited partner;
<PAGE>
30. the operating agreement of SUSA Investments I, LLC, dated as of November 5,
1997, by the Operating Partnership, as sole member;
31. the operating agreement of SUSA Investments II, LLC, dated as of November 5,
1997, by the Operating Partnership, as sole member; and
32. the Limited Partnership Agreement of SUSA Hollywood, L.P., dated as of
______ __, 1997, between SUSA California, Inc., as general partner, and the
Operating Partnership, as limited partner.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Storage USA, Inc. (the "Company") on Form S-3, of (1) our report dated February
3, 1999, on our audits of the consolidated financial statements of the Company
as of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, which report is incorporated by reference in the
Company's 1998 Form 10-K and (2) our report dated February 3, 1999, on the
financial statement schedule of the Company as of December 31, 1998, which
report is incorporated by reference in the Company's 1998 Form 10-K.
We also consent to the reference to our firm under the caption "Experts" in this
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
May 20, 1999
