<PAGE>
FILED PURSUANT TO RULE NO. 424(b)(2)
REGISTRATION NO. 33-08883
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 4, 1996)
1,500,000 SHARES LOGO
SOVRAN SELF STORAGE, INC.
COMMON STOCK
----------------
All of the shares of common stock, $.01 par value per share (the "Common
Shares"), of Sovran Self Storage, Inc. (the "Company") offered hereby are
being sold by the Company (the "Offering"). The Common Shares are listed on
the New York Stock Exchange (the "NYSE") under the symbol "SSS". On April 16,
1997, the last reported sale price of the Common Shares on the NYSE was
$29.625 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON SHARES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $29.625 $1.48 $28.145
- --------------------------------------------------------------------------------
Total......................... $44,437,500 $2,220,000 $42,217,500
- --------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option (3).... $51,103,125 $2,553,000 $48,550,125
</TABLE>
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- -------------------------------------------------------------------------------
(1) See "Underwriting."
(2) Before deducting estimated expenses of $125,000 payable by the Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
PaineWebber Incorporated to purchase up to 225,000 additional Common
Shares, on the same terms, solely to cover over-allotments. See
"Underwriting."
----------------
The Common Shares are offered by PaineWebber Incorporated, subject to prior
sale, when, as and if delivered to and accepted by PaineWebber Incorporated,
and subject to its right to reject orders in whole or in part. It is expected
that delivery of the Common Shares offered hereby will be made in New York
City on or about April 22, 1997.
----------------
PAINEWEBBER INCORPORATED
----------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 16, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES TO STABILIZE THEIR
MARKET PRICE, THE PURCHASE OF COMMON SHARES TO COVER SYNDICATE SHORT POSITIONS
AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein and therein by reference. All
references to the "Company" in this Prospectus Supplement and the accompanying
Prospectus or incorporated herein or therein by reference shall be deemed to
include Sovran Self Storage, Inc., its predecessors, and their respective
subsidiaries on a consolidated basis.
THE COMPANY
Sovran Self Storage, Inc. is a self-administered and self-managed real estate
investment trust (a "REIT") which has acquired, developed, owned and managed
self-storage facilities since 1985. As of April 15, 1997, the Company owned and
operated 139 self-storage facilities containing an aggregate of 7.2 million
rentable square feet (the "Properties"). The Properties are located in 16
states predominantly in the Eastern United States. At March 31, 1997, the
occupancy level of the Properties was 85.2%.
Since its initial public offering in June 1995 (the "Initial Offering"), the
Company has acquired 65 Properties from unrelated third parties, consisting of
3.4 million rentable square feet, for an aggregate purchase price of $141
million (the "Acquisition Properties"). The Acquisition Properties are located
in Alabama (3), Florida (15), Maryland (1), Massachusetts (1), Michigan (5),
New York (3), North Carolina (2), Ohio (11), Pennsylvania (4), South Carolina
(1), Texas (11) and Virginia (8).
The Company currently has contracts to purchase nine additional self-storage
facilities containing approximately 600,000 rentable square feet for an
aggregate purchase price of $24 million. These facilities are located in
Georgia (1), Ohio (3) and Texas (5). The closings of these acquisitions are
each subject to several conditions, including, among other things, satisfactory
completion of the Company's due diligence. The Company is also currently
conducting preliminary negotiations for other potential acquisitions totalling
in excess of $25 million. No assurances can be given that the Company will
complete any of these acquisitions.
Most of the Properties conduct business under the trade name Uncle BoB's
Self-Storage(R). The Company intends to convert the remaining Properties and
all newly acquired self-storage facilities to this trade name upon expiration
of prepaid advertising arrangements employing names acquired with the
Properties. The Company believes the name Uncle BoB's Self Storage(R) is
particularly user-friendly and conveys the feeling of personalized service.
The Company's executive offices are located at 5166 Main Street,
Williamsville, New York 14221 and its telephone number is (716) 633-1850. The
Company also maintains a regional office in Atlanta, Georgia.
RISK FACTORS
An investment in the Common Shares involves various risks and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to making an investment in the Company.
S-3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered (1).......... 1,500,000
Common Shares Outstanding After the
Offering (2)...................... 12,208,171
Use of Proceeds.................... The proceeds of the Offering will be used
for repay-
ment of amounts outstanding under the
Company's credit facility, the acquisition
of additional self-storage facilities, and
for other working capital purposes.
New York Stock Exchange Symbol..... SSS
</TABLE>
- --------
(1) Assumes that PaineWebber Incorporated's option to purchase an additional
225,000 Common Shares to cover over-allotments is not exercised. See
"Underwriting."
(2) Does not include Common Shares reserved for issuance upon (i) possible
acquisition of 379,701 outstanding units representing the aggregate
minority interest in the partnership (the "Operating Partnership") which
holds a 100% fee interest in all of the Properties and of which the Company
is currently an approximately 96.6% economic owner, and (ii) exercise of
options granted pursuant to the Sovran Self Storage, Inc. 1995 Award and
Option Plan and the Sovran Self Storage, Inc. Directors' Stock Option Plan.
S-4
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus Supplement
and the accompanying Prospectus before purchasing Common Shares in the
Offering.
RISKS RELATED TO ACQUISITIONS
The Company has acquired 65 Properties since the Initial Offering. The
Company's strategy is to continue to grow by acquiring additional self-storage
facilities. Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the prices
paid for acquired properties and the costs of any improvements required to
bring an acquired property up to standards established for the market position
intended for that property will prove inaccurate, as well as general
investment risks associated with any new real estate investment.
REAL ESTATE FINANCING RISKS
Credit Facility. The Company has a $75 million line of credit (the "Credit
Facility") with a financial institution (the "Lender"). The Lender has
mortgages on certain of the Properties and additional Properties, subject to
the Lender's discretion, may from time to time be added as collateral for the
Credit Facility. The Credit Facility is recourse to the Company and the
Operating Partnership and the required payments are not reduced if the
economic performance of any of the Properties declines. In addition, the
Lender has been granted collateral assignments of rents from certain
Properties on which the Lender holds a mortgage. The Credit Facility, except
under certain circumstances, limits the Company's ability to make
distributions to its shareholders. If mortgage payments cannot be made or if
there should occur certain other events of default, the Lender may seek to
foreclose on those assets securing the Credit Facility or otherwise exercise
its rights under the assignments of rents, which could have a material adverse
effect on the Company and its ability to make expected distributions to
shareholders and distributions required by the REIT provisions of the Internal
Revenue Code of 1986, as amended (the "Code").
Risk of Rising Interest Rates. Indebtedness that the Company incurs under
the Credit Facility bears interest at a variable rate. Accordingly, increases
in interest rates could increase the Company's interest expense, which would
adversely affect the Company's cash available for distribution and its ability
to pay expected distributions to shareholders. The Company may in the future
hedge, cap or otherwise limit its exposure to rising interest rates as
appropriate and cost effective. If borrowings under the Credit Facility exceed
$30 million, the Company may be required to make such arrangements pursuant to
the terms of the Credit Facility.
Refinancing Risks. It may be necessary for the Company to refinance the
Credit Facility through additional debt financing or equity offerings. If the
Company were unable to refinance this indebtedness on acceptable terms, the
Company might be forced to dispose of certain Properties upon disadvantageous
terms, which might result in losses to the Company and might adversely affect
the cash available for distribution. If prevailing interest rates or other
factors at the time of refinancing result in higher interest rates on
refinancings, the Company's interest expense would increase, which would
adversely affect the Company's cash available for distribution and its ability
to pay expected distributions to shareholders.
No Limitations on Debt. The Board of Directors of the Company currently has
a policy of limiting the amount of Company debt at the time of incurrence to
less than 50% of the sum of the market value of the issued and outstanding
Common Shares and the Company's debt at the time such debt is incurred;
however, the organizational documents of the Company do not contain any
limitation on the amount of indebtedness the Company might incur. Accordingly,
the Board of Directors could alter or eliminate the current policy limitation
on borrowing without a vote of the shareholders. The Company could become
highly leveraged if this policy were changed.
S-5
<PAGE>
SELF-STORAGE INDUSTRY RISKS
The Properties are subject to all operating risks common to the self-storage
industry. These risks include decreases in demand for rental spaces in a
particular locale, changes in supply of or demand for similar or competing
facilities in an area and changes in market rental rates. There is also risk
of inability to collect rents from customers. The Company's current strategy
is to acquire interests only in self-storage facilities. Consequently, the
Company is subject to risks inherent in investments in a single industry. The
Properties compete with other self-storage facilities in their geographic
markets. As a result of competition, the Properties could experience a
decrease in occupancy levels and rental rates, thereby decreasing the cash
available for distribution. The Company competes in operations and for
acquisition opportunities with entities that have substantial financial
resources. Competition may reduce the number of suitable acquisition
opportunities offered to the Company and increase the bargaining power of
property owners seeking to sell. The self-storage industry has at times
experienced overbuilding in response to perceived increases in demand. A
recurrence of such overbuilding might cause the Company to experience a
decrease in occupancy levels, limit the Company's ability to increase rents
and compel the Company to offer discounted rents.
REAL ESTATE INVESTMENT RISKS
General Risks. The Company's investments are subject to varying degrees of
risk generally incident to the ownership of real property. The underlying
value of the Company's real estate investments and the Company's income and
ability to make distributions to its shareholders are dependent upon the
Company's ability to operate the Properties in a manner sufficient to maintain
or increase cash available for distribution. Income from the Properties may be
adversely affected by changes in national economic conditions; changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics; competition from other self-storage
facilities; changes in interest rates and in the availability, cost and terms
of mortgage funds; the impact of present or future environmental legislation
and compliance with environmental laws; the ongoing need for capital
improvements, particularly in older facilities; changes in real estate tax
rates and other operating expenses; adverse changes in governmental rules and
fiscal policies; uninsured losses resulting from casualties associated with
civil unrest, acts of God, including natural disasters, and acts of war;
adverse changes in zoning laws; and other factors which are beyond the control
of the Company.
Illiquidity of Real Estate May Limit its Value. Real estate investments are
relatively illiquid. The ability of the Company to vary its portfolio in
response to changes in economic and other conditions is limited. In addition,
provisions of the Code may limit the Company's ability to profit on the sale
of Properties held for fewer than four years. There can be no assurance that
the Company will be able to dispose of a Property when it finds disposition
advantageous or necessary or that the sale price of any disposition will
recoup or exceed the amount of the Company's investment.
Uninsured and Underinsured Losses Could Result in Loss of Value of
Properties. There are certain types of losses, generally of a catastrophic
nature, that may be uninsurable or not economically insurable, as to which the
Properties are at risk in their particular locales. The Company's management
uses its discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to acquiring appropriate insurance on the
Company's investments at a reasonable cost and on suitable terms. This may
result in insurance coverage that in the event of a substantial loss would not
be sufficient to pay the full current market value or current replacement cost
of the Company's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations, and other factors also might make it
infeasible to use insurance proceeds to replace a Property after it has been
damaged or destroyed. Under such circumstances, the insurance proceeds
received by the Company might not be adequate to restore its economic position
with respect to such Property.
Possible Liability Relating to Environmental Matters. Under various federal,
state, and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property.
S-6
<PAGE>
Such laws often impose liability whether or not the owner or operator caused
or knew of the presence of such hazardous or toxic substances and whether or
not the storage of such substances was in violation of a tenant's lease. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property, may adversely affect the owner's ability to borrow
using such real property as collateral. In connection with the ownership of
the Properties, the Company may be potentially liable for any such costs.
Americans with Disabilities Act. The Americans with Disabilities Act of 1990
("ADA") generally requires that buildings be made accessible to persons with
disabilities. A determination that the Company is not in compliance with the
ADA could result in imposition of fines or an award of damages to private
litigants. If the Company were required to make modifications to comply with
the ADA, the Company's results of operations and ability to make expected
distributions to its shareholders could be adversely affected.
LIMITATIONS ON ABILITY TO CHANGE CONTROL
Limitation on Ownership of Shares. In order to maintain its qualification as
a REIT, not more than 50% in value of the Company's outstanding shares of
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code) (the "Five or Fewer Test"). The Company's Amended and
Restated Articles of Incorporation ("Articles of Incorporation") limit
ownership of the issued and outstanding Common Shares by any single
shareholder (directly or by virtue of the attribution provisions of the Code)
to 9.8% of the aggregate value of the Company's outstanding stock, except that
the ownership by certain entities is limited to 15% (the "Ownership Limit").
The Ownership Limit may (i) have the effect of precluding acquisition of
control of the Company by a third party without consent of the Board of
Directors even if a change in control were in the interest of shareholders,
and (ii) limit the opportunity for shareholders to receive a premium for their
Common Shares that might otherwise exist if an investor were attempting to
assemble a block of Common Shares in excess of 9.8% or 15%, as the case may
be, of the outstanding shares of beneficial interest of the Company or to
otherwise effect a change in control of the Company. The Board of Directors,
in its sole discretion, may waive the Ownership Limit if it is satisfied that
ownership by such shareholders in excess of such limits will not jeopardize
the Company's status as a REIT under the Code or in the event it determines
that it is no longer in the best interests of the Company to be a REIT. A
transfer of Common Shares to a person who, as a result of the transfer,
violates the Ownership Limit may not be effective under some circumstances.
Shareholder Rights Agreement. The Company has a shareholders' rights plan
(the "Shareholder Rights Agreement") which grants the holders of the Common
Shares rights which generally become exercisable if (i) a person becomes an
"acquiring person" by acquiring 10% or more of the Common Shares, or (ii) a
person commences a tender offer that would result in that person owning 10% or
more of the Common Shares. In the event a person becomes an "acquiring
person," each holder of a right (other than the acquiring person) would be
entitled to acquire such number of preferred shares of the Company which are
equivalent to the Common Shares having a value of twice the then-current
exercise price of the right. If the Company is acquired in a merger or other
business combination transaction after any such event, each holder of a right
would then be entitled to purchase, at the then-current exercise price, shares
of the acquiring company's common stock having a value of twice the exercise
price of the right. The Shareholder Rights Agreement may have the effect of
delaying or preventing a change in control of the Company.
Other Limitations. Certain other limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the outstanding Common Shares might receive a premium for their
Common Shares over the then prevailing market price or which such holders
might believe to be otherwise in their best interest. The issuance of
preferred stock could have the effect of delaying or preventing a change in
control of the Company even if a change in control were in the shareholders'
interest. In addition, the Maryland General Corporation Law (the "MGCL")
imposes certain restrictions and requires certain procedures with respect to
the acquisition of certain levels of share ownership and business
combinations, including combinations with interested shareholders. These
provisions of the MGCL could have the effect of delaying or preventing a
change in control of the Company even if a change in control were in the
shareholders'
S-7
<PAGE>
interest. In addition, under the Operating Partnership's agreement of limited
partnership, in general the Company may not merge, consolidate or engage in
any combination with another person or sell all or substantially all of its
assets unless such transaction includes the merger of the Operating
Partnership, which requires the approval of the holders of 75% of the limited
partnership interests thereof. If the Company were to own less than 75% of the
limited partnership interests in the Operating Partnership, this provision of
the limited partnership agreement could have the effect of delaying or
preventing the Company from engaging in certain change of control
transactions.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company intends to operate so as to qualify as a REIT under the Code.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial and
administrative interpretations. Continued qualification as a REIT depends upon
the Company's continuing ability to meet various requirements concerning,
among other things, the ownership of the outstanding stock, the nature of its
assets, the sources of its income and the amount of its distributions to its
shareholders. If the Company were to fail to qualify as a REIT in any taxable
year, the Company would not be allowed a deduction for distributions to
shareholders in computing its taxable income and would be subject to Federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Unless entitled to relief under certain
Code provisions, the Company also would be ineligible for qualification as a
REIT for the four taxable years following the year during which qualification
was lost. As a result, distributions to the shareholders would be reduced for
each of the years involved. Although the Company currently intends to operate
in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Board of
Directors to revoke the REIT election.
EFFECT OF MARKET INTEREST RATES ON PRICE OF SHARES
One of the factors that may influence the price of the Common Shares in
public trading markets is the annual yield on Common Shares as compared to
yields on other financial instruments. Thus, an increase in market interest
rates will result in higher yields on other financial instruments, which could
adversely affect the market price of the Common Shares.
LEGAL PROCEEDING
Robert J. Amsdell, a former business associate of certain officers and
directors of the Company, including Robert J. Attea, Charles E. Lannon,
Kenneth F. Myszka and David L. Rogers, filed a lawsuit against the Company on
June 13, 1995 in the United States District Court for the Northern District of
Ohio in connection with the formation of the Company as a REIT and related
transactions, as well as the Initial Offering. On April 29, 1996, Mr. Amsdell
filed a first amended complaint in the lawsuit alleging breach of fiduciary
duty, breach of contract, breach of general partnership/joint venture
arrangement, statutory violations regarding dissolution of general partnership
or joint venture, breach of duty of good faith and fair dealing, fraud and
deceit, interference with prospective advantage, and violation of
trademark/tradename rights. Mr. Amsdell is seeking money damages in excess of
$15 million, as well as punitive damages and declaratory and injunctive relief
(including the imposition of a constructive trust on assets of the Company in
which Mr. Amsdell claims to have a continuing interest) and an accounting. The
first amended complaint also added Messrs. Attea, Lannon, Myszka and Rogers as
additional defendants. The parties are currently involved in discovery. The
Company intends to vigorously defend the lawsuit. Messrs. Attea, Lannon,
Myszka and Rogers have agreed to indemnify the Company for any loss arising
from the lawsuit. The Company believes that the actual amount of Mr. Amsdell's
recovery in this matter, if any, would be within the ability of these
individuals to provide indemnification. The Company does not believe that the
lawsuit will have a material adverse effect upon the Company.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of the Company's securities, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Common Shares. The Company's founders own 480,000
S-8
<PAGE>
Common Shares and have agreed not to offer, sell, contract to sell or
otherwise dispose of any Common Shares (or any securities convertible into or
exercisable for Common Shares) until two years after the date of the Initial
Offering, without the prior written consent of PaineWebber Incorporated
("PaineWebber"). The Company has granted to the founders certain registration
rights with respect to sales of such Common Shares after such period. As of
March 31, 1997, options to purchase 298,000 Common Shares have been granted to
certain Company employees and directors under the Sovran Self Storage, Inc.
1995 Award and Option Plan and the Sovran Self Storage, Inc. Directors' Stock
Option Plan. Future grants of options will be made by the Compensation
Committee of the Company's Board of Directors.
S-9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Shares in the
Offering, after paying underwriting discounts and estimated transaction
expenses, are expected to be approximately $42.1 million (approximately $48.4
million if the PaineWebber's over-allotment option is exercised in full). The
Company expects to use a portion of the net proceeds of the Offering to repay
in full all indebtedness outstanding under the Credit Facility, which was
approximately $40 million as of April 15, 1997. Borrowings under the Credit
Facility bear interest at LIBOR plus 1.90% (or an effective rate of 7.125% as
of March 31, 1997). The Credit Facility is a revolving facility that matures
in August 1998. The remainder of the net proceeds of the Offering will be used
to acquire additional self-storage facilities and for working capital.
INDUSTRY OVERVIEW
Self-storage facilities offer inexpensive storage space to residential and
commercial users. In addition to fully enclosed, secure storage space, some
operators, including the Company, also offer outside storage for vehicles and
boats at certain facilities. Facilities are usually fenced-in, have locked
gates and are lighted. Facilities generally have a manager on-site during
business hours and, in many cases, the manager resides in an apartment at the
facility. Customers have access to their storage area during business hours
and some commercial customers are provided 24-hour access. Individual storage
units are typically secured by a lock furnished by the customer to provide the
customer with control of access to the unit.
The Company believes that the self-storage industry is characterized by a
trend toward consolidation, continuing increase in demand, relatively slow
growth in supply and a targeted market of primarily residential customers.
TREND TOWARD CONSOLIDATION
According to data published by MiniCo., Inc., of the approximately 25,000
facilities in the United States, only about 12% are managed by the ten largest
operators. However, the Company believes that, at a time when demand for the
service appears strong, the self-storage industry is showing a trend toward
consolidation resulting from the following factors:
. Shortage of Skilled Operators--The smaller, local operators generally
lack the expertise necessary to manage multiple facilities, to market
their self-storage facilities effectively, to develop and introduce
innovative management systems, and to selectively identify and acquire
new facilities.
. Scarcity of Financing for Small Operators--Financing for the acquisition,
development and expansion of commercial real estate projects,
particularly self-storage facilities, has been scarce in recent years and
the Company anticipates that this trend will continue.
. Economies of Scale--Successful centralized management systems can be
easily applied to new facilities regardless of location and permit an
operator to spread fixed costs over a larger base.
The Company believes that as a result of these factors, significant growth
opportunities exist for operators with proven management systems that possess
sufficient capital resources.
CONTINUING INCREASE IN DEMAND
Demand for self-storage services has increased significantly, as indicated
by an increase in industry average occupancy from 81.5% in 1990 to 90.6% in
1996 and by an increase in industry-wide average rents, as reported by the
Self-Storage Almanac. The Company believes that demand for self-storage
services continues to increase for the following reasons:
. Demographics--As a result of population growth and increasing population
mobility, demand for self-storage space will continue to increase.
S-10
<PAGE>
. Consumer Awareness--Residential and commercial customers are becoming
increasingly familiar with the advantages of self-storage and its
favorable comparison to traditional alternatives. Commercial users in
particular are taking advantage of self-storage as a low-cost alternative
to warehouses and other commercial storage options.
. Demand Inelasticity--Self-storage consumers are generally less sensitive
to price increases than consumers of other services because of the lack
of reasonable alternatives and the inconvenience of moving stored goods
to a new location. This phenomenon has allowed aggressive operators to
increase rents on a regular basis without experiencing a material
decrease in occupancy levels.
. Recession Resistance--Self-storage is relatively inexpensive and is not
generally considered a luxury. Therefore, residential and commercial
users are less likely to reduce consumption during recessionary periods
and, in some cases, will increase usage to facilitate downsizing of
residences or as a cost-effective alternative to commercial office or
warehouse space.
SLOW GROWTH IN SUPPLY
Notwithstanding the apparent strong demand, in recent years the self-storage
industry has experienced relatively slow growth in supply. For example, during
the five-year period 1986 through 1990 more than three times as many self-
storage facilities were built as during the five-year period 1991 through
1995. The Company attributes the lack of new self-storage facilities to the
following factors: (i) the lack of financing available to small, local
operators for development of new facilities, (ii) restrictive zoning laws and
other regulations and restrictions imposed on commercial real estate
development generally and self-storage facilities specifically, and (iii) the
substantial period required to fully lease-up a new self-storage facility. The
self-storage industry has at times, however, experienced overbuilding in
response to increased demand. During such periods of overbuilding, some
operators of self-storage facilities experienced a decrease in occupancy, had
only limited ability to increase rents and, in some cases, were forced to
offer discounted rents. There can be no assurance that such overbuilding will
not recur.
MARKET SEGMENTATION
The self-storage market is generally segmented into two parts: residential
users and commercial users. According to data published by MiniCo., Inc. in
1996, residential users constitute approximately 77% of the United States
market while commercial users account for 23%, based on square feet.
Residential users may include single family homeowners with insufficient
storage; apartment, condominium, townhouse and mobile home dwellers; military
base occupants; recreational vehicle owners; and households in transition.
Commercial users may include salespersons and distributors; retail businesses;
professionals; and small contractors.
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<PAGE>
THE COMPANY
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995: This Prospectus Supplement and the accompanying Prospectus, including
the information incorporated by reference herein and therein, contain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth under "Risk Factors," and
prospective purchasers of the Common Shares offered hereby should carefully
review such risk factors.
The Company is a self-administered and self-managed REIT which has acquired,
developed, owned and managed self-storage facilities since 1985. As of April
15, 1997, the Company owned and operated 139 Properties containing an
aggregate of 7.2 million rentable square feet. The Properties are located in
16 states predominantly in the Eastern United States. At March 31, 1997, the
occupancy level of the Properties was 85.2%.
Since the Initial Offering, the Company has acquired the 65 Acquisition
Properties from unrelated third parties, consisting of 3.4 million rentable
square feet, for an aggregate purchase price of $141 million. The Acquisition
Properties are located in Alabama (3), Florida (15), Maryland (1),
Massachusetts (1), Michigan (5), New York (3), North Carolina (2), Ohio (11),
Pennsylvania (4), South Carolina (1), Texas (11) and Virginia (8).
The Company currently has contracts to purchase nine additional self-storage
facilities containing approximately 600,000 rentable square feet for an
aggregate purchase price of $24 million. These facilities are located in
Georgia (1), Ohio (3) and Texas (5). The closings of these acquisitions are
each subject to several conditions, including, among other things,
satisfactory completion of the Company's due diligence. The Company is also
currently conducting preliminary negotiations for other potential acquisitions
totalling in excess of $25 million. No assurances can be given that the
Company will complete any of these acquisitions.
Most of the Properties conduct business under the trade name Uncle BoB's
Self-Storage(R). The Company intends to convert the remaining Properties and
all newly acquired self-storage facilities to this trade name upon expiration
of prepaid advertising arrangements employing names acquired with the
Properties. The Company believes the name Uncle BoB's Self Storage(R) is
particularly user-friendly and conveys the feeling of personalized service.
GROWTH STRATEGY
The Company seeks to increase cash flow and enhance shareholder value by
aggressively managing its Properties, selectively acquiring new self-storage
facilities and strategically expanding and improving its Properties.
The following table sets forth certain historical data for the Company's
Properties since 1990:
PROPERTY DATA
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Actual rent per occupied
square foot............... $5.63 $5.81 $5.96 $6.03 $6.44 $6.81 $7.14
Increase in actual rent per
occupied square foot over
prior period.............. N/A 3.2% 2.6% 1.2% 6.8% 5.7% 4.8%
Occupancy level (for the
period ended)............. 76.9% 79.8% 80.4% 86.7% 88.7% 86.4% 87.0%
Increase (decrease) in
occupancy over prior
period.................... N/A 3.8% 0.8% 7.8% 2.3% (2.6%) 0.7%
Net operating margin....... 62.8% 65.6% 64.9% 67.7% 71.1% 72.6% 72.8%
Increase (decrease) in net
operating margin over
prior period.............. N/A 4.5% (1.1%) 4.3% 5.0% 2.1% 0.3%
</TABLE>
S-12
<PAGE>
The Company's success is primarily attributable to its marketing program,
the key elements of which are training its Property Managers to be aggressive
leasing agents rather than mere caretakers and targeting specific commercial
and residential market segments such as retail businesses, distributors,
contractors, apartment complexes, condominiums and townhouses. The Company
believes that its emphasis on marketing to commercial users has resulted in
the proportion of its space occupied by commercial users being substantially
above the industry average. The Company considers commercial users more
desirable because they rent larger units for longer terms and are more
reliable payors.
Increasing Rents. The Company pursues an aggressive program of rent
increases. Rents for each Property are increased at least annually, and
usually more frequently, by the Property Manager and the District Manager,
subject to the direction of the Company's senior management. The Company
generally seeks to effect a rate increase for units of a particular size at a
Property when the occupancy level for those units exceeds 90%. Most Property
Managers are given autonomy to vary from set rents; however, the Company's
customized management information system tracks all variances and thereby
allows senior management to monitor discounting. The Company believes that its
incentive compensation program for Property Managers generally results in
rents above set rates, thereby increasing net operating income.
Increasing Occupancy Levels. While pursuing an aggressive policy of rent
increases, the Company has nonetheless generally been able to increase
physical occupancy levels at the Properties and believes it will be successful
in this regard with future acquisitions.
Maintaining Strict Cost Controls. The Company focuses on increasing net
operating margins by containing property operating expenses and achieving
economies of scale by acquiring several self-storage facilities in the same
geographic market. The Company's incentive compensation program rewards
District Managers who can successfully reduce operating expenses. In addition,
Company policies place strict controls on the ability of Property Managers to
incur property-related expenses. This strategy has enabled the Company to
improve net operating margins from approximately 63% in 1990 to approximately
73% in 1996.
Maximizing Collections. The Company believes that it is among the most
aggressive self-storage operators in collecting delinquent accounts and late
fees. The Company has established specific procedures for Property Managers to
follow with respect to delinquent accounts, commencing with late payment
notices and continuing through property lien enforcement. In addition, late
charges are automatically instituted by the Company's customized management
information system and Property Managers are generally not permitted to waive
late charges. The Company's bad debt expense for 1996 was less than 1% of
total revenues.
S-13
<PAGE>
THE PROPERTIES
On April 15, 1997, the Company owned and operated the 139 Properties
containing an aggregate of 7.2 million rentable square feet, located in 16
states. The Company owns a 100% fee interest in each of the Properties through
the Operating Partnership. The following table provides an overview of certain
information regarding the Properties:
<TABLE>
<CAPTION>
OCCUPANCY
YEAR BUILT/ RENTABLE AT
LOCATION EXPANDED SQ. FT. 3/31/97 ACRES UNITS CONSTRUCTION
- -------- ----------- -------- --------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA:
Birmingham I............ 1990 37,075 73% 2.7 297 Masonry/Steel Roof
Birmingham II........... 1990 52,150 89% 4.7 414 Masonry/Steel Roof
Birmingham III.......... 1970 72,050 79% 4.3 409 Masonry/Steel Roof
Montgomery I............ 1982 75,000 80% 5.0 625 Masonry/Steel Roof
Montgomery II........... 1984 42,100 81% 2.7 300 Masonry/Steel Roof
Montgomery III.......... 1988 41,550 92% 2.4 392 Steel Bldg./Steel Roof
CONNECTICUT:
Hartford I.............. 1988 47,650 87% 10.0 339 Steel Bldg./Steel Roof
Hartford II............. 1992 40,275 86% 6.0 313 Steel Bldg./Steel Roof
New Haven............... 1985 36,000 98% 3.9 340 Steel Bldg./Steel Roof
FLORIDA:
Deltona................. 1984 60,000 86% 5.0 452 Masonry Wall/Shingled Roof
Ft. Lauderdale I........ 1985 103,000 89% 7.6 646 Steel Bldg./Steel Roof
Ft. Lauderdale II....... 1989 40,675 96% 3.8 422 Masonry/Steel Roof
Ft. Myers I............. 1988 28,068 89% 1.1 272 Steel Bldg./Steel Roof
Ft. Myers II............ 1991/94 41,728 87% 3.2 602 Masonry/Steel Roof
Ft. Myers III........... 1986 35,935 85% 2.4 261 Masonry/Steel Roof
Ft. Myers IV............ 1987 63,000 83% 4.5 289 Masonry/Steel Roof
Masonry Wall/Tar & Gravel
Jacksonville I.......... 1985 40,000 86% 2.7 296 Roof
Jacksonville II......... 1987 53,225 92% 4.4 465 Masonry/Steel Roof
Jacksonville III........ 1987 102,200 87% 5.9 786 Masonry Wall/Shingled Roof
Jacksonville IV......... 1985 43,865 81% 2.7 527 Steel Bldg./Steel Roof
Jacksonville V.......... 1987/92 55,400 94% 2.9 514 Steel Bldg./Masonry Wall
Lakeland I.............. 1985 45,725 84% 3.5 444 Masonry Wall/Steel Roof
Lakeland II............. 1988 41,860 89% 4.0 446 Masonry Wall/Steel Roof
Melbourne I............. 1986 61,787 87% 8.3 605 Masonry Wall/Shingled Roof
Melbourne II............ 1986 55,755 86% 3.4 657 Steel Bldg./Steel Roof
Orlando I............... 1988 53,875 96% 2.8 603 Steel Bldg./Steel Roof
Orlando II.............. 1986 135,000 78% 8.5 1,359 Masonry Wall/Steel Roof
Orlando III............. 1975 60,000 94% 3.2 487 Masonry/Steel Roof
Orlando IV.............. 1984 37,372 84% 2.8 341 Metal/Steel Roof
Pensacola I............. 1983 105,127 82% 7.5 976 Steel Bldg./Steel Roof
Pensacola II............ 1986 57,355 87% 3.4 509 Steel Bldg./Steel Roof
Pensacola III........... 1986 63,250 81% 6.1 510 Steel Bldg./Steel Roof
Pensacola IV............ 1990 39,825 86% 2.7 280 Masonry/Steel Roof
Pensacola V............. 1990 38,850 71% 2.6 324 Masonry/Steel Roof
Port St. Lucie.......... 1985 60,000 76% 4.0 599 Steel Bldg./Steel Roof
Masonry Wall/Tar & Gravel
Tallahassee I........... 1973 149,600 80% 18.7 730 Roof
Masonry Wall/Tar & Gravel
Tallahassee II.......... 1975 43,600 94% 4.0 236 Roof
Tampa I................. 1989 60,202 83% 3.3 889 Masonry/Steel Roof
Tampa II................ 1985 55,911 88% 2.9 794 Masonry/Steel Roof
Tampa III............... 1988 45,507 86% 2.2 689 Masonry/Steel Roof
Tampa IV................ 1985 60,675 80% 4.0 633 Masonry/Steel Roof
West Palm Beach I....... 1986 49,000 70% 3.2 412 Steel Bldg./Steel Roof
West Palm Beach II...... 1986 33,120 90% 2.3 395 Masonry/Steel Roof
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY
YEAR BUILT/ RENTABLE AT
LOCATION EXPANDED SQ. FT. 3/31/97 ACRES UNITS CONSTRUCTION
- -------- ----------- -------- --------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
GEORGIA:
Atlanta I............... 1988 69,075 87% 3.9 539 Steel Bldg./Steel Roof
Atlanta II.............. 1988 45,100 79% 3.9 375 Steel Bldg./Steel Roof
Atlanta III............. 1988 55,475 89% 5.3 483 Steel Bldg./Steel Roof
Atlanta IV.............. 1989 41,724 90% 3.5 304 Steel Bldg./Steel Roof
Masonry Wall/Tar & Gravel
Atlanta V............... 1988 38,082 87% 4.2 372 Roof
Atlanta VI.............. 1986 51,375 76% 3.6 458 Steel Bldg./Steel Roof
Masonry Wall/Tar & Gravel
Atlanta VII............. 1981 43,400 86% 2.5 324 Roof
Masonry Wall/Tar & Gravel
Atlanta VIII............ 1975 41,400 85% 3.3 452 Roof
Atlanta IX.............. 1988 56,725 83% 4.6 409 Steel Bldg./Steel Roof
Atlanta X............... 1988 45,425 93% 6.8 391 Steel Bldg./Steel Roof
Augusta I............... 1988 52,300 73% 4.0 407 Steel Bldg./Steel Roof
Augusta II.............. 1987 45,700 87% 3.5 377 Masonry Wall/Steel Roof
Macon I................. 1989 40,700 82% 3.2 356 Steel Bldg./Steel Roof
Macon II................ 1989/94 58,750 87% 14.0 535 Steel Bldg./Steel Roof
Savannah ............... 1981 58,781 75% 5.4 527 Masonry Wall/Steel Roof
MARYLAND:
Frederick............... 1984 22,233 78% 1.9 347 Masonry Wall/Shingled Roof
Masonry Wall/Tar & Gravel
Gaithersburg............ 1988 63,915 88% 2.2 526 Roof
Landover................ 1990 53,171 88% 3.1 686 Steel Bldg./Steel Roof
Masonry Wall/Tar & Gravel
Salisbury............... 1979 34,350 71% 3.0 418 Roof
MASSACHUSETTS:
Masonry Wall/Tar & Gravel
Boston I................ 1980 37,575 92% 2.0 403 Roof
Masonry Wall/Tar & Gravel
Boston II............... 1986 36,900 98% 3.6 428 Roof
New Bedford............. 1982 41,980 78% 3.4 408 Steel Bldg./Steel Roof
Springfield............. 1986 41,399 76% 4.7 337 Masonry Wall/Shingled Roof
MICHIGAN:
Grand Rapids I.......... 1976 57,900 86% 5.4 526 Masonry Wall/Steel Roof
Grand Rapids II......... 1983 32,300 92% 8.0 296 Masonry & Steel Walls
Holland................. 1978 95,088 84% 13.6 676 Masonry Wall/Steel Roof
Steel Bldg./Steel & Shingled
Kalamazoo............... 1978 58,214 87% 11.6 607 Roof
Lansing................. 1987 43,943 87% 3.8 426 Steel Bldg./Steel Roof
MISSISSIPPI:
Jackson I............... 1990 41,900 90% 2.0 344 Masonry/Steel Roof
Jackson II.............. 1990 38,775 83% 2.1 308 Masonry/Steel Roof
NEW YORK:
Buffalo I............... 1981 61,200 85% 5.1 507 Steel Bldg./Steel Roof
Buffalo II.............. 1984 53,525 84% 6.2 430 Steel Bldg./Steel Roof
Middletown.............. 1988 30,000 96% 2.8 281 Steel Bldg./Steel Roof
Rochester I............. 1981 43,000 86% 2.9 407 Steel Bldg./Steel Roof
Rochester II............ 1980 39,000 90% 3.5 250 Masonry Wall/Shingled Roof
Rochester III........... 1990 51,826 95% 2.7 421 Masonry/Shingled Roof
Syracuse I.............. 1987 70,200 85% 7.5 767 Steel Bldg./Steel Roof
Syracuse II............. 1983 44,350 95% 3.6 364 Steel Bldg./Shingled Roof
NORTH CAROLINA:
Charlotte I............. 1985 37,051 79% 2.9 337 Steel Bldg./Steel Roof
Charlotte II............ 1995 48,750 74% 5.6 494 Masonry Wall/Steel Roof
Charlotte III........... 1995 31,200 80% 2.9 346 Masonry Wall/Steel Roof
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY
YEAR BUILT/ RENTABLE AT
LOCATION EXPANDED SQ. FT. 3/31/97 ACRES UNITS CONSTRUCTION
- -------- ----------- -------- --------- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Fayetteville............ 1980 92,800 71% 6.2 1,160 Steel Bldg./Steel Roof
Steel & Masonry Wall/Steel
Greensboro.............. 1986 42,900 74% 3.4 415 Roof
Raleigh I............... 1985 57,750 84% 5.0 569 Steel Bldg./Steel Roof
Raleigh II.............. 1985 33,150 75% 2.5 329 Steel Bldg./Steel Roof
OHIO:
Akron................... 1990 37,720 94% 3.4 296 Masonry Wall/Steel Roof
Cincinnati.............. 1988 48,830 77% 2.8 496 Masonry Wall/Steel Roof
Cleveland I............. 1980 48,250 85% 6.4 359 Steel Bldg./Steel Roof
Cleveland II............ 1987 60,500 90% 4.8 453 Steel Bldg./Steel Roof
Cleveland III........... 1986 68,110 89% 3.4 570 Masonry Wall/Steel Roof
Cleveland IV............ 1978 65,125 71% 3.5 554 Masonry Wall/Steel Roof
Cleveland V............. 1979 73,450 85% 3.1 646 Masonry Wall/Rolled Roof
Cleveland VI............ 1979 46,625 87% 2.6 361 Masonry Wall/Concrete Roof
Cleveland VII........... 1977 69,750 92% 4.3 628 Masonry Wall/Steel Roof
Cleveland VIII.......... 1970 45,275 91% 5.7 395 Masonry Wall/Steel Roof
Cleveland IX............ 1982 53,748 97% 4.4 291 Masonry Wall/Steel Roof
Dayton.................. 1988 61,875 89% 3.6 615 Masonry Wall/Steel Roof
Youngstown I............ 1980 48,825 86% 5.8 380 Steel Bldg./Steel Roof
Youngstown II........... 1988 55,525 90% 3.9 497 Masonry Wall/Steel Roof
PENNSYLVANIA:
Allentown............... 1983 30,000 99% 6.3 277 Masonry Wall/Shingled Roof
Harrisburg I............ 1983 48,746 94% 4.1 475 Masonry Wall/Steel Roof
Harrisburg II........... 1985 58,800 93% 9.2 299 Masonry Wall/Steel Roof
Pittsburgh I............ 1990 57,375 93% 3.4 551 Steel Bldg./Steel Roof
Pittsburgh II........... 1983 75,875 79% 4.8 732 Masonry Wall/Shingled Roof
Sharon.................. 1975 37,200 71% 3.0 314 Steel Bldg./Steel Roof
RHODE ISLAND:
Masonry Wall/Tar & Gravel
Providence.............. 1984 37,825 77% 3.7 397 Roof
SOUTH CAROLINA:
Charleston I............ 1985 51,445 88% 3.3 421 Steel Bldg./Masonry Wall
Charleston II........... 1985 41,038 92% 2.2 335 Masonry Wall/Steel Roof
Columbia I.............. 1985 47,650 72% 3.3 410 Steel Bldg./Steel Roof
Columbia II............. 1987 59,000 79% 6.0 464 Steel Bldg./Steel Roof
Columbia III............ 1989 41,200 80% 3.5 354 Steel Bldg./Steel Roof
Columbia IV............. 1986 56,000 83% 5.6 446 Steel Bldg./Steel Roof
Spartanburg............. 1989 49,500 73% 3.6 350 Steel Bldg./Steel Roof
TEXAS:
Arlington I............. 1987 45,965 74% 2.3 411 Masonry Wall/Steel Roof
Arlington II............ 1986 67,100 82% 3.8 330 Masonry Wall/Steel Roof
Ft. Worth............... 1980 40,825 86% 2.4 356 Masonry Wall/Asphalt Roof
Houston I............... 1995 35,600 70% 1.8 332 Metal Wall/Steel Roof
Houston II.............. 1995 69,650 75% 6.4 543 Metal Wall/Steel Roof
Houston III............. 1993 61,861 86% 6.3 541 Metal Wall/Steel Roof
San Antonio I........... 1986 48,280 77% 3.9 486 Masonry Wall/Steel Roof
San Antonio II.......... 1986 40,550 88% 1.9 287 Masonry Wall/Steel Roof
San Antonio III......... 1981 48,782 97% 2.6 495 Masonry Wall/Steel Roof
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY
YEAR BUILT/ RENTABLE AT
LOCATION EXPANDED SQ. FT. 3/31/97 ACRES UNITS CONSTRUCTION
- -------- ----------- --------- --------- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
San Antonio IV.......... 1995 44,600 88% 5.4 372 Steel Bldg./Steel Roof
San Antonio V........... 1985 35,100 81% 2.4 427 Masonry Wall/Steel Roof
VIRGINIA:
Masonry Wall/Tar & Gravel
Alexandria.............. 1984 77,310 80% 3.2 1105 Roof
Chesapeake.............. 1988/95 35,901 81% 12.0 271 Metal Wall/Steel Roof
Christianburg........... 1985/90 36,673 92% 3.2 327 Masonry Wall/Metal Roof
Danville................ 1988 49,776 87% 3.2 408 Steel Wall/Metal Roof
Lynchburg I............. 1987 22,000 83% 1.5 182 Masonry Wall/Metal Roof
Lynchburg II............ 1982 47,200 93% 5.2 429 Masonry Wall/Steel Roof
Lynchburg III........... 1985 41,250 86% 2.3 380 Masonry Wall/Steel Roof
Newport News I.......... 1988 52,944 90% 3.2 451 Steel Bldg./Steel Roof
Newport News II......... 1988/89 63,125 96% 4.7 384 Steel Bldg./Steel Roof
Norfolk I............... 1984 49,950 80% 2.7 357 Steel Bldg./Steel Roof
Norfolk II.............. 1989 45,375 91% 2.1 363 Masonry Wall/Steel Roof
Richmond................ 1987 52,035 82% 2.7 524 Steel Bldg./Steel Roof
--------- ----- ------
Total/Average......... 7,231,758 85% 601.1 64,128
========= ===== ======
</TABLE>
S-17
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON SHARES
The following is a general summary of the material U.S. Federal income tax
considerations to holders of Common Shares. The following discussion is not
exhaustive of all possible tax considerations and is not tax advice. Moreover,
this summary does not deal with all tax aspects that might be relevant to a
particular prospective shareholder in light of his personal circumstances; nor
does it deal with particular types of shareholders that are subject to special
treatment under the Code, such as insurance companies, financial institutions
and broker-dealers. This discussion does not address any aspects of Federal
income taxation to the Company relating to its election to be taxed as a REIT.
A summary of certain Federal income tax considerations to the Company is
provided in the accompanying Prospectus. The following discussion is based on
current law.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON
SHARES.
TAXATION OF U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
that (for United States Federal income tax purposes) is (a) a citizen or
resident of the United States, (b) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof or (c) any estate other than a foreign estate
within the meaning of Section 7701(a)(31) of the Code and any trust (i) with
respect to the administration of which, a court within the United States is
able to exercise primary supervision, and (ii) with respect to the governance
of which, one or more United States fiduciaries have the authority to control
all or substantially all decisions.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Shareholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current and accumulated earnings and profits and will be taxable to the
shareholders as ordinary income. These distributions are not eligible for the
dividends-received deduction for corporations. To the extent that the Company
makes a distribution in excess of its current and accumulated earnings and
profits, the distribution will be treated first as a tax-free return of
capital, reducing the tax basis in the U.S. Shareholder's Common Shares, and
the distribution in excess of a U.S. Shareholder's tax basis in its Common
Shares will be taxable as gain realized from the sale of its Common Shares.
Dividends declared by the Company in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of that year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Shareholders may not
include on their own Federal income tax returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
in "Taxation of the Company" in the accompanying Prospectus. Moreover, any
"deficiency dividend" will be treated as an ordinary or capital gain dividend,
as the case may be, regardless of the Company's earnings and profits. As a
result, shareholders may be required to treat certain distributions that would
otherwise result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Shareholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain) for the
taxable year without regard to the period for which the shareholder has held
his stock. However, corporate
S-18
<PAGE>
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Capital gain dividends are not eligible for the
dividends-received deduction for corporations.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of Common
Shares will not be treated as passive activity income, and therefore
shareholders may not be able to apply any "passive losses" against such
income. Dividends from the Company (to the extent they do not constitute a
return of capital) will generally be treated as investment income for purposes
of the investment income limitation; net capital gain from the disposition of
Common Shares generally will be excluded from investment income.
CERTAIN DISPOSITIONS OF STOCK
Losses incurred on the sale or exchange of Common Shares held for six months
or less (after applying certain holding period rules) will be deemed long-term
capital loss to the extent of any capital gain dividends received by the
selling shareholder from those shares.
TREATMENT OF TAX-EXEMPT SHAREHOLDERS
Distributions from the Company to a tax-exempt employee pension trust or
other domestic tax-exempt shareholder generally will not constitute "unrelated
business taxable income" ("UBTI") unless the shareholder has borrowed to
acquire or carry its Common Shares or otherwise uses the Common Shares in an
unrelated trade or business. However, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Section 501(c) of the Code are subject to
different UBTI rules, which generally require them to classify distributions
from the Company as UBTI.
Qualified pension trusts that hold more than 10% (by value) of the shares of
certain REITs may be required to treat a certain percentage of such a REIT's
distributions as UBTI. This requirement will apply only if (i) the REIT would
not qualify as such for Federal income tax purposes but for the application of
a "look-through" exception to the five or fewer requirement applicable to
shares held by qualified trusts and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is predominantly held if either (i) a single
qualified trust holds more than 25% by value of the REIT interests or (ii) one
or more qualified trusts, each owning more than 10% by value of the REIT
interests, hold in the aggregate more than 50% of the REIT interests. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a)
the UBTI earned by the REIT (treating the REIT as if it were a qualified trust
and therefore subject to tax on UBTI) to (b) the total gross income (less
certain associated expenses) of the REIT. A de minimus exception applies where
the ratio set forth in the preceding sentence is less than 5% for any year.
For these purposes, a qualified trust is any trust described in Section 401(a)
of the Code and exempt from tax under Section 501(a) of the Code. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the five or fewer
requirement without relying upon the "look-through" exception.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Shareholders") are complex, and the following
discussion is intended only as a summary of these rules. PROSPECTIVE NON-U.S.
SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE
IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS ON AN INVESTMENT IN THE
COMPANY, INCLUDING ANY REPORTING REQUIREMENTS.
In general, Non-U.S. Shareholders will be subject to regular United States
Federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Shareholder's conduct
of a trade or business in the United States. A corporate Non-U.S. Shareholder
that receives income that
S-19
<PAGE>
is (or is treated as) effectively connected with a U.S. trade or business may
also be subject to the branch profits tax under Section 884 of the Code, which
is payable in addition to regular United States Federal corporate income tax.
The following discussion will apply to Non-U.S. Shareholders whose investment
in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that
is not designated by the Company as a capital gain dividend will be treated as
an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States Federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
Such a distribution in excess of the Company's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Shareholder's
basis in its Common Shares (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of Common Shares.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Shareholder under the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Shareholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Shareholder will be
taxed at the normal capital gain rates applicable to a U.S. Shareholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of non-resident alien individuals). Distributions
subject to FIRPTA also may be subject to a 30% branch profits tax when made to
a foreign corporate shareholder that is not entitled to treaty relief or
exemption.
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the Internal Revenue Service (the "Service"), (i)
35% of designated capital gain dividends (or, if greater, 35% of the amount of
any distributions that could be designated as capital gain dividends) and (ii)
30% of ordinary dividends paid out of earnings and profits. In addition, if
the Company designates prior distributions as capital gain dividends,
subsequent distributions, up to the amount of such prior distributions, will
be treated as capital gain dividends for purposes of withholding. A
distribution in excess of the Company's earnings and profits will be subject
to 30% dividend withholding if at the time of the distribution it cannot be
determined whether the distribution will be in an amount in excess of the
Company's current and accumulated earnings and profits. If the amount of tax
withheld by the Company with respect to a distribution to a Non-U.S.
Shareholder exceeds the shareholder's United States tax liability with respect
to such distribution, the Non-U.S. Shareholder may file for a refund of such
excess from the Service. Unless the Common Shares constitute a "United States
real property interest" within the meaning of FIRPTA, a sale of Common Shares
by a Non-U.S. Shareholder generally will not be subject to United States
Federal income taxation. The Common Shares will not constitute a United States
real property interest if the Company is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which at all times during a
specified testing period less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Shareholders. It is currently anticipated that the
Company will be a domestically controlled REIT and therefore that the sale of
Common Shares will not be subject to taxation under FIRPTA. However, because
the Common Shares will be publicly traded, no assurance can be given that the
Company will continue to be a domestically controlled REIT. Notwithstanding
the foregoing, capital gains not subject to FIRPTA will be taxable to a Non-
U.S. Shareholder (under rules generally applicable to U.S. Shareholders) if
the Non-U.S. Shareholder is a non-resident alien individual who is present in
the United States for 183 days or more during the taxable year and certain
other conditions apply. If the Company was not a domestically controlled REIT,
whether a Non-U.S. Shareholder's sale of Common Shares would be subject to tax
under FIRPTA as a sale of a United States real property interest would depend
on whether the Common Shares were "regularly traded" on an established
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<PAGE>
securities market (such as the New York Stock Exchange) and on whether the
selling Non-U.S. Shareholder held, directly or indirectly, more than 5% of the
Common Shares during the five-year period ending on the date of disposition.
If the gain on the sale of Common Shares was subject to taxation under FIRPTA,
the Non-U.S. Shareholder would be subject to the same treatment as a U.S.
Shareholder with respect to the gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). In addition, distributions that are treated as gain from
the disposition of Common Shares that are subject to tax under FIRPTA also may
be subject to a 30% branch profits tax when made to a foreign corporate
shareholder that is not entitled to treaty exemptions. In any event, a
purchaser of Common Shares from a Non-U.S. Shareholder will not be required to
withhold under FIRPTA on the purchase price if the purchased Common Shares are
"regularly traded" on an established securities market or if the Company is a
domestically controlled REIT. Otherwise, under FIRPTA the purchaser of Common
Shares may be required to withhold 10% of the purchase price and remit this
amount to the Service.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Shareholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash
proceeds of a sale or exchange of, Common Shares. Backup withholding will
apply only if the holder (i) fails to furnish his or her taxpayer
identification number ("TIN") (which, for an individual, would be his or her
Social Security Number), (ii) furnishes an incorrect TIN, (iii) is notified by
the Service that he or she has failed to properly report payments of interest
and dividends or is otherwise subject to backup withholding or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that he
or she has furnished a correct TIN and (a) that he or she has not been
notified by the Service that he or she is subject to backup withholding for
failure to report interest and dividend payments or (b) that he or she has
been notified by the Service that he or she is no longer subject to backup
withholding. Backup withholding will not apply with respect to payments made
to certain exempt recipients, such as corporations and tax-exempt
organizations.
U.S. Shareholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
U.S. Shareholder will be allowed as a credit against the U.S. Shareholder's
United States Federal income tax liability and may entitle the U.S.
Shareholder to a refund, provided that the required information is furnished
to the Service.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Shareholders. Non-U.S. Shareholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
shareholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in the Common Shares.
S-21
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") between the Company and PaineWebber,
PaineWebber has agreed to purchase from the Company, and the Company has
agreed to sell to PaineWebber, the 1,500,000 of Common Shares being offered
hereby.
PaineWebber has advised the Company that PaineWebber proposes to offer the
Common Shares in part to the public at the public offering price set forth on
the cover of this Prospectus Supplement and in part to certain dealers (who
may include PaineWebber) at such price less a concession not in excess of $.88
per share, and that PaineWebber and such selected dealers may reallow a
concession to other dealers not in excess of $.10 per share.
The Company has granted PaineWebber an option, exercisable during the 30-day
period after the date of the Underwriting Agreement, to purchase up to 225,000
additional Common Shares at the public offering price set forth on the cover
page of this Prospectus Supplement, less the underwriting discounts and
commissions. PaineWebber may exercise such option only to cover over-
allotments, if any, made in connection with the offering of the Common Shares
offered hereby.
The Company has agreed to indemnify PaineWebber against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or to contribute to payments that PaineWebber may be
required to make in respect thereof.
Until the distribution of the Common Shares offered hereby is completed,
rules of the Securities and Exchange Commission may limit the ability of
PaineWebber to bid for and purchase the Common Shares. As an exception to
these rules, PaineWebber is permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.
If PaineWebber creates a short position in the Common Shares in connection
with the Offering, i.e., if it sells more Common Shares than are set forth on
the cover page of this Prospectus Supplement, PaineWebber may reduce that
short position by purchasing Common Shares in the open market. PaineWebber may
also elect to reduce any short position by exercising all or part of the over-
allotment option described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security before the distribution is
completed.
Neither the Company nor PaineWebber makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above might have on the price of the Common Shares. In addition, neither the
Company nor PaineWebber makes any representation that PaineWebber will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Paine Webber Real Estate Securities, Inc., an affiliate of PaineWebber, is
the provider of the Credit Facility.
EXPERTS
The consolidated financial statements of Sovran Self Storage, Inc.
incorporated by reference in Sovran Self Storage, Inc.'s Annual Report (Form
10-K) for the year ended December 31, 1996, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon incorporated
by reference therein and incorporated herein by reference. Such consolidated
financial statements referred to above are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
S-22
<PAGE>
LEGAL MATTERS
Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, New York, will pass
upon the validity of the issuance of the Common Shares offered pursuant to
this Prospectus Supplement. Certain legal matters relating to the Offering
will be passed upon for PaineWebber by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts.
S-23
<PAGE>
PROSPECTUS
$150,000,000
SOVRAN SELF STORAGE, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
----------------
Sovran Self Storage, Inc. ("Sovran" or the "Company") may offer from time to
time in one or more series (i) its debt securities ("Debt Securities") which
may be senior or subordinated, (ii) shares of its preferred stock, $.01 par
value per share ("Preferred Stock"), and (iii) shares of its common stock,
$.01 par value per share ("Common Stock"), with an aggregate public offering
price of up to $150,000,000 (or its equivalent based on the exchange rate at
the time of sale) in amounts, at prices and on terms to be determined at the
time of offering. The Debt Securities, Preferred Stock and Common Stock
(collectively, the "Securities") may be offered separately or together, in
separate classes or series, in amounts, at prices and on terms to be set forth
in one or more supplements to this Prospectus (each a "Prospectus
Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at
the option of the holder, terms for sinking fund payments, terms for
conversion into Common Stock or Preferred Stock, covenants and any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
and (iii) in the case of Common Stock, any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may
be consistent with the Company's Amended and Restated Articles of
Incorporation or otherwise appropriate to preserve the status of the Company
as a real estate investment trust ("REIT") for federal income tax purposes.
See "Restrictions on Transfers of Capital Stock."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or to
or through underwriters or dealers. If any agents or underwriters are involved
in the sale of any of the securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them will be
set forth, or will be calculable from the information set forth, in an
accompanying Prospectus Supplement. See "Plan of Distribution." No Securities
may be sold without delivery of a Prospectus Supplement describing the method
and terms of the offering of such Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
----------------
The date of this Prospectus is September 4, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC"
or "Commission") a Registration Statement on Form S-3 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Securities.
This Prospectus, which constitutes part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits thereto on file with the Commission pursuant to the Securities Act
and the rules and regulations of the Commission thereunder. The Registration
Statement, including exhibits thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies may be obtained at the prescribed rates from
the Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission maintains an Internet Web site
(http://www.sec.gov.) that contains such documents filed electronically by the
Company with the Commission through its Electronic Data Gathering, Analysis
and Retrieval System (EDGAR) filing system. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. In addition, the Common Stock is listed on the New York
Stock Exchange (the "NYSE"), and such materials can be inspected and copied at
the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1996 and June 30, 1996, (iii) the Company's Current Report on Form 8-K dated
July 25, 1996 as amended by the Company's Amended Current Report on Form 8-K/A
dated September 3, 1996, and (iv) the description of the Company's Common
Stock contained in the Company's Registration Statement on Form 8-A dated June
16, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. The Company will provide, without charge, to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, at the request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits thereto,
unless such exhibits are specifically incorporated by reference into such
documents). Written requests for such copies should be directed to David L.
Rogers, Chief Financial Officer, Sovran Self Storage, Inc., 5166 Main Street,
Williamsville, New York, 14221, telephone (716) 633-1850.
Any statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in an applicable Prospectus Supplement) or in any subsequently
filed document that is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed to constitute a part of this Prospectus or any Prospectus Supplement,
except as so modified or superseded.
2
<PAGE>
THE COMPANY
GENERAL
Sovran Self Storage, Inc. is a self-administered and self-managed real
estate investment trust ("REIT") which acquires, owns and manages self storage
properties. (The Company's self storage properties are hereinafter referred to
collectively as the "Properties" and individually as a "Property"). The
Company was formed through the transfer for cash on June 26, 1995 of 62
Properties previously owned by limited partnerships of which the Company was
the general partner, and the simultaneous acquisition of 12 additional
Properties from unrelated third parties, in connection with the
contemporaneous consummation of the Company's initial public offering (the
"Initial Offering") and related transactions. The Company has since acquired
26 additional Properties from unrelated third parties. As of June 30, 1996,
the Company owned and operated, a total of 100 self-storage Properties,
consisting of approximately 5.45 million net rentable square feet, situated
primarily in the Eastern United States, in 15 states. As of June 30, 1996, the
Properties had a weighted average occupancy of 90.2% and a weighted average
annual rent per occupied square foot of $6.87. The Company believes that it is
one of the largest operators of self-storage properties in the United States
based on facilities owned.
The Company seeks to increase cash flow and enhance shareholder value
through aggressive management of the Properties and selective acquisition of
new self-storage properties. Aggressive property management entails increasing
rents, increasing occupancy levels, strictly controlling costs, maximizing
collections, strategically expanding and improving the Properties and, should
economic conditions warrant, developing new properties. The Company believes
that there continue to be significant opportunities for growth through
acquisitions, and constantly seeks to acquire self-storage properties located
primarily in the Eastern United States that are susceptible to realization of
increased economies of scale and enhanced performance through the application
of the Company's management expertise.
The Company was formed to continue the business of its predecessor company
which had engaged in the self storage business since 1985. The Company owns a
100% fee simple interest in each of the Properties through a limited
partnership (the "Partnership") of which the Company holds a 99% limited
partnership interest and a wholly-owned subsidiary of the Company (the
"Subsidiary") holds a 1% general partnership interest. The Company believes
that this structure, commonly known as an umbrella partnership real estate
investment trust ("UPREIT"), facilitates the Company's ability to acquire
properties by using units of the Partnership as currency in property
acquisitions.
The Company was incorporated on April 19, 1995 under Maryland law. The
Company's principal executive offices are located at 5166 Main Street,
Williamsville, New York 14221, and its telephone number is(716) 633-1850. The
Company also maintains a regional office in Atlanta, Georgia.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities for
general corporate purposes, which may include the acquisition of additional
properties, the repayment of outstanding debt or the improvement of certain
properties already in the Company's portfolio.
3
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's and its predecessor's
consolidated ratios of earnings to fixed charges for the periods shown:
<TABLE>
<CAPTION>
COMPANY PREDECESSORS
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
SIX MONTHS
ENDED YEAR ENDED JANUARY 1, 1995
JUNE 30, DECEMBER 31, TO
1996 1995 JUNE 25, 1995 1994 1993 1992 1991
---------- ------------- --------------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
7.26 21.88 1.09 1.31 0.84 0.53 0.31
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs. To date, the Company has
not issued any Preferred Stock; therefore, the ratios of earnings to combined
fixed charges and preferred stock dividend requirements are the same as the
ratios of earnings to fixed charges presented above.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). The Debt
Securities will be issued under one or more indentures, each dated as of a
date prior to the issuance of the Debt Securities to which it relates. Senior
Debt Securities and Subordinated Debt Securities may be issued pursuant to
separate indentures (respectively, a "Senior Indenture" and a "Subordinated
Indenture"), in each case between the Company and a trustee (a "Trustee"),
which may be the same Trustee, and in the form that has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part,
subject to such amendments or supplements as may be adopted from time to time.
The Senior Indenture and the Subordinated Indenture, as amended or
supplemented from time to time, are sometimes hereinafter referred to
collectively as the "Indentures." The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the Debt Securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
General. The Debt Securities will be direct, unsecured obligations of the
Company. The indebtedness represented by the Senior Debt Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the
Company. The indebtedness represented by Subordinated Debt Securities will be
subordinated in right of payment to the prior payment in full of Senior
Indebtedness of the Company as described under "--Subordination." The
particular terms of the Debt Securities offered by a Prospectus Supplement
will be described in the applicable Prospectus Supplement, along with any
applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable federal income tax considerations. Accordingly, for a description
of the terms of any series of Debt Securities, reference must be made to both
the Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company
4
<PAGE>
or as set forth in the applicable Indenture or in one or more indentures
supplemental to such Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuance of additional Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may
be appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee, and, except as otherwise indicated herein, any action described
herein to be taken by each Trustee may be taken by each such Trustee with
respect to, and only with respect to, the one or more series of Debt
Securities for which it is Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount thereof)
at which such Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities
that is convertible into Common Stock or Preferred Stock, or the method by
which any such portion shall be determined;
(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(5) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates,
or the method by which such dates shall be determined, the persons to whom
such interest shall be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium or Make-Whole
Amount (as defined in the Indenture), if any) and interest, if any, on such
Debt Securities will be payable, where such Debt Securities may be
surrendered for registration of transfer or exchange and where notices or
demands to or upon the Company in respect of such Debt Securities and the
applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a holder thereof, and the period or
5
<PAGE>
periods within which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any, including any amount due upon redemption, if any) or
interest, if any, on such Debt Securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not be, based on the yield on or trading price of other
securities, including United States Treasury securities, or on a currency,
currencies, currency unit or units, or composite currency or currencies)
and the manner in which such amounts shall be determined;
(13) Whether the principal of (and premium or Make-Whole Amount, if any)
or interest on the Debt Securities of the series are to be payable, at the
election of the Company or a holder thereof, in a currency or currencies,
currency unit or units or composite currency or currencies other than that
in which such Debt Securities are denominated or stated to be payable, the
period or periods within which, and the terms and conditions upon which,
such election may be made, and the time and manner of, and identity of the
exchange rate agent with responsibility for, determining the exchange rate
between the currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are denominated or
stated to be payable and the currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are to be
so payable;
(14) Provisions, if any, granting special rights to the holders of Debt
Securities of the series upon the occurrence of such events as may be
specified;
(15) Any deletions from, modifications of or additions to the Events of
Default (as defined in the Indenture) or covenants of the Company with
respect to Debt Securities of the series, whether or not such Events of
Default or covenants are consistent with the Events of Default or covenants
described herein;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(17) Whether Debt Securities of the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or both,
any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series may be
exchanged for Registered Securities of the series and vice versa (if
permitted by applicable laws and regulations), whether any Debt Securities
of the series are to be issuable initially in temporary global form and
whether any Debt Securities of the series are to be issuable in permanent
global form with or without coupons and, if so, whether beneficial owners
of interests in any such permanent global Security may exchange such
interests for Debt Securities of such series and of like tenor of any
authorized form and denomination and the circumstances under which any such
exchanges may occur, if other than in the manner provided in the Indenture,
and, if Registered Securities of the series are to be issuable as a Global
Security (as defined), the identity of the depository for such series;
(18) The date as of which any Bearer Securities of the series and any
temporary Global Security representing outstanding Debt Securities of the
series shall be dated if other than the date of original issuance of the
first Security of the series to be issued;
(19) The Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the
extent to which, or the manner in which, any interest payable on a
temporary Global Security on an Interest Payment Date will be paid if other
than in the manner provided in the Indenture;
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(20) The applicability, if any, of the defeasance and covenant defeasance
provisions of the Indenture to the Debt Securities of the series;
(21) If the Debt Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a
temporary Security of such series) only upon receipt of certain
certificates or other documents or satisfaction of other conditions, then
the form and/or terms of such certificates, documents or conditions;
(22) The obligation, if any, of the Company to permit the conversion of
the Debt Securities of such series into Common Stock or Preferred Stock, as
the case may be, and the terms and conditions upon which such conversion
shall be effected (including, without limitation, the initial conversion
price or rate, the conversion period, any adjustment of the applicable
conversion price and any requirements relative to the reservation of such
shares for purposes of conversion); and
(23) Any other terms of the series (which terms shall not be inconsistent
with the provisions of the Indenture under which the Debt Securities are
issued).
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities").
In such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford holders of Debt Securities protection
in the event of a highly leveraged or similar transaction involving the
Company or in the event of a change of control. Restrictions on ownership and
transfers of the Common Stock and Preferred Stock are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Restrictions on Transfers of Capital Stock." Reference is made
to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of, or additions to, the events of default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Where Debt Securities of any series are issued in
bearer form, the special restrictions and considerations, including special
offering restrictions and special federal income tax considerations,
applicable to any such Debt Securities and to payment on and transfer and
exchange of such Debt Securities will be described in the applicable
Prospectus Supplement. Bearer Debt Securities will be transferable by
delivery.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and
interest on any series of Debt Securities will be payable at the corporate
trust office of the applicable Trustee, the address of which will be stated in
the applicable Prospectus Supplement; provided that, at the option of the
Company, payment of interest may be made by check mailed to the address of the
person entitled thereto as it appears in the applicable register for such Debt
Securities or by wire transfer of funds to such person at an account
maintained within the United States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security in registered form ("Defaulted
Interest") will forthwith cease to be payable to the holder on the applicable
Regular Record Date and may either be paid to the Person in whose name such
Debt Security is registered at the close of business on a special record date
(the "Special Record Date") for the payment of such Defaulted Interest to be
fixed by the Trustee, in which case notice thereof shall be given to the
holder of such
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Debt Security not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner, all as more completely
described in the applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee or at the
office of any transfer agent designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by
the Company for such purpose. Every Debt Security in registered form
surrendered for registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer, and the person requesting
such action must provide evidence of title and identity satisfactory to the
applicable Trustee or transfer agent. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus
Supplement refers to any transfer agent (in addition to the applicable
Trustee) initially designated by the Company with respect to any series of
Debt Securities, the Company may at any time rescind the designation of any
such transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at
any time designate additional transfer agents with respect to any series of
Debt Securities.
Neither the Company nor any Trustee shall be required to (a) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the selection of any Debt
Securities for redemption and ending at the close of business on the day of
mailing of the notice of redemption; (b) register the transfer of or exchange
any Debt Security, or portion thereof, so selected for redemption, in whole or
in part, except the unredeemed portion of any Debt Security being redeemed in
part; or (c) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the holder, except
the portion, if any, of such Debt Security not to be so repaid.
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the applicable Prospectus Supplement,
subject to any applicable laws and regulations, at such paying agencies
outside the United States as the Company may appoint from time to time. The
paying agents outside the United States, if any, initially appointed by the
Company for a series of Debt Securities will be named in the Prospectus
Supplement. Unless otherwise provided in the applicable Prospectus Supplement,
the Company may at any time designate additional paying agents or rescind the
designation of any paying agents, except that, if Debt Securities of a series
are issuable in registered form, the Company will be required to maintain at
least one paying agent in each place of payment for such series and if Debt
Securities of a series are issuable in bearer form, the Company will be
required to maintain at least one paying agent in a place of payment outside
the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of the
holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into,
any other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received
the transfer of such assets is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium or Make-Whole Amount, if any) and interest on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in such Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes
an obligation of the Company or any subsidiary as a result thereof as having
been incurred by the
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Company or such subsidiary at the time of such transaction, no Event of
Default under such Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and
be continuing; and (c) an officers' certificate and legal opinion covering
such conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
The applicable Prospectus Supplement will describe any material covenants in
respect of a series of Debt Securities that are not described in this
Prospectus. Unless otherwise indicated in the applicable Prospectus
Supplement, Senior Debt Securities will include the following covenants of the
Company:
Existence. Except as permitted under "--Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, by-laws and statute) and
franchises; provided, however, that the Company shall not be required to
preserve any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
Maintenance of Properties. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business
or the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
the Company and its subsidiaries shall not be prevented from selling or
otherwise disposing of their properties for value in the ordinary course of
business.
Insurance. The Indentures will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss or damage at
least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement,
having a specified rating from a recognized insurance rating service.
Payment of Taxes and Other Claims. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied
or imposed upon it or any subsidiary or upon the income, profits or property
of the Company or any subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any subsidiary; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged
any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default in the
payment of any interest on any Debt Security of such series when such interest
becomes due and payable that continues for a period of 30 days; (b) default in
the payment of the principal of (or premium or Make-Whole Amount, if any, on)
any Debt Security of such series when due and payable; (c) default in making
any sinking fund payment as required for any Debt Security of such series; (d)
default in the performance, or breach, of any other covenant or warranty of
the Company in the applicable Indenture with respect to the Debt Securities of
such series and continuance of such default or breach for a period of 60 days
after written notice as provided in the Indenture; (e) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company (or by any Subsidiary, the repayment of which
the Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor), having an aggregate principal amount
outstanding of at least $25,000,000, whether such indebtedness now exists or
shall hereafter be created, which
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default shall have resulted in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable, without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 30 days
after written notice to the Company as provided in the Indenture; (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Company or any Significant Subsidiary;
and (g) any other event of default provided with respect to a particular
series of Debt Securities. The term "Significant Subsidiary" has the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of, and premium or
Make-Whole Amount, if any, on, all the Debt Securities of that series to be
due and payable immediately by written notice thereof to the Company (and to
the applicable Trustee if given by the holders). However, at any time after
such a declaration of acceleration with respect to Debt Securities of such
series has been made, but before a judgment or decree for payment of the money
due has been obtained by the applicable Trustee, the holders of not less than
a majority in principal amount of outstanding Debt Securities of such series
may rescind and annul such declaration and its consequences if (a) the Company
shall have deposited with the applicable Trustee all required payments of the
principal of (and premium or Make-Whole Amount, if any) and interest on the
Debt Securities of such series, plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (b) all Events of Default, other than
the non-payment of accelerated principal (or specified portion thereof and the
premium or Make-Whole Amount, if any), with respect to Debt Securities of such
series have been cured or waived as provided in such Indenture. The Indentures
will also provide that the holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series may waive any past
default with respect to such series and its consequences, except a default (i)
in the payment of the principal of (or premium or Make-Whole Amount, if any)
or interest on any Debt Security of such series or (ii) in respect of a
covenant or provision contained in the applicable Indenture that cannot be
modified or amended without the consent of the holder of each outstanding Debt
Security affected thereby.
The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest on any Debt Security of such series or in the payment of any sinking
fund installment in respect of any Debt Security of such series) if specified
responsible officers of such Trustee consider such withholding to be in the
interest of such holders.
The Indentures will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of
Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities at the respective due dates or redemption dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any holders of any series of Debt Securities then
outstanding under such Indenture, unless such holders shall have offered to
the Trustee thereunder reasonable security or indemnity. The holders of not
less than a majority in principal amount of the outstanding Debt Securities of
any series (or of all Debt Securities
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then outstanding under an Indenture, as the case may be) shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder of each such
Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium or Make-Whole Amount,
if any) on, any such Debt Security; (b) reduce the principal amount of, or the
rate or amount of interest on, or any premium or Make-Whole Amount payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon
declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder of any
such Debt Security; (c) change the place of payment, or the coin or currency,
for payment of principal of, premium or Make-Whole Amount, if any, or interest
on any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of outstanding Debt Securities of any
series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set
forth in the applicable Indenture; (f) change the currency or currency unit in
which any Debt Security or any premium or interest thereon is payable; (g) in
the case of the Subordinated Indenture, modify the subordination provisions
thereof in a manner adverse to the holders of Subordinated Debt Securities of
any series then outstanding; or (h) modify any of the foregoing provisions or
any of the provisions relating to the waiver of certain past defaults or
certain covenants, except to increase the required percentage to effect such
action or to provide that certain other provisions may not be modified or
waived without the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt
Securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the applicable
Indenture.
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (a) to evidence
the succession of another person to the Company as obligor under such
Indenture; (b) to add to the covenants of the Company for the benefit of the
holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Company in such Indenture; (c) to add events of
default for the benefit of the holders of all or any series of Debt
Securities; (d) to add or change any provisions of an Indenture to facilitate
the issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the holders of the Debt Securities of any series in any material
respect; (e) to change or eliminate any provisions of an Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (f) to secure the Debt Securities;
(g) to establish the form or terms of Debt Securities of any series; (h) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the
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administration of the trusts under an Indenture by more than one Trustee; (i)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of holders of Debt
Securities of any series issued under such Indenture; or (j) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
holders of the outstanding Debt Securities of any series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (b) the principal
amount of any Debt Security denominated in a foreign currency that shall be
deemed Outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as provided in (a) above),
(c) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such indexed security at
original issuance, unless otherwise provided with respect to such indexed
security pursuant such Indenture, and (d) Debt Securities owned by the Company
or any other obligor upon the Debt Securities or any affiliate of the Company
or of such other obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting will be permitted to be called at
any time by the applicable Trustee, and also, upon request, by the Company or
the holders of at least 25% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in
such Indenture. Except for any consent that must be given by the holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less than a majority,
in principal amount of the outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting or adjourned meeting duly reconvened
at which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of holders
of Debt Securities of any series duly held in accordance with an Indenture
will be binding on all holders of Debt Securities of that series. The quorum
at any meeting called to adopt a resolution, and at any reconvened meeting,
will be persons holding or representing a majority in principal amount of the
outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders
of such series and one or more additional series: (a) there shall be no
minimum quorum requirement for such meeting, and (b) the principal amount of
the outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request,
demand, authorization, direction, notice, consent, waiver or other action has
been made, given or taken under such Indenture.
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CERTAIN DEFINITIONS
"Indebtedness" means, with respect to any person, (a) any obligation of such
person to pay the principal of, premium, if any, interest on (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to such person, whether or not a claim for such post-
petition interest is allowed in such proceeding), penalties, reimbursement or
indemnification amounts, fees, expenses or other amounts relating to any
indebtedness of such person (i) for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to
a portion thereof), (ii) evidenced by notes, debentures or similar instruments
(including purchase money obligations) given in connection with the
acquisition of any property or assets (other than trade accounts payable for
inventory or similar property acquired in the ordinary course of business),
including securities, for the payment of which such person is liable, directly
or indirectly, or the payment of which is secured by a lien, charge or
encumbrance on property or assets of such person, (iii) for goods, materials
or services purchased in the ordinary course of business (other than trade
accounts payable arising in the ordinary course of business), (iv) with
respect to letters of credit or bankers acceptances issued for the account of
such person or performance bonds, (v) for the payment of money relating to a
Capitalized Lease Obligation (as defined in the Indenture), or (vi) under
interest rate swaps, caps or similar agreements and foreign exchange
contracts, currency swaps or similar agreements; (b) any liability of others
of the kind described in the preceding clause (a) which such person has
guaranteed or which is otherwise its legal liability; and (c) any and all
deferrals, renewals, extensions and refunding of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (a) or (b).
"Senior Indebtedness" means Indebtedness of the Company, whether outstanding
on the date of issue of any Subordinated Debt Securities or thereafter
created, incurred, assumed or guaranteed by the Company, other than the
following: (a) any Indebtedness as to which, in the instrument evidencing such
Indebtedness or pursuant to which such Indebtedness was issued, it is
expressly provided that such Indebtedness is subordinate in right of payment
to all indebtedness of the Company not expressly subordinated to such
Indebtedness; (b) any Indebtedness which by its terms refers explicitly to the
Subordinated Debt Securities and states that such Indebtedness shall not be
senior, shall be pari passu or shall be subordinated in right of payment to
the Subordinated Debt Securities; and (c) with respect to any series of
Subordinated Debt Securities, any Indebtedness of the Company evidenced by
Subordinated Debt Securities of the same or of another series. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness shall not
include: (x) Indebtedness of or amounts owed by the Company for compensation
to employees, or for goods, materials and services purchased in the ordinary
course of business, or (y) Indebtedness of the Company to a subsidiary of the
Company.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Debt Securities will be subject to the following subordination
provisions.
The payment of the principal of, interest on, or any other amounts due on,
the Subordinated Debt Securities will be subordinated in right of payment to
the prior payment in cash in full of all Senior Indebtedness of the Company.
No payment on account of the principal of, redemption of, interest on or any
other amounts due on the Subordinated Debt Securities and no redemption,
purchase or other acquisition of the Subordinated Debt Securities may be made,
unless (a) full payment in cash of amounts then due for principal, sinking
funds, interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether
or not a claim for such post-petition interest is allowed in such proceeding),
penalties, reimbursement or indemnification amounts, fees and expenses, and of
all other amounts then due on all Senior Indebtedness shall have been made or
duly provided for pursuant to the terms of the instrument governing such
Senior Indebtedness, and (b) at the time of, or immediately after giving
effect to, any such payment, redemption, purchase or other acquisition, there
shall not exist under any Senior Indebtedness or any agreement pursuant to
which any Senior Indebtedness has been issued, any default which shall not
have been cured or waived and which shall have resulted in the full amount of
such Senior Indebtedness being declared due and payable and not
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rescinded. In addition, the Subordinated Indenture provides that, if holders
of any Senior Indebtedness notify the Company and the Subordinated Trustee
that a default has occurred giving the holders of such Senior Indebtedness the
right to accelerate the maturity thereof, no payment on account of principal,
sinking fund or other redemption, interest or any other amounts due on the
Subordinated Debt Securities and no purchase, redemption or other acquisition
of the Subordinated Debt Securities will be made for the period (the "Payment
Blockage Period") commencing on the date such notice is received and ending on
the earlier of (i) the date on which such event of default shall have been
cured or waived or (ii) 180 days from the date such notice is received.
Notwithstanding the foregoing, only one payment blockage notice with respect
to the same event of default or any other events of default existing and known
to the person giving such notice at the time of such notice on the same issue
of Senior Indebtedness may be given during any period of 360 consecutive days.
No new Payment Blockage Period may be commenced by the holders of Senior
Indebtedness during any period of 360 consecutive days unless all events of
default which triggered the preceding Payment Blockage Period have been cured
or waived. Upon any distribution of its assets in connection with any
dissolution, winding-up, liquidation or reorganization of the Company, all
Senior Indebtedness must be paid in full in cash before the holders of the
Subordinated Debt Securities are entitled to any payments whatsoever.
The Subordinated Indenture does not restrict the amount of Senior
Indebtedness or other indebtedness of the Company or any Subsidiary. As a
result of these subordination provisions, in the event of the Company's
insolvency, holders of the Subordinated Debt Securities may recover ratably
less than general creditors of the Company.
If this Prospectus is being delivered in connection with a series of
Subordinated Debt Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the Company's most
recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium or Make-Whole
Amount, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such
Debt Securities, and to hold moneys for payment in trust) ("defeasance") or
(b) to be released from certain obligations with respect to such Debt
Securities under the applicable Indenture (including the restrictions
described under "--Certain Covenants") or, if provided in the applicable
Prospectus Supplement, its obligations with respect to any other covenant, and
any omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance"), in
either case upon the irrevocable deposit by the Company with the applicable
Trustee, in trust, of an amount, in such currency or currencies, currency unit
or units or composite currency or currencies in which such Debt Securities are
payable at stated maturity, or Government Obligations (as defined below), or
both, applicable to such Debt Securities, which through the scheduled payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient to pay the principal of (and premium or Make-Whole
Amount, if any) and interest on
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such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of
counsel, in the case of defeasance, will be required to refer to and be based
upon a ruling received from or published by the Internal Revenue Service or a
change in applicable United States federal income tax law occurring after the
date of the Indenture. In the event of such defeasance, the holders of such
Debt Securities would thereafter be able to look only to such trust fund for
payment of principal (and premium or Make-Whole Amount, if any) and interest.
"Government Obligations" means securities that are (a) direct obligations of
the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (b) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the foreign currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium or Make-Whole Amount, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such cessation of usage based
on the applicable market exchange rate. "Conversion Event" means the cessation
of use of (i) a currency, currency unit or composite currency both by the
government of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European
Monetary System and for the settlement of transactions by public institutions
of or within the European Communities or (iii) any currency unit or composite
currency other than the ECU for the purposes for which it was established.
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium or Make-Whole Amount, if any) and
interest on any Debt Security that is payable in a foreign currency that
ceases to be used by its government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event Default other than the Event of Default
described in clause (d) under "--Events of Default, Notice and Waiver" with
respect to
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specified sections of an Indenture (which sections would no longer be
applicable to such Debt Securities) or described in clause (g) under "--Events
of Default, Notice and Waiver" with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such of Event of
Default. However, the Company would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Debt Securities and any restrictions on conversion,
including restrictions directed at maintaining the Company's REIT status.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with The Depository
Trust Company ("DTC"), as Depository. Global Securities may be issued in fully
registered form and may be issued in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a Global Security may not be transferred
except as a whole by the Depository for such Global Security to a nominee of
such Depository or by a nominee of such Depository to such Depository or
another nominee of such Depository or by such Depository or any nominee of
such Depositor to a successor Depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of persons that
have accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by
the Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through
Participants.
The Company expects that, pursuant to procedures established by DTC,
ownership of beneficial interests in any Global Security with respect to which
DTC is the Depository will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to beneficial interests of Participants) and records of Participants
(with respect to beneficial interests of persons who hold through
Participants). Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC or any of its
Participants
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relating to beneficial ownership interests in the Debt Securities. The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may
impair the ability to own, pledge or transfer beneficial interest in a Global
Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable
Prospectus Supplement, owners of beneficial interest in a Global Security will
not be entitled to have any of the individual Debt Securities represented by
such Global Security registered in their names, will not receive or be
entitled to receive physical delivery of any such Debt Securities in
definitive form and will not be considered the owners or holders thereof under
the applicable Indenture. Beneficial owners of Debt Securities evidenced by a
Global Security will not be considered the owners or holders thereof under the
applicable Indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the Trustee thereunder.
Accordingly, each person owning a beneficial interest in a Global Security
with respect to which DTC is the Depository must rely on the procedures of DTC
and, if such person is not a Participant, on the procedures of the Participant
through which such person owns its interests, to exercise any rights of a
holder under the applicable Indenture. The Company understands that, under
existing industry practice, if it requests any action of holders or if an
owner of a beneficial interest in a Global Security desires to give or take
any action which a holder is entitled to give or take under the applicable
Indenture, DTC would authorize the Participants holding the relevant
beneficial interest to give or take such action, and such Participants would
authorize beneficial owners through such Participants to give or take such
actions or would otherwise act upon the instructions of beneficial owners
holding through them.
Payments of principal of, any premium or Make-Whole Amount and any interest
on individual Debt Securities represented by a Global Security registered in
the name of a Depository or its nominee will be made to or at the direction of
the Depository or its nominee, as the case may be, as the registered owner of
the Global Security under the applicable Indenture. Under the terms of the
applicable Indenture, the Company and the Trustee may treat the persons in
whose name Debt Securities, including a Global Security, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Debt
Securities (including principal, premium or Make-Whole Amount, if any, and
interest). The Company believes, however, that it is currently the policy of
DTC to immediately credit the accounts of relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant Global Security as shown on the records of DTC or
its nominee. The Company also expects that payments by Participants to owners
of beneficial interests in such Global Security held through such Participants
will be governed by standing instructions and customary practices, as is the
case with securities held for the account of customers in bearer form or
registered in street name, and will be the responsibility of such
Participants. Redemption notices with respect to any Debt Securities
represented by a Global Security will be sent to the Depository or its
nominee. If less than all of the Debt Securities of any series are to be
redeemed, the Company expects the Depository to determine the amount of the
interest of each Participant in such Debt Securities to be redeemed to be
determined by lot. None of the Company, the Trustee, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining any records with respect thereto.
Neither the Company nor the Trustee will be liable for any delay by the
holders of a Global Security or the Depository in identifying the beneficial
owners of Debt Securities and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
a Global Security or the Depository for all purposes. The rules applicable to
DTC and its Participants are on file with the Securities and Exchange
Commission.
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If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not
appointed by the Company within 90 days, the Company will issue individual
Debt Securities in exchange for the Global Security representing such Debt
Securities. In addition, the Company may at any time and in its sole
discretion, subject to any limitations described in the Prospectus Supplement
relating to such Debt Securities, determine not to have any of such Debt
Securities represented by one or more Global Securities and in such event will
issue individual Debt Securities in exchange for the Global Security or
Securities representing such Debt Securities. Individual Debt Securities so
issued will be issued in denominations of $1,000 and integral multiples
thereof.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such
depository, identified in the applicable Prospectus Supplement. Any such
Bearer Global Securities may be issued in temporary or permanent form. The
specific terms and procedures, including the specific terms of the depository
arrangement, with respect to any portion of a series of Debt Securities to be
represented by one or more Bearer Global Securities will be described in the
applicable Prospectus Supplement.
PAYMENT AND PAYING AGENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and
interest on any series of Debt Securities will be payable at the corporate
trust office of the Trustee, the address of which will be stated in the
applicable Prospectus Supplement; provided that, at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the applicable register for such Debt
Securities or by wire transfer of funds to such person at an account
maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium, Make-Whole Amount or interest on
any Debt Security which remain unclaimed at the end of two years after such
principal, premium, Make-Whole Amount or interest has become due and payable
will be repaid to the Company, and the holder of such Debt Security thereafter
may look only to the Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The description of the Company's preferred stock, par value $.01 per share
("Preferred Stock"), set forth below does not purport to be complete and is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation") and Amended and
Restated Bylaws (the "Bylaws").
GENERAL
Under the Articles of Incorporation, the Company has authority to issue 10
million shares of Preferred Stock, none of which was outstanding as of July
25, 1996. Shares of Preferred Stock may be issued from time to time, in one or
more series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
Maryland General Corporation Law ("MGCL") and the Company's Articles of
Incorporation to fix for each series, the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. The Preferred Stock will, when issued, be fully
paid and nonassessable and will have no preemptive rights. The Board of
Directors could authorize the issuance of shares of Preferred Stock with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of Common Stock might believe to be in their best
interests or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws
and any applicable amendment to the Articles of Incorporation designating
terms of a series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price
(or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
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(13) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of
Common Stock of the Company, and to all equity securities ranking junior to
such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with
all equity securities issued by the Company the terms of which specifically
provide that such equity securities rank on a parity with the Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of the Company; and (iii) junior to all equity securities issued by
the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock with respect to dividend rights
or rights upon liquidation, dissolution or winding up of the Company. The term
"equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as
shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series
of the Preferred Stock for which dividends are non-cumulative, then the
holders of such series of the Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment
date, and the Company will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to
the Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for such payment on the Preferred Stock
of such series for all past dividend periods and the then current dividend
period or (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of
such series. When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon Preferred Stock of any series and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared upon
Preferred Stock of such series and any other series of Preferred Stock ranking
on a parity as to dividends with such Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Preferred Stock of
such series and such other series of Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Stock of such series (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend) and
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such other series of Preferred Stock bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for the then
current dividend period, no dividends (other than in shares of Common Stock or
other shares of capital stock ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon
the Common Stock, or any other capital stock of the Company ranking junior to
or on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by the Company (except by conversion into or exchange for other
capital stock of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of shares of capital stock of the Company,
the terms of such Preferred Stock may provide that, if no such shares of
capital stock shall have been issued or to the extent the net proceeds from
any issuance are insufficient to pay in full the aggregate redemption price
then due, such Preferred Stock shall automatically and mandatorily be
converted into the applicable shares of capital stock of the Company pursuant
to conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has
a cumulative dividend, full cumulative dividends on all shares of such series
of Preferred Stock shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii)
if a series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no shares of such series of Preferred Stock shall be redeemed unless
all outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the
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REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of
such series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period,
and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital shares of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock of such
series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held or for
which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by any other equitable manner determined
by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder. If notice of redemption of any Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Preferred Stock, and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus
Supplement, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of capital stock of the Company ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
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If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to the Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute
a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least two-
thirds of the shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Stock with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Company's Articles of Incorporation or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Stock remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event the
Company may not be the surviving entity, the occurrence of any such Event
shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock, and
provided further that (x) any increase in the amount of the authorized
Preferred Stock or the creation or issuance of any other series of Preferred
Stock, or (y) any increase in the amount of authorized shares of such series
or any other series of Preferred Stock, in each case ranking on a parity with
or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
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RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock of the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain provisions restricting the ownership and transfer of the Preferred
Stock. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock. See
"Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws.
GENERAL
Under the Articles of Incorporation, the Company has authority to issue 100
million shares of Common Stock, par value $.01 per share. Under Maryland law,
stockholders generally are not responsible for the corporation's debts or
obligations. At July 25, 1996, the Company had outstanding 7,544,171 shares of
Common Stock.
TERMS
Subject to the preferential rights of any other shares or series of stock,
holders of shares of Common Stock will be entitled to receive dividends on
shares of Common Stock if, as and when authorized and declared by the Board of
Directors of the Company out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
Directors and, except as otherwise required by law or except as provided with
respect to any other class or series of stock, the holders of Common Stock
will possess the exclusive voting power. There is no cumulative voting in the
election of Directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the Directors then
standing for election, and the holders of the remaining shares of Common Stock
will not be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
All shares of Common Stock will have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or
exchange rights.
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Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. The Company's Articles of Incorporation do not provide for a
lesser percentage in such situations.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) (the "Five or Fewer Test"), and such shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. The Articles of Incorporation,
subject to certain exceptions, provide that no holder may own, or be deemed to
own by virtue of the attribution provisions of the Code, shares of the
Company's capital stock in excess of the Ownership Limit. Pursuant to the
Code, generally, certain types of entities, such as pension trusts qualifying
under Section 401(a) of the Code, United States investment companies
registered under the Investment Company Act of 1940, corporations, trusts and
partnerships will be looked-through for purposes of the Five or Fewer Test
(i.e., the beneficial owners of such entities will be counted as holders). The
Company's Articles of Incorporation limit such entities under the Look-Through
Ownership Limit to holdings of no more than 15% of the aggregate value of the
Company's shares of capital stock. Any transfer of shares of capital stock or
any security convertible into shares of capital stock that would create a
direct or indirect ownership of shares of capital stock in excess of the
Ownership Limit or the Look-Through Ownership Limit or that would result in
the disqualification of the Company as a REIT, including any transfer that
results in the shares of capital stock being owned by fewer than 100 persons
or results in the Company being "closely held" within the meaning of Section
856(h) of the Code shall be null and void, and the intended transferee will
acquire no rights to the shares of capital stock. The foregoing restrictions
on transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a REIT. The Board of
Directors may, in its sole discretion, waive the Ownership Limit or the Look-
Through Ownership Limit if evidence satisfactory to the Board of Directors and
the Company's tax counsel is presented that the changes in ownership will not
then or in the future jeopardize the Company's REIT status.
Capital stock owned, or deemed to be owned, or transferred to a shareholder
in excess of the Ownership Limit or the Look-Through Ownership Limit or that
causes the Company to be treated as "closely-held" under Section 856(h) of the
Code or is otherwise not permitted as provided above, will be designated
shares in trust ("Shares in Trust") that will be transferred, by operation of
law, to a person unaffiliated with the Company designated by the Board of
Directors as trustee (the "Trustee") of a trust (the "Share Trust") for the
benefit of one or more charitable organizations. Shares in Trust will remain
issued and outstanding Common or Preferred
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Shares of the Company and will be entitled to the same rights and privileges
as all other shares of the same class or series. The Trustee will receive all
dividends and distributions on the Shares in Trust for the Share Trust and
will hold such dividends or distributions in trust for the benefit of one or
more designated charitable beneficiaries. The Trustee will vote all Shares in
Trust. Any vote cast by the proposed transferee in respect of the Shares in
Trust prior to the discovery by the Company that such shares have been
transferred to the Share Trust shall be rescinded and shall be void ab initio.
Any dividend or distribution paid to a proposed transferee or owner of Shares
in Trust prior to the discovery by the Company that such shares have been
transferred to the Share Trust will be required to be repaid upon demand to
the Trustee for the benefit of one or more charitable beneficiaries. The
Trustee may, at any time the Shares in Trust are held in the Share Trust,
transfer the interest in the Share Trust representing the Shares in Trust to
any person whose ownership of the shares of capital stock designated as Shares
in Trust would not violate the Ownership Limit or the Look-Through Ownership
Limit, or otherwise result in the disqualification of the REIT, as described
above, and provided such permitted transferee purchases such shares for
valuable considerations. Upon such sale, the proposed original transferee will
receive the lesser of (i) the price paid by the original transferee
shareholder for the shares of capital stock that were transferred to the Share
Trust, or if the original transferee shareholder did not give value for such
shares (e.g., the capital stock was received through a gift, devise or other
transaction), the average closing price for the class of shares from which
such shares of Shares in Trust were designated for the ten days immediately
preceding such sale or gift and (ii) the price received by the Trustee from
such sale. Any amounts received by the Trustee in excess of the amounts paid
to the proposed transferee will be distributed to one or more charitable
beneficiaries of the Share Trust. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of shares held in the Share
Trust may be deemed, at the option of the Company, to have acted as an agent
on behalf of the Company in acquiring the Shares in Trust and to hold the
Shares in Trust on behalf of the Company.
In addition, the Company has the right, for a period of 90 days during the
time any shares of Shares in Trust are held by the Trustee, to purchase all or
any portion of the Shares in Trust from the Trust at the lesser of (i) the
price initially paid for such shares by the original transferee-shareholder,
or if the original transferee-shareholder did not give value for such shares
(e.g., the shares were received through a gift, device or other transaction),
the average closing price for the class of stock from which such Shares in
Trust were designated for the ten days immediately preceding such sale or
gift, and (ii) the average closing price for the class of shares form which
such Shares in Trust were designated for the ten trading days immediately
preceding the date the Company elects to purchase such shares. The 90-day
period begins on date of the violative transfer if the original transferee-
shareholder gives notice to the Company of the transfer or, if no such notice
is given, the date the Board of Directors determines that a violative transfer
has been made.
All certificates representing shares of stock of the Company bear a legend
referring to the restrictions described above.
Each shareholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock as the Board of Directors deems necessary to comply
with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine
any such compliance.
The Ownership Limit and the Look-Through Ownership Limit may have the effect
of precluding acquisition of control of the Company.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. Federal income tax
considerations to the Company regarding the offering of Securities. The
following discussion is not exhaustive of all possible tax considerations and
is not tax advice. The Code provisions governing the Federal income tax
treatment of REITs are highly technical and complex, and this summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and the administrative and judicial
interpretations thereof. The following discussion is based on current law. The
tax treatment of a holder of any of the Securities will vary depending upon
the terms of the specific Securities acquired by such holder as well as his
particular situation, and this discussion does not attempt to address any
aspects of Federal income taxation relating to the holders of Securities.
Certain Federal income tax considerations relevant to holders of Securities
will be provided in the applicable Prospectus Supplement relating thereto.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF
SECURITIES.
TAXATION OF THE COMPANY
The Company intends to operate so as to meet the requirements under the Code
for qualification as a REIT, commencing with its taxable year ending December
31, 1995. No assurance can be given, however, that such requirements will be
met. Based on various assumptions and factual representations made by the
Company, in the opinion of Phillips, Lytle, Hitchcock, Blaine & Huber, counsel
to the Company, the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year
ending December 31, 1995, and its proposed method of operation as described in
this Prospectus and as represented by the Company will enable it to satisfy
the requirements for such qualification. Such qualification depends upon the
Company's ability to meet the various requirements imposed under the Code
through actual operating results, as discussed below. Phillips, Lytle,
Hitchcock, Blaine & Huber will not review these operating results, and no
assurance can be given that actual operating results will meet these
requirements. The opinion of Phillips, Lytle, Hitchcock, Blaine & Huber is not
binding on the Internal Revenue Service (the "Service"). In addition, the
opinion of Phillips, Lytle, Hitchcock, Blaine & Huber is also based upon
existing law, Treasury regulations, currently published administrative
positions of the Service and judicial decisions, which are subject to change
either prospectively or retroactively.
In any year in which the Company qualifies as a REIT, it generally will not
be subject to Federal corporate income taxes on that portion of its ordinary
income or capital gain that is currently distributed to shareholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its shareholders. This deduction for distributions paid to shareholders
substantially eliminates the Federal "double taxation" on earnings (once at
the corporate level and once again at the shareholder level) that usually
results from investments in a corporation.
Even if the Company qualifies as a REIT, however, the Company will be
subject to Federal income tax, as set forth below. First, the Company will be
taxed at regular corporate rates on its undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" as
a consequence of its items of tax preference. Third, if the Company has net
income from the sale or other disposition of "foreclosure property" that is
held primarily for sale to customers in the ordinary course of business or
other non-qualifying income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income. Fourth, if the Company has
net income from prohibited transactions (which are, in general, certain sales
or other disposition of property other than foreclosure property held
primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy either the 75% or 95% gross income test (discussed below) but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the
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Company fails the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such year and
(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company should dispose of
any of the asset owned at the time of the Initial Offering that had a fair
market value at such time in excess of its adjusted tax basis ("Built-In-
Gain") or any asset acquired by the Company from a C corporation (i.e., a
corporation generally subject to the full corporate level tax) in a carryover
basis transaction during the ten-year period (the "Recognition Period")
beginning on the date of the Initial Offering with respect to assets owned by
the Company at the time of the Initial Offering, or the date on which the
asset was acquired by the Company from a C corporation, then, to the extent of
the Built-In Gain, such gain will be subject to a tax at the highest regular
corporate rate, pursuant to guidelines issued by the Service (the "Built-In
Gain Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to
shareholders ("REIT Requirements").
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more trustees or directors, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT Requirements, (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (v) the
beneficial ownership of which is held by 100 or more persons, and (vi) at all
times during the last half of each taxable year not more than 50% in value of
the outstanding shares of which is owned, directly or indirectly, through the
application of certain attribution rules, by five or fewer individuals (as
defined in the Code to include certain entities). In addition, certain other
tests, described below, regarding the nature of its income and assets also
must be satisfied. The Code provides that conditions (i) through (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) (the "100 shareholder" and "five or fewer"
requirements) will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. For purposes of conditions (v) and
(vi), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of condition
(vi).
Prior to consummation of the Initial Offering, the Company did not satisfy
conditions (v) and (vi) above. The Initial Offering and related transactions
allowed the Company to satisfy the 100 shareholder and five or fewer
requirements. In addition, the Company's Articles of Incorporation currently
include certain restrictions regarding transfer of its stock, which
restrictions are intended (among other things) to assist the Company in
continuing to satisfy conditions (v) and (vi) above.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Effective January 1, 1995, the Company changed its
taxable year to the calendar year.
In order to provide the Company with flexibility, the Company owns the
Properties through the Partnership. The Company holds a 99% limited
partnership interest in the Partnership. The Subsidiary, a wholly-owned
subsidiary of the Company, holds a 1% general partner interest in the
Partnership. The Partnership and the Subsidiary are qualified REIT
subsidiaries. A qualified REIT subsidiary is any corporation that is 100%
owned by a REIT at all times during the period the subsidiary is in existence.
Under Section 856(i) of the Code, a qualified REIT subsidiary is not treated
as a separate corporation from the REIT, and all assets, liabilities, income,
deductions, and credits of the qualified REIT subsidiary are treated as
assets, liabilities and such items
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(as the case may be) of the REIT. The Partnership is currently disregarded for
Federal income tax purposes since the existence of the Subsidiary is ignored
for Federal income tax purposes and, as a result, the Partnership has only one
partner for Federal income tax purposes.
Although the Partnership is, as of July 25, 1996, wholly-owned by the
Company and the Subsidiary, the Company anticipates using units of the
Partnership to acquire properties from unrelated third parties which would
result in the Partnership being treated as a partnership for Federal income
tax purposes and the Company being treated as a partner in the Partnership. In
the case of a REIT that is a partner in a partnership, Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to be entitled to the income of
the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Partnership will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein.
INCOME TESTS
To maintain qualification as a REIT, three gross income requirements must be
satisfied annually.
. First, at least 75% of the Company's gross income, excluding gross income
from certain dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business ("prohibited
transactions"), for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on
real property (including "rents form real property" and in certain
circumstances, interest) or from certain types of temporary investments.
. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be
derived from such real property investments and from dividends, interest
and gain from the sale or disposition of stock or securities or from any
combination of the foregoing.
. Third, less than 30% of the Company's gross income (including gross
income from prohibited transactions) for each taxable year is derived
from gain from the sale or other disposition of stock or securities held
for less than one year, gain from prohibited transactions and gain from
the sale or other disposition of real property held for less than four
years (apart from involuntary conversion and sales of foreclosure
property). For purposes of applying the 30% gross income test, the
holding period of the Properties acquired by the Company at the time of
the Initial Offering will be deemed to have commenced on the date of
acquisition.
Rents received or deemed to be received by the Company will qualify as
"rents from real property in satisfying the gross income requirements for a
REIT described above only if several conditions are met.
. First, the amount of rent generally must not be based in whole or in part
on the income or profits of any person.
. Second, the Code provides that rents from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the
REIT, or an owner of 10% or more of the REIT, directly or constructively
owns 10% or more of such tenant (a "Related Party Tenant").
. Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the
personal property will not qualify as "rents from real property."
. Finally, for rents to qualify as "rents from real property" the REIT must
not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" who is adequately
compensated and from whom the REIT does not derive any income; provided,
however, that a REIT may provide services with respect to its properties
and the income will qualify as "rents from
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real property" if the services are "usually or customarily rendered" in
connection with the rental of a room or other space for occupancy only and
are not otherwise considered "rendered to the occupant."
The Company does not anticipate charging rent that is based in whole or in
part on the income or profits of any person. The Company will not derive rent
attributable to personal property leased in connection with real property that
exceeds 15% of the total rents. The Company does not anticipate receiving rent
from Related Party Tenants.
The Company provides certain services with respect to the Properties. The
Company believes that the services provided by it directly are usually or
customarily rendered in connection with the rental of space for occupancy only
and are not otherwise rendered to particular tenants and therefore that the
provision of such services will not cause rents received with respect to the
Properties to fail to qualify as rents from real property. Services with
respect to the Properties that may not be provided by the Company directly
will be performed by independent contractors.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that
year if it is eligible for relief under certain provisions of the Code. These
relief provisions will generally be available if (i) the Company's failure to
meet these tests was due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its
Federal income tax return and (iii) any incorrect information on the schedule
is not due to fraud with intent to evade tax. It is not possible, however, to
state whether, in all circumstances, the Company would be entitled to the
benefit of these relief provisions. For example, if the Company fails to
satisfy the gross income tests because non-qualifying income that the Company
intentionally incurs exceeds the limits on such income, the Service could
conclude that the Company's failure to satisfy the tests was not due to
reasonable cause. As discussed above, even if these relief provisions apply, a
100% tax would be imposed on the greater of the amount by which the Company
fails either the 75% or 95% gross income test, multiplied by a fraction
intended to reflect the Company's profitability. No similar mitigation
provision provides relief if the Company fails the 30% income test, and in
such case, the Company will cease to qualify as a REIT.
ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government
securities.
. Second, no more than 25% of the value of the Company's total assets may
be represented by securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance.
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ANNUAL DISTRIBUTION REQUIREMENTS
To qualify as a REIT, the Company is required to make distributions (other
than capital gain distributions) to its shareholders in an amount at least
equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's
capital gain) and (ii) 95% of the net income, if any, from foreclosure
property in excess of the special tax on income from foreclosure property,
minus (b) the sum of certain items of non-cash income. Such distributions must
be paid in the taxable year to which they relate, or in the following taxable
year if declared before the Company timely files its Federal income tax return
for such year and if paid on or before the first regular distribution after
such declaration. To the extent that the Company does not distribute all of
its net capital gain or distributes less than 100% (but at least 95%) of its
"REIT taxable income" as adjusted, it will be subject to tax thereon at
regular ordinary or capital gains corporate tax rates, as the case may be.
Further, if the Company should fail to distribute during each calendar year at
least the sum of (a) 85% of its REIT ordinary income for that year, (b) 95% of
its REIT capital gain net income for that year and (c) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. In addition, during its Recognition Period, if the Company
disposes of any asset subject to the Built-In Gain Rules, the Company will be
required, pursuant to guidance issued by the Service, to distribute at least
95% of the Built-In Gain (after tax), if any, recognized on the disposition of
the asset.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the 95% distribution requirement. It is possible, however, that the Company,
from time to time, may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement or to distribute such greater amount as may
be necessary to avoid income and excise taxation, due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses
in arriving at taxable income of the Company, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of non-cash deductions. In the event that such timing
differences occur, the Company may find it necessary to arrange for
borrowings, if possible, in order to meet the distribution requirement.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends. The
Company will, however, be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
EARNINGS AND PROFITS
In order to qualify as a REIT, the Company must either satisfy the REIT
requirements described in this Prospectus for all taxable years after 1986 or
have, at the close of any taxable year, no earnings and profits attributable
to a non-REIT year. Pursuant to Treasury Regulations, in order to qualify
under either of these two provisions, the Company must not have acquired the
assets of a corporation in a nonrecognition transaction after 1986 with
accumulated earnings and profits attributable to a non-REIT period unless, by
the close of its first taxable year, such earnings are distributed to the
shareholders. Accordingly, any earnings and profits that are carried over to
the Company through the transactions resulting in the formation of the Company
(the "Formation Transactions") were required, pursuant to Section 381 of the
Code, to have been distributed to the shareholders prior to the close of the
Company's first taxable year. The Company has represented that it had no non-
REIT earnings and profits for Federal income tax purposes as of the end of its
first taxable year ended December 31, 1995. In rendering its opinion regarding
the eligibility of the Company to qualify as a REIT, Phillips, Lytle,
Hitchcock, Blaine & Huber is relying on such representation. The Company
believes that even if there were a
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subsequent determination that it received non-REIT earnings and profits in the
Formation Transactions, distributions to shareholders in 1995 in excess of
current earnings and profits likely were sufficient to distribute any such
non-REIT earnings and profits. Moreover, although not free from doubt,
pursuant to Treasury Regulations, the Company may be able to use certain
"deficiency dividend" procedures to distribute any non-REIT earnings and
profits determined to exist that were not distributed by the close of the 1995
taxable year. There can be no assurance, however, that 1995 distributions were
sufficient to distribute any non-REIT earnings and profits determined to exist
or that such deficiency dividend procedures would be available. In the event
that 1995 distributions were insufficient to distribute any such non-REIT
earnings and profits, and the Company were unable to utilize the deficiency
dividend procedures in the Treasury Regulations, the Company would fail to
qualify as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify as a REIT in any taxable year and the relief
provisions do not apply, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which the Company fails to
qualify will not be deductible by the Company nor will they be required to be
made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be dividends, taxable as
ordinary income, and subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends-received deduction. Unless the
Company is entitled to relief under specific statutory provisions, the Company
also will be ineligible for qualification as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief. For example, if the Company fails to satisfy the gross
income tests because non-qualifying income that the Company intentionally
incurs exceeds the limit on such income, the Service could conclude that the
Company's failure to satisfy the tests was not due to reasonable cause.
BUILT-IN GAIN
To the extent the Company held any asset that has Built-In Gain as of the
first day of the first taxable year for which the Company qualifies as a REIT,
the Company may recognize a corporate level tax at the time it disposes of
such asset. Pursuant to Section 337(d)(1) of the Code, Congress has authorized
the Service to issue regulations to ensure that the repeal of the General
Utilities doctrine is not circumvented through the use of investment vehicles
like a REIT. In Notice 88-19, 1988-1 C.B. 486, the Service announced that it
intends to promulgate regulations requiring a C corporation to recognize any
net Built-In Gain that would have been realized if the corporation had
liquidated at the end of the last taxable year before the taxable year in
which it qualifies to be taxed as a REIT. However, in lieu of this immediate
recognition rule, the regulations will permit a REIT to elect to be subject to
rule similar to rules applicable to S corporations with built-in gains under
Section 1374 of the Code. Section 1374 of the Code generally provides that a
corporation with appreciated assets that elects S corporation status will
recognize a corporate level tax on the built-in gain if the S corporation
disposes of the appreciated assets within a ten-year period commencing on the
date on which the S corporation election was made. The Company has represented
that it will elect to have rules similar to the rules of Section 1374 of the
Code apply to it. Accordingly, if the Company disposes of appreciated assets
in a taxable transaction within a ten-year period commencing on the date the
Company first qualifies as a REIT, the Company will be taxed at the corporate
level on the Built-in Gain attributable to the disposed assets. For these
purposes, the assets owned by the Company prior to the Formation Transactions
will be appreciated assets. If these assets are disposed of within the ten-
year recognition period, the Company will recognize a corporate level tax on
the Built-In Gain attributable to the disposed assets. Accordingly, the
disposition of assets acquired in the Formation Transactions will adversely
affect a shareholder's investment in the Company. However, the Company may
dispose of Property that is subject to the tax on Built-in Gain in a tax-free
exchange of like-kind property pursuant to Section 1031 of the Code which will
not trigger Built-In Gain. Moreover, the Company does not anticipate disposing
of a substantial portion of its Built-In Gain assets, other than in a tax-free
exchange, within the ten-year recognition period. The Company estimates that
the amount of Built-In Gain with respect to the Properties is
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approximately $5,000,000 and the amount of the corporate level tax if such
Built-In Gain was recognized would be approximately $1,750,000 at current tax
rates. The amount of such Built-In Gain is based upon the Company's
determination of fair value as of the first day of the first taxable year for
which the Company qualified as a REIT which valuation could be challenged by
the Service.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, and may also sell
Securities directly to one or more institutional or other purchasers, through
agents or through any combination of these methods of sale. Any such
underwriter, dealer or agent involved in the offer and sale of Securities will
be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may offer and sell the Securities in
exchange for one or more of its outstanding issues of debt or convertible or
exchangeable debt securities. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as shall be set forth in any
Prospectus Supplement. In connection with the sale of Securities, underwriters
may be deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commission allowed by underwriters to participating dealers, will be set
forth in an applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act, and to
reimbursement by the Company for certain expenses.
Each series of Debt Securities or Preferred Stock will be a new issue with
no established trading market. The Company may elect to list any series of
Debt Securities or Preferred Stock on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any
market making at any time without notice. Therefore, no assurance can be given
as to the liquidity of, or the trading market for, the Securities.
Underwriters, dealers and agents and their associates may engage in
transactions with, or perform services for, the Company in the ordinary course
of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Debt Securities from the Company at
the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount no less than, and the aggregate principal amounts of Debt
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and other institutions, but
will in all cases be subject to the approval of the Company.
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Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Debt Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (ii) if Debt
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of the Debt Securities less the
principal amount thereof covered by the Contracts. If in conjunction with the
sale of Debt Securities to institutions under Contracts, Debt Securities are
also being sold to the public, the consummation of the sale under the
Contracts shall occur simultaneously with the consummation of the sale to the
public. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such Contracts.
In order to comply with the securities laws of certain states and other
jurisdictions, if applicable, the Securities offered hereby will be sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states Securities may not be sold unless they have been
registered or qualified for sale in the applicable state or other jurisdiction
or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the
Securities for a period of two business days prior to the commencement of such
distribution.
LEGAL MATTERS
Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, New York, will pass
upon certain legal matters for the Company. Phillips, Lytle, Hitchcock, Blaine
& Huber has in the past represented and is presently representing the Company
in certain other matters. Robert J. Attea, Chairman of the Board of the
Company, is the brother of a partner of Phillips, Lytle, Hitchcock, Blaine &
Huber. Several partners of Phillips, Lytle, Hitchcock, Blaine & Huber own
shares of Common Stock. Phillips, Lytle, Hitchcock, Blaine & Huber will rely
upon the opinion of Hogan & Hartson L.L.P., Washington, D.C., as to all
matters of Maryland law.
EXPERTS
The financial statements and schedules thereto incorporated by reference in
this Prospectus or elsewhere in the Registration Statement, to the extent and
for the periods indicated in their reports, have been audited by Ernst & Young
LLP, independent accountants, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR PAINEWEBBER INCORPORATED. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Supplement Summary............................................. S-3
Risk Factors.............................................................. S-5
Use of Proceeds........................................................... S-10
Industry Overview......................................................... S-10
The Company............................................................... S-12
The Properties............................................................ S-14
Certain Federal Income Tax Considerations to Holders of Common Shares..... S-18
Underwriting.............................................................. S-22
Experts................................................................... S-22
Legal Matters............................................................. S-23
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 3
Ratios of Earnings to Fixed Charges....................................... 4
Description of Debt Securities............................................ 4
Description of Preferred Stock............................................ 19
Description of Common Stock............................................... 24
Restrictions on Transfers of Capital Stock................................ 25
Certain Federal Income Tax Considerations................................. 27
Plan of Distribution...................................................... 33
Legal Matters............................................................. 34
Experts................................................................... 34
</TABLE>
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1,500,000 SHARES
SOVRAN SELF STORAGE, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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PAINEWEBBER INCORPORATED
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APRIL 16, 1997
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