UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ x ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Storage USA, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ x ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
STORAGE USA, INC.
175 Toyota Plaza, Suite 700
Memphis, TN 38103
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Dear Shareholder:
We cordially invite you to attend a special meeting of shareholders of
Storage USA, Inc. to be held at the Plaza Club, 175 Toyota Plaza, Second Floor,
Memphis, Tennessee, at 9:00 a.m. local time, on [ ], 2002.
At the special meeting, we will ask you to consider and approve a purchase
and sale agreement, as amended, that provides for the disposition of all of our
assets, including all of our interests in our operating partnership, SUSA
Partnership, L.P., to Security Capital Group Incorporated, and the merger of
Storage USA with and into SUSA Partnership, L.P. In the transactions, each
holder of our shares of common stock will be entitled to receive $42.50 per
share in cash, subject to certain adjustments with respect to dividends
described in the accompanying proxy statement.
A special committee consisting entirely of non-management directors
unaffiliated with Security Capital evaluated the purchase agreement and the
transactions contemplated by it and unanimously approved and recommended
approval of the purchase agreement and the transactions by our board of
directors. Our directors who are unaffiliated with Security Capital have
unanimously approved the transactions and concluded that the terms of the
purchase agreement and the transactions are advisable and in the best interests
of Storage USA and our shareholders and unanimously recommend that our
shareholders vote FOR approval of the purchase agreement and the transactions.
Our board of directors considered a number of factors in evaluating the
transactions, including the positive recommendation of the special committee
and the fairness opinion of Lehman Brothers Inc., the special committee's
financial advisor.
The purchase agreement and the transactions must be approved by holders of a
majority of our outstanding common stock. If the purchase agreement and the
transactions are so approved, the closing of the transactions will occur as
soon as practicable after the special meeting, when all other conditions to the
closing of the transactions are satisfied or waived.
The accompanying notice of special meeting of shareholders and proxy
statement explain the proposed transactions and provide specific information
concerning the special meeting. Please give all of this information your
careful attention. Your vote on these matters is very important. Whether or not
you plan to attend the special meeting, please sign, date and return as soon as
possible the enclosed proxy card in the postage-paid envelope provided.
Returning a signed proxy card will not prevent you from voting your shares in
person if you subsequently choose to attend the special meeting. If you fail to
vote by proxy or in person, or fail to instruct your broker on how to vote, it
will have the same effect as a vote against the purchase agreement and the
transactions.
Security Capital and certain key members of our management have interests in
the transactions that may be different from, or in addition to, your interests
as Storage USA shareholders. These interests are summarized in the section
entitled "Special Factors" in the accompanying proxy statement. Security
Capital owns approximately 41.1% of our common stock and has informed us that
it intends to vote its Storage USA shares in favor of the purchase agreement
and the transactions. Storage USA's directors and executive officers own
approximately 2.3% of our common stock and to our knowledge intend to vote
their Storage USA shares in favor of the purchase agreement and the
transactions. Accordingly, the affirmative vote of holders of approximately an
additional 6.6% of our outstanding shares will be sufficient to approve the
purchase agreement and the transactions.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE TRANSACTIONS, PASSED UPON THE
FAIRNESS OR MERITS OF THESE TRANSACTIONS, OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Sincerely,
/s/ DEAN JERNIGAN
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Dean Jernigan
Chairman of the Board, Chief
Executive Officer
and President
STORAGE USA, INC.
175 Toyota Plaza, Suite 700
Memphis, TN 38103
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2002
To our Shareholders:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Storage
USA, Inc., a Tennessee corporation, will be held at the Plaza Club, 175 Toyota
Plaza, Second Floor, Memphis, Tennessee, on [ ], 2002, at 9:00 a.m.
local time, for the following purposes:
1. To consider and approve the purchase and sale agreement, dated as of
December 5, 2001, by and among Storage USA, Inc., Storage USA Trust, SUSA
Partnership, L.P. and Security Capital Group Incorporated, as amended, and,
in connection with the purchase and sale agreement, the sale of all of our
assets, including all of our interests in SUSA Partnership, L.P., our
operating partnership, to Security Capital Group Incorporated, and the
merger of Storage USA, Inc. with and into SUSA Partnership, L.P., all in the
manner described in the accompanying proxy statement.
2. To transact any other business as may properly come before the special
meeting and any adjournments or postponements of that meeting.
Our board of directors has fixed the close of business on March 11, 2002 as
the record date for the special meeting. Accordingly, only shareholders of
record on that date will be entitled to notice of and to vote at the special
meeting and any adjournment or postponement of that meeting. A form of proxy
and a proxy statement containing more detailed information regarding matters to
be considered at the special meeting accompany this notice.
All shareholders are cordially invited to attend the special meeting. To
ensure your representation at the special meeting, however, you are urged to
complete, date, sign and return the enclosed proxy as promptly as possible. We
have enclosed a postage-prepaid envelope for that purpose. If you have any
questions or need assistance, please call 901-252-2000. If you attend the
special meeting, you may vote in person even if you have already returned a
proxy.
The members of the board of directors unaffiliated with Security Capital and
a special committee of non-management directors unaffiliated with Security
Capital have unanimously determined that the terms of the purchase agreement,
as amended, and the transactions contemplated by it are advisable and in the
best interests of Storage USA and our shareholders and unanimously recommend
that you vote FOR approval of the purchase agreement, as amended, and the
transactions.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ JOHN W. MCCONOMY
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John W. McConomy
Executive Vice President, General
Counsel
and Secretary
Memphis, Tennessee
[ ], 2002
PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING. PLEASE
DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
Preliminary Proxy Materials, Dated March , 2002
Subject to Completion
STORAGE USA, INC.
175 Toyota Plaza, Suite 700
Memphis, Tennessee 38103
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PROXY STATEMENT
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Special Meeting of Shareholders
To Be Held On [ ], 2002
SUMMARY TERM SHEET
This summary term sheet highlights selected information in this proxy
statement and may not contain all of the information that is important to you.
To understand the transactions fully and for a more complete description of the
legal terms of the transactions, you should carefully read this entire
document, as well as the additional documents to which we refer you, including
the purchase agreement attached as Appendix A and the letter agreement amending
the purchase agreement attached as Appendix B. We have included page references
in parentheses to direct you to a more complete description of the topics
presented in this summary. The information contained in this proxy statement
concerning Security Capital Group Incorporated and concerning plans for Storage
USA and its subsidiaries after the consummation of the transactions was
prepared and supplied by Security Capital Group Incorporated, and Storage USA,
Inc. takes no responsibility for the accuracy or completeness of such
information. This proxy statement is first being mailed on or about [ ],
2002 to our shareholders of record as of the close of business on March 11,
2002.
Parties to the Transactions (page 71)
. Storage USA, Inc. We are a Tennessee corporation qualified as a real
estate investment trust, which we refer to as a "REIT," with expertise in
acquiring, developing, constructing, franchising, owning and operating
self-storage facilities. We conduct substantially all of our operations
through our operating partnership, SUSA Partnership, L.P., which is
described below. We refer to ourselves as "Storage USA," "we," "us" or
"our." Our principal office is located at 175 Toyota Plaza, Suite 700,
Memphis, Tennessee 38103 and the telephone number of our offices is (901)
252-2000.
. SUSA Partnership, L.P. SUSA Partnership, L.P., which we refer to as the
"operating partnership," is a Tennessee limited partnership through which
we conduct substantially all of our and our subsidiaries' operations. The
operating partnership's principal office is located at 175 Toyota Plaza,
Suite 700, Memphis, Tennessee 38103 and the telephone number of its
offices is (901) 252-2000. We refer to Storage USA, the operating
partnership and Storage USA Trust collectively as the "sellers."
. Storage USA Trust. Storage USA Trust, a wholly-owned subsidiary of
Storage USA, is a Maryland real estate investment trust through which we
own most of our limited partnership interests in the operating
partnership. Storage USA Trust's principal office is located at 175 Toyota
Plaza, Suite 700, Memphis, Tennessee 38103 and the telephone number of its
offices is (901) 252-2000. Disclosure with respect to the operating
partnership and Storage USA Trust which is duplicative of information
relating to Storage USA has not been separately included in this proxy
statement.
. Security Capital Group Incorporated. Security Capital Group Incorporated,
which we refer to as "Security Capital," is an international real estate
operating company. Security Capital for much of its history had diverse
investments in real estate operating companies operating in most
commercial real estate sectors. Some of these investments were minority
ownerships of publicly-traded companies. In the third quarter of 1999,
Security Capital embarked upon a strategy of focusing its capital in up to
six
1
operating divisions that would ultimately be private subsidiaries of
Security Capital. Since initiating this strategy, Security Capital has
disposed of investments in the office, apartment, and lodging sectors, and
has proposed to increase its investments in the storage, parking and
assisted living sectors. The combined assets of the entities in which
Security Capital presently holds investments total $14.1 billion. In
addition, Security Capital Research & Management Incorporated, a
wholly-owned subsidiary of Security Capital, manages $2.8 billion of real
estate securities investments. Security Capital's principal offices are
located at 125 Lincoln Avenue, Santa Fe, New Mexico 87501. Security
Capital and its majority-owned affiliates also have offices in Brussels,
Chicago, El Paso, Houston, London, Luxembourg and New York City. On
December 14, 2001, General Electric Capital Corporation, or GE Capital,
through its Commercial Real Estate business, entered into a definitive
agreement with Security Capital for GE Capital to acquire Security
Capital. See "Special Factors--Acquisition of Security Capital by GE
Capital."
The following diagram shows, before the Transactions, the Storage USA
entities directly involved in the Transactions:
Storage USA, Inc.
Organizational Chart
Before the Closing of the Transactions
[FLOW CHART]
2
The following diagram shows the effect of the Transactions on the Storage
USA entities directly involved in the Transactions:
Storage USA, Inc.
Organizational Chart
As of Closing of the Transactions
[FLOW CHART]
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(1) Or one or more of its subsidiaries, as permitted under the purchase
agreement.
(2) In the Transactions, Security Capital will purchase all of the interests in
SUSA Management, Inc., 99% of which are presently held by the operating
partnership and 1% of which are presently held by Dean Jernigan.
(3) Assumes all limited partners are eligible to make an election and elect to
continue as limited partners. To the extent that limited partners are not
eligible to make an election, or do not make an election, the aggregate
percentage of limited partnership units held after the completion of the
Transactions by limited partners other than Security Capital will decrease
correspondingly.
The Transactions and Transaction Consideration (pages 81 and 82)
. In a series of transactions, we plan to sell all of our interests in the
operating partnership and all of our other assets to Security Capital and
then merge with and into the operating partnership, which at the time of
the merger will be a majority-owned subsidiary of Security Capital and
which will be the surviving entity in the merger. The transactions will be
accomplished under the Purchase and Sale Agreement by and among Storage
USA, Storage USA Trust, the operating partnership and Security Capital,
dated as of December 5, 2001, as amended by a letter agreement, dated as
of January 17, 2002, to reflect the increase in the consideration payable
to our shareholders and the limited partners of the operating partnership
from $42.00 to $42.50 per share or unit as a result of the settlement of
the shareholder class action litigation commenced in connection with the
Transactions, as described under "Special Factors--Litigation in
Connection with the Transactions." Unless the context otherwise requires,
we refer to the Purchase and Sale Agreement as amended by the letter
agreement as the "purchase agreement." The purchase agreement is
incorporated by reference into this proxy statement. The purchase
agreement and the letter agreement are attached to this proxy statement as
Appendices A and B, respectively. We refer to the transactions
contemplated by the purchase agreement as the "Transactions."
. In the Transactions, each holder of shares of our common stock, other than
Security Capital and its affiliates, will be entitled to receive $42.50
per share in cash, without interest, subject to increase by the per share
amount of the pro rata portion of normal quarterly dividends payable in
the ordinary course of business consistent with past practice, not to
exceed $0.71 per share, relating to the quarterly period in which the
closing of the Transactions occurs, and subject to reduction by the per
share amount of any dividends in excess of such normal quarterly dividends
paid after the date of the purchase agreement.
. Holders of limited partnership interests in the operating partnership,
other than Security Capital and its affiliates, will also be entitled to
receive $42.50 per unit in cash, without interest, subject to increase by
the per unit amount of the pro rata portion of quarterly distributions
payable in the ordinary course of business consistent with past practice,
relating to the quarterly period in which the closing of the Transactions
occurs, and subject to reduction by the per unit amount of any
distributions in excess of such normal quarterly distributions paid after
the date of the purchase agreement, unless such holders elect and are
qualified to continue as limited partners in the surviving partnership. We
3
refer to the consideration (including any adjustments described above) to
be paid to our shareholders and to the holders of operating partnership
units, other than Security Capital and its affiliates, as the "transaction
consideration."
. Each share of our common stock owned by Security Capital and its
affiliates will be redeemed prior to the merger for $42.50 per share of
common stock, either for cash and/or, to the extent any portion of the
consideration paid in the partnership sale and asset sale (as described
below) was paid by Security Capital in the form of promissory notes, such
notes.
. All options to acquire our common stock will vest and be exercisable
immediately prior to the closing of the Transactions. Accordingly, holders
of options to acquire shares of our common stock will be entitled to
receive in the Transactions, with respect to each option held, an
aggregate amount in cash equal to the product of: (1) the excess, if any,
of the per share transaction consideration over the option's exercise
price per share and (2) the number of shares of our common stock subject
to such option, less tax withholding and loan repayments where applicable.
. The parties contemplate that the Transactions will occur on the same day
in the following order:
. The operating partnership will sell all of its interests in SUSA
Management, Inc. and Storage USA Franchise Corp. to Security Capital
and, pursuant to a separate agreement, Dean Jernigan, our Chairman,
Chief Executive Officer and President will sell all of his interests in
SUSA Management, Inc. to Security Capital. In connection with this sale,
Mr. Jernigan will receive an aggregate of $9.50 from Security Capital
for his interests in SUSA Management, Inc. and the operating partnership
will receive $15,858,059.50 for its interests in Storage USA Franchise
Corp. and $940.50 for its interests in SUSA Management, Inc. We refer to
these sales collectively as the "subsidiary sale."
. Storage USA and Storage USA Trust will sell all of their respective
partnership interests in the operating partnership and in SUSA Holdings,
L.P. to Security Capital. As a result of these sales, Security Capital
will become the sole general partner and majority limited partner of the
operating partnership and the sole general partner of SUSA Holdings,
L.P. We refer to this as the "partnership sale."
. Storage USA will sell all of its remaining assets to Security Capital
and Security Capital will assume all of the liabilities of Storage USA.
We refer to this as the "asset sale." The aggregate consideration to be
paid by Security Capital in the asset sale and in the partnership sale,
not including the assumption of all of our liabilities by Security
Capital, will be equal to the amount determined by adding the
consideration to be paid to our common shareholders and optionholders in
the merger (currently expected to be approximately $741 million) to the
amount payable to Security Capital in connection with the redemption
described below.
. Storage USA will purchase all of the shares of its common stock owned by
Security Capital and its affiliates in exchange for cash and/or notes in
an amount equal to $42.50 per share to be redeemed. We refer to this as
the "redemption."
. Storage USA will merge with and into the operating partnership, and the
operating partnership will be the surviving entity in the merger. In
connection with the merger, the shareholders and limited partners will
have the right to receive $42.50 for each share or unit that they own,
and the terms of the operating partnership's agreement of limited
partnership will be amended and restated. We refer to this as the
"merger."
. After the completion of the Transactions, we will cease to exist as a
separate legal entity and our shareholders will have no continuing
interest in, and will not share in the future earnings, dividends or
growth, if any, of, the surviving partnership. In addition, our common
stock will be cancelled and will no longer be listed on the New York Stock
Exchange or registered with the Securities and Exchange Commission.
4
Factors Considered by the Special Committee and Our Board of Directors (pages
35 and 40)
Our board of directors formed a special committee of directors on March 1,
2001 to investigate the strategic alternatives available to Storage USA. The
special committee consists of directors unaffiliated with Security Capital and
management in order to protect your interests in evaluating and negotiating
strategic alternatives from potential conflicts of interests, as directors
affiliated with Security Capital or management may have interests in potential
strategic alternatives that are different from, or in addition to, your
interests. See "Special Factors--Interests of Storage USA's Executive Officers
and Directors in the Transactions."
In reaching their conclusions to approve the Transactions, our board of
directors and the special committee reviewed and evaluated the advisability of
the Transactions and consulted their respective outside legal counsel and our
management. The special committee also considered the advice of Lehman Brothers
Inc., its independent financial advisor. In addition, the special committee and
our board of directors considered the short-term and long-term interests of
Storage USA and its shareholders and of the operating partnership and its
partners, focusing on a variety of business, financial and market factors,
including the following, no one of which by itself was determinative. Because,
at the time of the special committee's determination, the shareholder class
action litigation commenced in connection with the Transactions had not been
settled, the following factors considered by the special committee at that time
did not reflect the increase from $42.00 to $42.50 per share in the
consideration payable to our shareholders as a result of the settlement
described under "Special Factors--Litigation in Connection with the
Transactions."
Potentially Positive Factors
. The opinion delivered by Lehman Brothers to the special committee,
described under "Special Factors--Opinion of the Financial Advisor to the
Special Committee," which concludes that as of December 3, 2001 the $42.00
per share cash consideration offered to our shareholders, other than
Security Capital and its affiliates, is fair from a financial point of
view.
. The $42.00 per share cash consideration represents a premium of
approximately 19% over the average closing price of our common stock over
the 52-week period ending on December 5, 2001, the day of the announcement
of the Transactions, a premium of 14.8% over the average closing price of
our common stock over the one-month period prior to September 7, 2001, the
last business day prior to the announcement that Storage USA and Security
Capital had modified their standstill arrangement, and a premium of
approximately 14.1% over the closing price of our common stock on
September 7, 2001.
. The $42.00 per share cash consideration represents a premium over the net
asset value calculations of: (1) six financial institutions publishing
research coverage of Storage USA as of November 30, 2001, (2) Lehman
Brothers and (3) after giving effect to change of control and transaction
costs, Storage USA's management.
. The terms of the purchase agreement provide that our shareholders will
receive cash consideration in exchange for their shares, generally
provides for no financing contingency (except as described under "Terms of
the Transactions--Conditions to Closing"), and allows for the payment by
Storage USA of regular quarterly dividends (and by the operating
partnership of corresponding distributions on limited partnership units)
through the closing of the Transactions.
. The purchase agreement permitted us to solicit alternative third party
offers to purchase Storage USA for the period from December 5, 2001 until
and including January 19, 2002, which we refer to as the "permitted
period." Subject to the satisfaction of certain conditions, at any time
prior to the special meeting we may enter into an agreement providing for
a "superior transaction" (as defined under "Terms of the
Transactions--Solicitation of Proposals by Storage USA and Alternative
Acquisition Transactions") with a third party and terminate the purchase
agreement, provided that concurrently with such termination we pay
Security Capital a $22.5 million termination fee. If we had entered into a
superior transaction agreement prior to January 20, 2002, the purchase
agreement would have obligated Security Capital to vote all of our common
stock owned by Security Capital and its affiliates in favor of
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that transaction agreement. Despite an extensive solicitation process
conducted by the special committee's financial advisor, Storage USA did
not receive any acquisition proposals during the permitted period (see
"Special Factors--Background of the Transactions").
. There is a high likelihood that Security Capital will be able to
consummate the Transactions.
. The special committee and our board of directors believe that, unless and
until a superior transaction is proposed, the Transactions more
effectively maximize value for Storage USA shareholders than any other
strategic alternative available to us, including continuing to operate as
an independent public company.
Potentially Negative Factors
. The price of our shares of common stock increased above $42.00 per share
shortly prior to December 3, 2001, the date of the special committee's
approval of the purchase agreement.
. The completion of the Transactions will preclude our shareholders from
having the opportunity to participate in the future growth in the value of
our assets and our funds from operations.
. The Transactions will be taxable to our shareholders and the unitholders
of the operating partnership who do not qualify or do not elect to
continue as limited partners of the surviving partnership.
. Security Capital and certain members of our management have interests in
the Transactions that may be different from, or in addition to, the
interests of our other shareholders.
. There are significant costs associated with completing the Transactions.
. The purchase agreement limits our ability in some cases to pursue
alternative transactions other than with Security Capital, and generally
requires us to pay Security Capital a termination fee of $22.5 million if
we terminate the purchase agreement to enter into an agreement providing
for a superior transaction.
The special committee initially reached its conclusion to approve the
Transactions based on the consideration of $42.00 per share of Storage USA
common stock originally to be paid by Security Capital under the purchase
agreement based upon the factors discussed above. The special committee
subsequently reaffirmed its conclusion in light of the increase in the purchase
price to $42.50 per share that, subsequent to the signing of the purchase
agreement, Security Capital agreed to pay to Storage USA shareholders as part
of the settlement of the shareholder class action litigation commenced in
connection with the Transactions, as described under "Special
Factors--Litigation in Connection with the Transactions." In reaffirming its
conclusion, the special committee noted that the increased consideration of
$42.50 per share represents a greater premium to historical trading prices of
Storage USA's common stock and to the net asset value analyses described above
than $42.00 per share.
Recommendation of the Special Committee and Our Board of Directors (pages 35
and 40)
. At a meeting held on December 3, 2001, the special committee unanimously
(1) determined that the Transactions were advisable and in the best
interests of our shareholders unaffiliated with Security Capital and (2)
adopted the purchase agreement and approved the Transactions. The special
committee unanimously determined that the purchase agreement and the
Transactions are substantively and procedurally fair to our shareholders
unaffiliated with Security Capital and unanimously recommended that our
board of directors approve and adopt the purchase agreement and the
Transactions.
. At a separate meeting held on December 3, 2001, the members of our board
of directors unaffiliated with Security Capital unanimously (1) determined
that the Transactions are advisable and in the best interests of our
shareholders, and (2) adopted the purchase agreement and approved the
Transactions. The members of our board of directors unaffiliated with
Security Capital unanimously determined that the purchase agreement and
the Transactions are substantively and procedurally fair to our
shareholders,
6
including our shareholders unaffiliated with Security Capital, and
unanimously recommend that our shareholders approve and adopt the purchase
agreement and the Transactions.
. On January 16, 2002, the special committee unanimously approved and
adopted the letter agreement amending the purchase agreement to increase
the consideration payable to Storage USA shareholders in the Transactions
from $42.00 to $42.50 per share and reaffirmed, after considering the
increase in the consideration and the potential release of the shareholder
claims in connection with the settlement of the shareholder litigation
described under "Special Factors--Litigation in Connection with the
Transactions," their determination that the purchase agreement, as
amended, and the Transactions are advisable and in the best interests of,
and substantively and procedurally fair to, our shareholders unaffiliated
with Security Capital. The special committee also reaffirmed its
recommendation that the board of directors approve the purchase agreement,
as amended, and the Transactions.
. On January 17, 2002, the members of our board of directors unaffiliated
with Security Capital unanimously approved and adopted the letter
agreement and reaffirmed, after considering the increase in the
consideration and the potential release of the shareholder claims in
connection with the settlement of the shareholder litigation, their
determination that the purchase agreement, as amended, and the
Transactions are advisable and in the best interests of, and substantively
and procedurally fair to, our shareholders. The members of our board of
directors unaffiliated with Security Capital also reaffirmed their
recommendation that the shareholders approve the purchase agreement, as
amended, and the Transactions.
. The operating partnership, through the members of the board of directors
of its general partner who are unaffiliated with Security Capital, and
Storage USA Trust, through its trustees who are unaffiliated with Security
Capital and are also members of Storage USA's board of directors, have
each concluded that the purchase agreement, as amended, and the
Transactions are procedurally and substantively fair to our shareholders
unaffiliated with Security Capital based upon the recommendation, analyses
and conclusion of the special committee (which they have each expressly
adopted), and the potential positive and potential adverse factors that
the special committee took into account in making its determination.
Position of Security Capital Regarding Fairness of the Transactions (page 43)
Security Capital believes that the Transactions and the consideration to be
paid to Storage USA shareholders are substantively and procedurally fair to
Storage USA's shareholders who are not affiliated with Security Capital on the
basis of the factors summarized below. Security Capital made its initial
fairness determination on December 4, 2001, the day preceding the date of the
purchase agreement, and subsequently reaffirmed it after considering (1) the
subsequent increase from $42.00 to $42.50 in the per share consideration
payable to Storage USA shareholders as a result of the settlement of the
shareholder class action litigation and the potential release of shareholder
claims described under "Special Factors--Litigation in Connection with the
Transactions" and (2) the expiration on January 19, 2002 of the "permitted
period," during which Storage USA was permitted to solicit alternative
acquisition proposals, without any such proposal being submitted to the special
committee.
. Security Capital could not under the terms of its Strategic Alliance
Agreement with Storage USA make a proposal to engage in an extraordinary
transaction with Storage USA until Storage USA, acting through the special
committee, agreed to allow Security Capital to do so. In addition, even
after permitting Security Capital to submit a proposal, the special
committee retained the power to prohibit Security Capital from pursuing an
extraordinary transaction with Storage USA unless and until the special
committee had determined to recommend such transaction to the board of
directors of Storage USA. The power of the special committee in this
regard, and the restrictions on Security Capital under the Strategic
Alliance Agreement, gave the special committee a considerable degree of
flexibility and bargaining power in dealing with Security Capital.
. Storage USA had the right, during the permitted period, to solicit
alternative acquisition proposals, and Security Capital had agreed to vote
its Storage USA shares in favor of a superior transaction entered into
7
during such period. The purchase agreement also provides that Storage USA
may enter into an alternative superior transaction, subject to the payment
of an agreed-upon termination fee.
. The $42.00 per share cash consideration originally agreed to be paid to
Storage USA shareholders represented an approximately 14.3% premium over
the average closing price of Storage USA's stock for the 60 trading days
immediately preceding September 7, 2001, the last business day prior to
the announcement that Storage USA and Security Capital had modified their
standstill arrangements, an approximately 13.5% premium over the 45
trading days immediately preceding September 7, 2001, and a premium of
approximately 14.1% over the closing price on September 7, 2001.
. The $42.00 per share cash consideration originally agreed to be paid to
Storage USA shareholders exceeded the net asset value estimates of six
research analysts who had published estimates of Storage USA's net asset
value prior to November 5, 2001, the day on which Security Capital
submitted its proposal to the special committee.
. A special committee of non-management directors unaffiliated with Security
Capital was established before a proposal was made. The special committee
retained its own financial and legal advisor, each of which is
unaffiliated with Security Capital, and, over a period of many months,
conducted a vigorous process of evaluation and negotiation with Security
Capital and its representatives and advisors.
. Lehman Brothers delivered to the special committee the opinion described
under "Special Factors--Opinion of the Financial Advisor to the Special
Committee," which concludes that, as of December 3, 2001, the $42.00 per
share cash consideration offered to Storage USA shareholders, other than
Security Capital and its affiliates, is fair from a financial point of
view.
. The special committee unanimously recommended that the purchase agreement
and the Transactions be approved by the Storage USA board of directors and
that the board recommend approval of the purchase agreement and the
Transactions by Storage USA's shareholders. The members of the Storage USA
board of directors unaffiliated with Security Capital determined that the
purchase agreement and the Transactions are advisable and in the best
interests of Storage USA's shareholders and recommend that the Storage USA
shareholders approve the purchase agreement and the Transactions.
Fairness Opinion (page 46)
. Lehman Brothers has acted as financial advisor to the special committee in
connection with the Transactions. As part of Lehman Brothers' role as
financial advisor to the special committee, on December 3, 2001 Lehman
Brothers delivered its written opinion, dated December 3, 2001, to the
special committee that, as of such date, and based upon and subject to the
matters stated in the opinion, the $42.00 per common share cash
consideration to be offered in the Transactions to the holders of shares
of our common stock, other than Security Capital and its affiliates, is
fair to such holders from a financial point of view.
. The full text of Lehman Brothers' written opinion, dated December 3, 2001,
is attached to this proxy statement as Appendix C. You should read the
opinion and the description in this proxy statement beginning on page 46
for a discussion of the assumptions made, procedures followed, factors
considered and limitations upon the review undertaken by Lehman Brothers
in rendering its opinion.
. Lehman Brothers' opinion was one of many factors taken into consideration
by the special committee in making its decision to recommend the
Transactions to our board of directors. Consequently, Lehman Brothers'
analyses should not be viewed as determinative of the special committee's
recommendation to our board. Lehman Brothers' opinion is not intended to
be and does not constitute a recommendation to any shareholder as to how
to vote or whether to accept the cash consideration offered in the
Transactions. Lehman Brothers was not required to opine as to, and its
opinion does not address, Storage USA's underlying business decision to
proceed with or consummate the Transactions.
8
Interests of Storage USA's Executive Officers and Directors in the Transactions
(page 57)
. Some of our directors, executive officers and employees have interests in
the Transactions that may be different from, or in addition to, your
interests as a shareholder. Our board of directors and the special
committee were aware of these interests and considered them, among other
matters, in approving and recommending the purchase agreement and the
Transactions.
. Stock Options. Directors, executive officers and other employees hold
options to purchase our common stock, which will become fully vested and
cancelled in exchange for a cash payment as a result of the Transactions.
. Restricted Stock. Our executive officers, as well as other employees,
hold restricted shares of our common stock, which will become fully vested
and unrestricted and entitled to the transaction consideration as a result
of the Transactions.
. Severance Agreements. The severance agreements with each of Messrs.
Jernigan, Marr, McConomy, Haas, Yale, Taub, Brown, Stern and other Storage
USA employees provide for severance payments and other benefits if the
employee's employment is terminated for certain reasons within two years
following a change in control of Storage USA, such as:
. the right to receive an amount equal to three times (for Messrs.
Jernigan and Marr), two times (for the other executive officers listed
above) or one and a half times (for the other employees) the employee's
base salary plus certain bonus amounts;
. the cancellation of any loan under Storage USA's 1995 Employee Stock
Purchase and Loan Plan or its 1996 Officers' Stock Option Loan Program
to the extent it exceeds the fair market value of the stock (or options)
securing the loan (however, none of the loans exceeds the fair market
value of the underlying stock, based on the consideration of $42.50 per
share to be paid in the Transactions); and
. the continuation of certain health insurance and other benefits.
. Other Payments. Our executive officers will also receive payments under
other compensation plans as a result of the Transactions.
. Employment Agreements. Messrs. Jernigan, Marr, McConomy, Brown, Yale,
Taub and Stern have employment agreements with Storage USA entitling them
to continue to receive their base salary then in effect for two years for
Messrs. Jernigan and Marr, one and a half years for Mr. McConomy, and one
year for Messrs. Brown, Yale, Taub and Stern, as well as other benefits,
if they are terminated "without cause" or resign for "good reason" as
defined in each employment agreement, provided that in the event they
begin other employment or become self-employed during this period, the
continuation of these base salary payments will be reduced to the extent
of any such salary or earnings. However, any action by Storage USA or
termination of an employee's employment with Storage USA that constitutes
or otherwise gives rise to a "change in control" termination under a
severance agreement will be governed exclusively by that severance
agreement, without duplication of payments under the employee's employment
agreement.
. Indemnification and Directors' and Officers' Insurance. Security Capital
and the surviving partnership have agreed, jointly and severally, to
fulfill and honor in all respects existing indemnification agreements
between us and each of our directors and some of our officers. In
addition, Security Capital and the surviving partnership have agreed for a
period of six years from and after the closing of the Transactions to:
. indemnify and advance expenses, to the fullest extent permitted by law,
to each former and present director, trustee and officer of Storage USA
or any of our subsidiaries with respect to all costs or expenses
incurred in connection with any claim, action, suit or investigation
arising out of acts or omissions by them in their capacities as such,
that existed or occurred at or prior to the effective time of the
merger; and
9
. maintain directors' and officers' liability insurance for those persons
currently covered by Storage USA's directors' and officers' liability
insurance policy.
The Special Meeting (page 22)
The special meeting of our shareholders will be held at the Plaza Club, 175
Toyota Plaza, Second Floor, Memphis, Tennessee, on , , 2002,
at 9:00 a.m. local time. At the special meeting, the holders of record of our
common stock will be asked to consider and vote upon a proposal to approve the
purchase agreement and the Transactions.
Record Date and Vote Required (page 22)
Only holders of shares of our common stock as of the close of business on
the record date, March 11, 2002, are entitled to notice of and to vote at the
special meeting. As of that date, there were 28,640,470 shares of our common
stock issued and outstanding. Each share of our common stock is entitled to one
vote on any matter that may properly come before the meeting and any
adjournment or postponement of that meeting. We have no other class of voting
securities outstanding.
The purchase agreement and the Transactions must be approved by holders of a
majority of our outstanding shares of common stock. As of the record date,
Security Capital beneficially owned 11,765,654 shares, or approximately 41.1%,
of our common stock. Security Capital has informed us that it intends to vote
its Storage USA shares in favor of the purchase agreement and the Transactions.
Storage USA's directors and executive officers owned 659,316 shares or
approximately 2.3% of our common stock as of the record date and to our
knowledge they intend to vote their Storage USA shares in favor of the purchase
agreement and the Transactions. Accordingly, the affirmative vote of holders of
an additional 1,895,266 shares, which equals approximately an additional 6.6%
of our outstanding shares of common stock, will be sufficient to approve the
purchase agreement and the Transactions.
Voting and Revocation of Proxies (page 23)
Shares of our common stock represented at the special meeting by properly
executed proxies received, and not revoked, prior to or at the special meeting
will be voted at the special meeting, and at any adjournments or postponements
of that meeting, in accordance with the instructions on the proxies. If a proxy
is duly executed and submitted without instructions, the shares of our common
stock represented by that proxy will be voted "FOR" the approval of the
purchase agreement and the Transactions. Proxies are being solicited on behalf
of our board of directors.
The person who executes a proxy may revoke it at or before the special
meeting by:
. delivering to our secretary a written notice of revocation of a previously
delivered proxy bearing a later date than the proxy;
. duly executing, dating and delivering to our secretary a subsequent proxy;
or
. attending the special meeting and voting in person.
Attendance at the special meeting will not, in and of itself, constitute
revocation of a proxy.
Payments by Security Capital (page 83)
In addition to the consideration paid to holders of our common stock and
optionholders (as described under "Terms of the Transactions--Consideration to
Securityholders"), in connection with the Transactions, Security Capital:
. will pay to the operating partnership's unitholders who do not elect or
are not qualified to continue as limited partners of the surviving
partnership the per share transaction consideration;
10
. will pay to the operating partnership approximately $15.9 million in
connection with the subsidiary sale (which amount will be applied by the
operating partnership to the partial repayment of its and Storage USA
Franchise Corp.'s lines of credit); and
. will provide the operating partnership with sufficient funds to repay all
remaining amounts outstanding under the operating partnership's and
Storage USA Franchise Corp.'s lines of credit.
In consideration for such payments, Security Capital will receive a number
of units in the operating partnership equal to the aggregate cash consideration
so paid divided by the per unit transaction consideration.
Payment Procedures (page 84)
Promptly after the merger, each shareholder of Storage USA entitled to
receive his portion of the transaction consideration will receive a transmittal
letter and instructions specifying the procedures to be followed for
surrendering stock certificates in exchange for payment of his portion of the
transaction consideration. Upon surrender of your stock certificate(s) you will
be paid the portion of the transaction consideration to which you are entitled.
You should not send your stock certificate(s) to us or anyone else until you
receive the instructions.
Conditions to Closing (page 93)
The Transactions will be consummated after the fulfillment or waiver of all
conditions to the Transactions. The merger, the last step in the Transactions,
will become effective upon the filing of the certificate of merger with the
Secretary of State of the State of Tennessee or such later time, if any, as may
be specified in the certificate of merger.
The obligation of Security Capital to complete the Transactions is subject
to a number of conditions, including but not limited to:
. the approval of the Transactions by our shareholders;
. that no condition to lending or financing under Security Capital's
commitment letter described under "Special Factors--Sources and Uses of
Proceeds; Financing for the Transactions," related to a material
disruption of, or material adverse change in, financial, banking, or
capital market conditions, has been invoked and is continuing (after any
applicable cooling off period), rendering all or part of the commitment
unavailable;
. our compliance with applicable laws and regulations necessary to permit
Storage USA to be taxed as a REIT;
. all action necessary or appropriate to admit Security Capital as the
general partner and a limited partner to the operating partnership has
been taken; and
. other customary conditions specified in the purchase agreement.
Our obligation to complete the Transactions is subject to a number of
conditions, including but not limited to:
. the approval of the Transactions by our shareholders; and
. other customary conditions specified in the purchase agreement.
Solicitation of Proposals by Storage USA and Alternative Acquisition
Transactions (page 87)
The purchase agreement allowed Storage USA to solicit acquisition proposals
from December 5, 2001, the date of the purchase agreement, until and including
January 19, 2002. During this "permitted period," none of the limitations on
solicitation described below, other than the notice requirements, would have
applied and we could have terminated the purchase agreement and entered into an
agreement providing for a superior transaction with a third party if we had
complied with the notice requirements and concurrently with such termination we
had
11
paid Security Capital a termination fee (provided that Security Capital in turn
executed a support agreement if requested by such third party). Had we so
terminated the purchase agreement, Security Capital had agreed during a
specified "take-along period" (as described under "Terms of the
Transactions--Solicitation of Proposals by Storage USA and Alternative
Acquisition Transactions") to vote all of our shares of common stock owned by
it and its affiliates in favor of the superior transaction agreement and to
sell all such shares for cash and otherwise on terms no less favorable than
those offered to other holders of our common stock in the superior transaction.
The results of our solicitation of acquisition proposals are described under
"Special Factors--Background of the Transactions."
During the period from January 20, 2002 until the termination of the
purchase agreement, neither we nor any of our subsidiaries, affiliates or
representatives may:
. solicit, initiate, encourage or take any other action to facilitate any
inquiries or the making of any offer or proposal that constitutes, relates
to or could reasonably be expected to lead to, any "acquisition proposal"
(as defined under "Terms of the Transactions--Solicitation of Proposals by
Storage USA and Alternative Acquisition Transactions");
. enter into, continue or otherwise participate in any discussions or
negotiations regarding any proposal or offer that constitutes, or could
reasonably be expected to lead to, any acquisition proposal; or
. furnish to any person any information, or otherwise cooperate with or
assist any person in any effort or attempt by such person, with respect to
any proposal or offer that constitutes, or could reasonably be expected to
lead to, any acquisition proposal.
However, in response to an acquisition proposal that did not result from a
breach of the provisions described above, and subject to compliance with the
notification requirements described below, we may:
. pursuant to a customary confidentiality agreement containing customary
standstill provisions, furnish information concerning Storage USA to any
person making an acquisition proposal that the special committee
determines in good faith (after consultation with outside counsel and its
financial advisor) is a "superior proposal"; and
. engage in discussions or negotiations with such person regarding any such
superior proposal.
In order for an alternative acquisition proposal to qualify as a "superior
proposal" it must be an unsolicited, bona fide written proposal made by a third
party to effect a "superior transaction." A "superior transaction" is an
acquisition or cancellation of all of our common equity securities in
connection with an extraordinary transaction:
. on terms which the special committee determines in good faith to be more
favorable from a financial point of view to the holders of our common
stock than the Transactions;
. in which all holders of our common stock and all holders of operating
partnership units would have the right to receive consideration, in the
form of cash and/or securities that will be publicly traded and listed on
the NYSE, AMEX or NASDAQ after consummation of the superior transaction,
in a per share amount greater than $42.50;
. in which the operating partnership's limited partners (other than Storage
USA) have the right, at their sole discretion, to continue their equity
interest and tax deferred status in the operating partnership;
. which does not prohibit Security Capital from improving its offer for
Storage USA;
. in which the consideration to be received by Security Capital for all its
shares of our common stock is payable, and is paid, entirely in cash; and
. that is reasonably capable of being completed on the terms proposed within
the same period as the take-along period and with a likelihood of
successful consummation not less favorable than those applicable to the
Transactions.
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In addition, under the purchase agreement, subject to the exceptions
described below, the board and the special committee, during the period from
January 20, 2002 until the termination of the purchase agreement, may not:
. withdraw or publicly propose to withdraw, or modify or publicly propose to
modify in any manner adverse to Security Capital, their approval or
recommendation of the purchase agreement or the Transactions;
. enter into any agreement relating to an alternative acquisition proposal
(other than the confidentiality agreements described above); or
. adopt, approve or recommend any acquisition proposal (or publicly propose
to do so).
However, our board of directors and the special committee may: (1) withdraw,
modify or publicly propose to withdraw or modify their approval or
recommendation if the board of directors or the special committee determines in
good faith (after consultation with outside counsel and the special committee's
financial advisor) that an acquisition proposal constitutes a superior proposal
as to which Storage USA intends to enter into a binding written agreement, and
(2) adopt, approve or recommend such superior proposal (or propose to do so) if
Storage USA has terminated the purchase agreement in connection with entering
into an agreement with respect to a superior transaction, has otherwise
complied with the no-solicitation and notice requirements described in this
section in all material respects, and, concurrently with such termination, pays
to Security Capital the termination fee described below. Security Capital is
not obligated to vote in favor of a superior transaction agreement entered into
after January 19, 2002.
The purchase agreement requires us to promptly advise Security Capital of:
. our receipt of any acquisition proposal, or any material negotiation or
discussion concerning the material economic terms and material conditions
of such acquisition proposal;
. all material changes to the economic terms of any such acquisition
proposal, negotiation or discussion; and
. the identity of any entity that has requested or been granted access to
the data room maintained by Storage USA.
However, if Storage USA, acting in good faith, immaterially or inadvertently
fails to comply with its notice obligations, such failure will not be
considered a breach of these obligations if, at least three business days prior
to entering into an agreement with respect to an acquisition proposal, Storage
USA provides Security Capital with the then current material business terms of
such acquisition proposal.
Termination of the Purchase Agreement and Termination Fee (page 95)
The purchase agreement may be terminated at any time by mutual written
consent of Storage USA and Security Capital, or upon the occurrence of the
events or actions described under "Terms of the Transactions--Termination of
the Purchase Agreement and Termination Fee."
If the purchase agreement is terminated:
. by Security Capital, because our board of directors and the special
committee have publicly withdrawn or modified in a manner adverse to
Security Capital their recommendation of any of the Transactions or have
failed to reconfirm their recommendation of any of the Transactions within
five business days after Security Capital's written request to do so; or
. by Storage USA, because, prior to the special meeting, our board of
directors and the special committee have entered into a superior
transaction (and Storage USA has complied with its no-solicitation
obligations and notice requirements in all material respects),
then we must pay Security Capital a termination fee of $22.5 million. In the
case of termination by us in connection with entering into a superior
transaction, the termination fee must be paid concurrently with such
termination.
13
Strategic Alliance Agreement (page 91)
We are parties to a Strategic Alliance Agreement with Security Capital
which, among other things, restricts our ability to:
. incur indebtedness;
. own real property (other than self-storage facilities or land suitable for
the development of self-storage facilities); or
. terminate our eligibility for treatment as a REIT for federal income tax
purposes.
The Strategic Alliance Agreement also contains "standstill" restrictions
which, among other things, limit Security Capital's ability to purchase more
shares of our common stock or sell or otherwise dispose of the shares of our
common stock it already owns. These "standstill" restrictions may be terminated
by certain "early termination events," including our authorization of the
solicitation of proposals with respect to an extraordinary transaction.
The purchase agreement provides that the exercise of any rights, in
accordance with and subject to its terms, and the consummation of any of the
Transactions contemplated by the purchase agreement do not constitute a
violation or attempted violation of any provision of the Strategic Alliance
Agreement or Storage USA's charter or bylaws. The purchase agreement also
provides that, upon the effective time of the merger or consummation of a
superior transaction, the Strategic Alliance Agreement will be terminated and
cease to have any force or effect.
Appraisal Rights (page 85)
No appraisal rights are available to shareholders under applicable law in
connection with the Transactions.
Material Federal Income Tax Consequences (page 98)
Your receipt of your portion of the transaction consideration will be
taxable for federal income tax purposes. To review the material tax
consequences of the Transactions in greater detail, see "Material Federal
Income Tax Consequences" below. Your tax consequences will depend on your
personal situation. You should consult your own tax advisors for a full
understanding of the tax consequences of the Transactions to you.
Regulatory Matters (page 65)
Storage USA and Security Capital are not aware of any federal or state
regulatory approvals that are required in order to complete the Transactions
other than the filing of the certificate of merger with the Secretary of State
of the State of Tennessee.
Litigation in Connection with the Transactions (page 66)
Shareholder Litigation. Storage USA, each of our directors, Storage USA
Trust, the operating partnership and Security Capital are named as defendants
in several purported shareholder class actions alleging, among other things,
that the individual defendants have breached their fiduciary duties to
shareholders by structuring the purchase agreement so as to deprive themselves
of the ability to consider certain possible competing proposals, thereby
depriving plaintiffs of the true value of their investment in Storage USA. The
putative class actions further allege that Security Capital breached fiduciary
duties to other shareholders of Storage USA and failed to treat those
shareholders with entire fairness. The putative class actions seek:
. to enjoin the consummation of the Transactions or in the alternative, to
declare certain sections of the purchase agreement invalid and void; and
. if the Transactions are consummated, to rescind them and recover
rescissionary and other damages suffered by the plaintiffs as a result of
the Transactions.
14
The purchase agreement gives Security Capital the right until the
termination of the purchase agreement to participate at its expense in the
defense, and to consent to any settlement, of any shareholder litigation
relating to the purchase agreement or the Transactions, but Security Capital's
consent may not be unreasonably withheld or delayed.
Following negotiations subsequent to the announcement of the Transactions,
on January 17, 2002 the parties to the litigation entered into an agreement in
principle with respect to settlement of the purported class actions. As part of
the settlement, Security Capital agreed to increase the consideration to be
paid in the Transactions to Storage USA shareholders from $42.00 to $42.50 per
share. On the same date, the parties to the purchase agreement amended the
purchase agreement to reflect the increased consideration. The settlement is
subject to a number of conditions, including court approval and the
consummation of the Transactions. However, regardless of whether court approval
of the settlement is obtained prior to consummation of the Transactions,
Storage USA shareholders will receive the increased consideration if the
Transactions are consummated.
In the event that the court approves the proposed settlement in accordance
with its terms, members of the class defined in the settlement will be deemed
to have released all claims they had or may have had with respect to the
Transactions and related matters as reflected in the settlement agreement and
proposed final judgment, and will accordingly be barred from asserting any such
claims in judicial proceedings.
Limited Partner Litigation. On March 12, 2002, a group of limited partners
of the operating partnership filed suit against Storage USA, the operating
partnership and Security Capital. The plaintiffs purport to bring the action
individually on their own behalf and as a class action on behalf of all limited
partners of the operating partnership and on behalf of a subclass of those
limited partners who are parties to tax deferral agreements with the operating
partnership. The complaint purports to state causes of action against some or
all of the defendants for breach of fiduciary duty, violation of the Tennessee
Revised Uniform Limited Partnership Act, breach of the existing partnership
agreement and breach of the tax deferral agreements, and against Security
Capital for interference with contractual relations and interference with
economic advantages. The relief sought in the complaint includes, among other
things, preliminarily and permanently enjoining the Transactions or, in the
event that they are completed, rescinding and setting aside the Transactions.
We and Security Capital believe that the suit is without merit.
Financing for the Transactions (page 65)
It is estimated that approximately $1.07 billion in cash will be required to
effect the Transactions, including repayment of the operating partnership's and
Storage USA Franchise Corp.'s credit lines and payment of transaction fees and
expenses. Security Capital intends to finance the Transactions using cash on
hand and, if and to the extent necessary, borrowed funds. Between the signing
of the purchase agreement and the date of this proxy statement, Security
Capital received a significant amount of cash proceeds from the sale of its
stock in other entities and has informed us that it currently has, and it
expects that at the closing it will have, sufficient cash on hand to consummate
the Transactions.
15
TABLE OF CONTENTS
Page
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SUMMARY TERM SHEET..................................................................... 1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS........................................... 18
THE SPECIAL MEETING.................................................................... 22
General........................................................................... 22
Date, Time and Place.............................................................. 22
Matters to be Considered at the Special Meeting................................... 22
Record Date; Outstanding Shares................................................... 22
Vote Required..................................................................... 22
Voting and Revocation of Proxies.................................................. 23
Quorum, Abstentions and Broker Non-Votes.......................................... 23
Solicitation of Proxies and Expenses.............................................. 23
Recommendation of the Special Committee and the Board of Directors................ 24
Other Matters..................................................................... 24
SPECIAL FACTORS........................................................................ 25
Background of the Transactions.................................................... 25
Fairness of the Transactions; Recommendation of the Special Committee of the
Board of Directors.............................................................. 35
Recommendation of the Board of Directors.......................................... 40
Security Capital's Purposes and Reasons for the Transactions; Benefits and
Detriments of the Transactions to Security Capital.............................. 42
Position of Security Capital Regarding Fairness of the Transactions............... 43
Opinion of the Financial Advisor to the Special Committee......................... 46
Role of the Financial Advisor to Security Capital................................. 55
Certain Effects of the Transactions............................................... 55
Acquisition of Security Capital by GE Capital..................................... 56
Plans for Storage USA after the Transactions...................................... 56
Conduct of the Business of Storage USA if the Transactions are Not Completed...... 57
Interests of Storage USA's Executive Officers and Directors in the Transactions... 57
Past Transactions and Relationships............................................... 60
Sources and Uses of Proceeds; Financing for the Transactions...................... 65
Regulatory Matters................................................................ 65
Accounting Treatment of the Transactions.......................................... 65
Litigation in Connection with the Transactions.................................... 66
SUMMARY FINANCIAL INFORMATION.......................................................... 68
MARKET PRICES AND DIVIDEND INFORMATION................................................. 69
FORWARD-LOOKING STATEMENTS............................................................. 70
THE PARTIES............................................................................ 71
Storage USA, Inc.................................................................. 71
Storage USA Trust................................................................. 71
SUSA Partnership, L.P............................................................. 71
Security Capital Group Incorporated............................................... 71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................................ 72
DIRECTORS AND EXECUTIVE OFFICERS OF STORAGE USA........................................ 74
16
Page
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DIRECTORS AND EXECUTIVE OFFICERS OF SECURITY CAPITAL......................... 77
TERMS OF THE TRANSACTIONS.................................................... 81
General................................................................. 81
Structure of the Transactions........................................... 81
Consideration to Securityholders........................................ 82
Payments by Security Capital............................................ 83
Payment Procedures...................................................... 84
Appraisal Rights........................................................ 85
Representations and Warranties.......................................... 85
Conduct of Business Prior to the Transactions........................... 86
Solicitation of Proposals by Storage USA and Alternative Acquisition
Transactions........................................................ 87
Strategic Alliance Agreement............................................ 91
Taking of Necessary Action; SEC Filings................................. 91
Employee Matters........................................................ 92
Indemnification; Directors and Officers Insurance....................... 92
Shareholder Litigation.................................................. 93
Conditions to Closing................................................... 93
Termination of the Purchase Agreement and Termination Fee............... 95
Expenses................................................................ 96
Amendment and Assignment................................................ 97
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..................................... 98
INDEPENDENT PUBLIC ACCOUNTANTS............................................... 100
PROPOSALS BY OUR SHAREHOLDERS................................................ 101
WHERE YOU CAN FIND MORE INFORMATION.......................................... 102
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 102
APPENDIX A Purchase and Sale Agreement by and among Storage USA, Inc.,
Storage USA Trust, SUSA Partnership, L.P. and Security
Capital Group Incorporated, dated as of December 5, 2001
APPENDIX B Letter of Agreement by and among Storage USA, Inc., Storage
USA Trust, SUSA Partnership, L.P. and Security Capital
Group Incorporated, dated as of January 17, 2002
APPENDIX C Opinion of Lehman Brothers Inc.
17
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: What will I receive in the Transactions?
A: You will be entitled to receive $42.50 in cash, without interest, for each
share of Storage USA common stock you own, subject to the adjustments with
respect to dividends described under "Terms of the
Transactions--Consideration to Securityholders."
If you own options to purchase shares of our common stock, in exchange for
the cancellation of those options you will be entitled to receive, with
respect to each option held, an amount in cash equal to the product of the
excess of the per share transaction consideration over the option's exercise
price per share and the number of shares of our common stock underlying the
option, less certain taxes and loan repayments.
Q: Does the board of directors recommend approval of the Transactions?
A: Yes. A special committee of five independent directors evaluated the
advisability of the Transactions and unanimously recommended that the board
of directors approve the purchase agreement and the Transactions. The
members of the board of directors unaffiliated with Security Capital, acting
upon such unanimous recommendation of the special committee, unanimously
approved the purchase agreement and the Transactions and recommend that you
vote "FOR" their approval. For a description of the factors considered by
the special committee, see "Special Factors--Fairness of the Transactions;
Recommendation of the Special Committee of the Board of Directors." For a
description of the factors considered by the board of directors, see
"Special Factors--Recommendation of the Board of Directors."
Q: Why was the special committee formed?
A: Your board of directors formed the special committee to protect your
interests in evaluating Storage USA's strategic alternatives and negotiating
the terms of the Transactions from potential conflicts of interest resulting
from Security Capital's and management's representation on our board of
directors and their respective interests in potential strategic alternatives
of Storage USA, which may be different from, or in addition to, the
interests of Storage USA's shareholders generally. For a description of
these matters, see "Special Factors--Interests of Storage USA's Executive
Officers and Directors in the Transactions" and "Special Factors--Background
of the Transactions."
Q: What is the structure of the proposed Transactions and why was this
structure used?
A: Security Capital will first purchase from the operating partnership and Dean
Jernigan, our Chairman, President and Chief Executive Officer, all of their
respective interests in two corporate subsidiaries owned by them. Security
Capital will then purchase all of our assets, including all of our interests
in our operating partnership, and will assume all of our liabilities. We
will then purchase from Security Capital all shares of our common stock
owned by it and its affiliates. Finally, we will merge with and into the
operating partnership, which at the time of the merger will be a
majority-owned subsidiary of Security Capital, and the operating partnership
will be the surviving entity in the merger.
The Transactions were structured this way principally so that Security
Capital could receive a tax basis for federal income tax purposes in all
real estate and other assets owned directly or indirectly by Storage USA
equivalent to Security Capital's purchase price (other than assets owned
through the two corporate subsidiaries purchased separately from the
operating partnership).
Q: When do you expect to complete the Transactions?
A: A special meeting of our shareholders is being held on [ ], 2002 for
the purpose of considering and voting on approval of the purchase agreement
and the Transactions. Because a vote of our shareholders is
18
only one of the conditions to the Transactions, Storage USA cannot assure
you as to when or if the Transactions will occur, but we are working to
close the Transactions on or promptly after the date of the special meeting
of our shareholders.
Q: If the Transactions are completed, when can I expect to receive the
consideration for my shares?
A: Promptly after the completion of the Transactions, you will receive detailed
instructions regarding the surrender of your stock certificates. You should
not send your stock certificates to us or anyone else until you receive
these instructions. Promptly after surrendering your stock certificates and
such other documents identified in the instructions, you will receive
payment of your portion of the transaction consideration for your shares.
Q: Does Storage USA expect to continue to pay quarterly dividends on my shares?
A: Yes, but only through the closing of the Transactions. You will continue to
receive quarterly dividends, up to $0.71 per share, normally paid for each
complete quarter prior to the closing of the Transactions. In addition, as
part of the consideration for your shares, you will receive a pro rated
portion of such normal quarterly dividends with respect to the quarterly
period in which the Transactions are completed.
Q: If I am a U.S. shareholder, what are the tax consequences of the
Transactions to me?
A: Your receipt of your portion of the transaction consideration for your
shares will be taxable for federal income tax purposes. To review the
material tax consequences of the Transactions in greater detail, see
"Material Federal Income Tax Consequences." Your tax consequences will
depend on your personal situation. You should consult your own tax advisor
for a full understanding of the tax consequences of the Transactions to you.
Q: If I am a non-U.S. shareholder, what are the tax consequences of the
Transactions to me?
A: The tax consequences to non-U.S. shareholders are complex and unclear.
Non-U.S. shareholders are urged to read "Material Federal Income Tax
Consequences--Consequences to Non-U.S. Shareholders" and to consult with
their own tax advisors, especially concerning the Foreign Investment in Real
Property Tax Act of 1980, U.S. federal income tax withholding rules and the
possible application of benefits under an applicable income tax treaty.
Q: What vote of Storage USA shareholders is required to approve the
Transactions?
A: Approval of the Transactions requires the affirmative vote by holders of a
majority of shares of our common stock outstanding as of the close of
business on March 11, 2002. Security Capital owned approximately 41.1% of
our outstanding common stock as of March 11, 2002 and has stated that it
intends to vote those shares in favor of the purchase agreement and the
Transactions. Storage USA's directors and executive officers owned
approximately 2.3% of our common stock as of March 11, 2002 and to our
knowledge they intend to vote their Storage USA shares in favor of the
purchase agreement and the Transactions. Accordingly, the affirmative vote
of holders of approximately an additional 6.6% of our outstanding shares
will be sufficient to approve the Transactions. We urge you to complete,
execute and return the enclosed proxy card to assure the representation of
your shares at the special meeting.
Q: Is the vote of the operating partnership's limited partners required to
approve the Transactions?
A: No, only Storage USA shareholders have the right to vote on the
Transactions. The approval of the limited partners is not required in
connection with the Transactions and is not being sought.
19
Q: Who is entitled to vote at the special meeting?
A: Holders of record of shares of our common stock as of the close of business
on March 11, 2002 are entitled to vote at the special meeting. Each
shareholder has one vote for each share of our common stock owned on the
record date.
Q: What is the location, date and time of the special meeting?
A: The special meeting will be held on [ ], at 9:00 a.m. local
time, at the Plaza Club, 175 Toyota Plaza, Second Floor, Memphis, Tennessee
(see "The Special Meeting").
Q: What happens if I sell my shares before the special meeting?
A: The record date for the special meeting, March 11, 2002, is earlier than the
expected completion of the Transactions. If you held your shares on the
record date but subsequently transfer them, you will retain your right to
vote at the special meeting but not the right to receive the consideration
for the shares. The right to receive such consideration will pass to the
person who owns your shares when the merger becomes effective.
Q: How do I vote?
A: You may indicate how you want to vote on your proxy card. You may also
attend the special meeting and vote in person instead of submitting a proxy.
If you fail either to return your proxy card or to vote in person at the
special meeting, or if you mark your proxy "abstain," the effect will be a
vote against the purchase agreement and the Transactions. If you sign and
return your proxy card and fail to indicate your vote on your proxy, your
shares will be counted as a vote in favor of the purchase agreement and the
Transactions.
Q: If my broker holds my shares in "street name," will my broker vote my shares
for me?
A: Your broker will not vote your shares unless you provide instructions on how
to vote. You should instruct your broker how to vote your shares by
following the directions your broker will provide to you. If you do not
provide instructions to your broker, your shares will not be voted and this
will have the same effect as a vote against the purchase agreement and the
Transactions.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes, you can change your vote by (1) sending in, before the special meeting,
a later dated, signed proxy card or a written revocation of your proxy or
(2) attending the special meeting and voting in person. Your attendance at
the meeting will not, by itself, revoke your proxy. If you have instructed a
broker to vote your shares, you must follow the directions received from
your broker to change those instructions. Also, if you elect to vote in
person at the special meeting and your shares are held by a broker, you must
bring to the meeting a legal proxy from the broker authorizing you to vote
the shares.
Q: What will happen to my shares after completion of the Transactions?
A: Following the effectiveness of the merger, your shares will be cancelled and
represent only the right to receive your portion of the transaction
consideration. Trading in our common stock on the New York Stock Exchange
will cease. Price quotations for our common stock will no longer be
available, and we will cease filing periodic reports with the SEC. See
"Special Factors--Certain Effects of the Transactions."
Q: Should I send my stock certificates now?
A: No. After the Transactions are completed, a paying agent will send you
written instructions for exchanging your shares. You must return your stock
certificates as described in the instructions to receive the cash payment in
connection with the Transactions.
20
Q: Where can I find more information about the parties to the Transactions?
A: Storage USA and Security Capital file reports and other information with the
SEC. You may read and copy this information at the SEC's public reference
facilities. You may call the SEC at 1-800-SEC-0330 for information about
these facilities. This information is also available at the Internet site
the SEC maintains at www.sec.gov and at the offices of the New York Stock
Exchange. You can also request copies of these documents from us. See "Where
You Can Find More Information."
If you have further questions, you may contact:
Storage USA, Inc.
175 Toyota Plaza, Suite 700
Memphis, Tennessee 38103
Attention: John W. McConomy
901-252-2000
21
THE SPECIAL MEETING
General
We are furnishing this proxy statement to holders of record of our common
stock as of the close of business on March 11, 2002 in connection with the
solicitation of proxies by our board of directors for use at the special
meeting of shareholders to be held on [ ], 2002, and any
adjournment or postponement of that meeting.
Date, Time and Place
The special meeting will be held on [ ], [ ], 2002, at 9:00
a.m. local time, at the Plaza Club, 175 Toyota Plaza, Second Floor, Memphis,
Tennessee.
Matters to be Considered at the Special Meeting
At the special meeting, you will be asked:
. to consider and approve the purchase agreement and the Transactions
contemplated thereby; and
. to transact such other business as may properly be brought before the
special meeting or any adjournment or postponement of the special meeting.
Record Date; Outstanding Shares
Our board of directors has fixed the close of business on March 11, 2002 as
the record date. As of the record date, 28,640,470 shares of our common stock
were outstanding.
Vote Required
The holders of a majority of our shares of common stock outstanding as of
the close of business on the record date must vote in favor of the purchase
agreement and the Transactions for them to be approved. Shareholders are
entitled to one vote per share of common stock owned on the record date.
Although the limited partners of the operating partnership are entitled to
receive the same consideration as our shareholders in the Transactions, they
will not be entitled to vote on the purchase agreement and the Transactions.
Storage USA, as the general partner, has the authority to cause the operating
partnership to enter into the Transactions without a vote of the limited
partners.
Security Capital, which as of the record date beneficially owned 11,765,654
shares, or approximately 41.1%, of our outstanding common stock has informed us
that it intends to vote its shares in favor of the purchase agreement and the
Transactions. Storage USA's directors and executive officers owned 659,316
shares or approximately 2.3% of our common stock as of the record date and to
our knowledge they intend to vote their Storage USA shares in favor of the
purchase agreement and the Transactions. Accordingly, the affirmative vote of
holders of an additional 1,895,266 shares, which equals approximately an
additional 6.6% of the votes entitled to be cast at the special meeting, will
be sufficient to approve the purchase agreement and the Transactions. The
approval of a majority of our shareholders unaffiliated with Security Capital
is not required to approve the purchase agreement and the Transactions. To our
knowledge, none of our directors or executive officers presently intend to sell
any of our securities which they presently hold prior to the consummation of
the Transactions and none of the directors, executive officers or affiliates of
Storage USA, other than Security Capital, has made any recommendation in
support of or opposed to the Transactions. In addition, Security Capital has
agreed under the purchase agreement not to sell its Storage USA shares, other
than to affiliates, until the termination of the purchase agreement (see "Terms
of the Transactions--Solicitation of Proposals by Storage USA and Alternative
Acquisition Transactions").
22
Voting and Revocation of Proxies
We request that our shareholders complete, date and sign the accompanying
proxy and promptly return it in the accompanying postage prepaid envelope.
Please do not send any stock certificates with your proxy. Brokers holding
shares in "street name" may vote the shares only if the shareholder provides
instructions on how to vote. Brokers will provide instructions to beneficial
owners on how to direct the broker to vote the shares. If you do not provide
instructions to your broker, your shares will not be voted, which will have the
same effect as a vote against the purchase agreement and the Transactions. If
your shares are registered in the name of a bank or brokerage firm, you may be
eligible to vote your shares electronically over the Internet or by telephone.
A large number of banks and brokerage firms are participating in the ADP
Investor Communication Services online program. This program provides eligible
shareholders who receive a paper copy of this proxy statement the opportunity
to vote via the Internet or by telephone. If your bank or brokerage firm is
participating in ADP's program, the proxy materials that your bank or brokerage
firm will send to you should include appropriate instructions. If those
materials do not include instructions, please complete and return the proxy
card in the self-addressed, postage paid envelope provided.
All properly executed proxies that we receive and that are not properly
revoked prior to the vote at the special meeting will be voted in accordance
with the instructions indicated on the proxies or, if no direction is
indicated, in favor of the purchase agreement and the Transactions. If other
business properly comes before the special meeting (or any postponement or
adjournment of the special meeting), the proxies will be voted in accordance
with the judgment of the proxy holders.
A shareholder may revoke his or her proxy at any time prior to its use:
. by delivering to our Secretary a signed notice of revocation or a
later-dated proxy; or
. by attending the special meeting and voting in person.
Attendance at the special meeting does not in itself constitute the
revocation of a proxy. If you have instructed a broker to vote your shares, you
must follow the instructions received from your broker to change your vote.
Quorum, Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the special meeting
is a majority of our shares of common stock issued and outstanding on the
record date. If you hold your shares through a broker, generally the broker may
only vote such shares in accordance with your instructions. However, if your
broker has not timely received your instructions, it may only vote on matters
for which it has discretionary voting authority. Brokers will not have
discretionary voting authority with respect to the approval of the purchase
agreement and the Transactions. If a broker cannot vote on a matter because it
does not have discretionary voting authority, this is a "broker non-vote" on
that matter. Abstentions and broker non-votes will be included in determining
the number of shares present at the meeting for the purpose of determining the
presence of a quorum. Because approval of the purchase agreement and the
Transactions requires the affirmative vote of a majority of the outstanding
shares of our common stock entitled to vote, abstentions and broker non-votes
will have the same effect as votes against approval of the purchase agreement
and the Transactions. In addition, the failure of a shareholder to return a
proxy or otherwise vote will have the effect of a vote against approval of the
purchase agreement and the Transactions.
Solicitation of Proxies and Expenses
In addition to solicitation by mail, our directors, officers and employees
may solicit proxies from the shareholders by telephone, facsimile or in person.
No additional compensation will be paid to our directors, officers or employees
for any solicitations. Brokerage houses, nominees, fiduciaries and other
custodians will be
23
requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners. The expenses of soliciting proxies will be borne by us, and
we and Security Capital will share the expenses related to the printing, filing
and mailing of this proxy statement.
Recommendation of the Special Committee and the Board of Directors
The members of our board of directors unaffiliated with Security Capital and
the special committee have each unanimously (1) determined that the purchase
agreement and the Transactions are advisable and in the best interests of
Storage USA and its shareholders, other than Security Capital and its
affiliates and (2) adopted the purchase agreement and approved the
Transactions. The special committee unanimously recommended that our board of
directors approve and adopt the purchase agreement and the Transactions, and
the members of our board of directors unaffiliated with Security Capital
unanimously recommend that our shareholders vote FOR approval of the purchase
agreement and the Transactions. See "Special Factors--Recommendation of the
Board of Directors."
Other Matters
We do not intend to bring any other business before the special meeting, and
we are not aware of any other matters which will be brought before the special
meeting. If other business properly comes before the special meeting or any
adjournment or postponement of the special meeting, the proxies will be voted
in accordance with the judgment of the proxy holders.
24
SPECIAL FACTORS
Background of the Transactions
Since January 2001, Security Capital has held an investment in Storage USA,
which presently represents approximately 41.1% of Storage USA's common stock.
Prior to that time and since 1996, that investment was held by an affiliate of
Security Capital. Since the time the investment was originally made, such
affiliate's and then Security Capital's relationship with Storage USA has been
governed by the Strategic Alliance Agreement, which gives Security Capital
(based on its current ownership of Storage USA) the right to designate three
nominees to the board of directors of Storage USA and contains "standstill"
restrictions that prevent Security Capital from acquiring additional shares or
taking other actions affecting the control of Storage USA. See "--Past
Transactions and Relationships--Strategic Alliance Agreement with Security
Capital." Since 1996, three directors nominated by Security Capital pursuant to
the Strategic Alliance Agreement have served on Storage USA's board of
directors. Because of its investment in Storage USA and the service of those
directors on Storage USA's board of directors, Security Capital and such
directors have had an opportunity over time to observe the performance of
Storage USA and the self storage sector generally, and to discuss the business
and strategy of Storage USA both at the board level and in conversations and
meetings between representatives of the management of the two companies.
On March 1, 2001, the board of directors of Storage USA formed a special
committee of directors unaffiliated with Security Capital and Storage USA's
management to investigate the strategic alternatives available to Storage USA.
The special committee subsequently hired its own independent financial and
legal advisors to assist in that investigation. Over the course of the
following nine months, as described below, the special committee held meetings
during which it discussed, among other things, the strategic alternatives
available to Storage USA, including continuing to operate as an independent
company, and the financial and legal analyses presented by its advisors. From
July 31, 2001 to December 5, 2001, as described below, the special committee
engaged in numerous discussions and negotiations with Messrs. William D.
Sanders, Security Capital's Chairman and Chief Executive Officer, C. Ronald
Blankenship, Security Capital's Vice Chairman and Chief Operating Officer, and
Paul E. Szurek, Security Capital's Chief Financial Officer. After this
extensive review, on December 3, 2001 the special committee unanimously
approved and recommended that the board of directors approve the Transactions
subject to finalizing certain matters in the purchase agreement. The background
of the deliberations of the special committee with respect to the Transactions
is set forth below.
At a meeting of the board of directors on March 1, 2001, at which all
members of the board were present with the exception of Messrs. Blankenship and
Sanders and Ms. McBride (Security Capital's nominees on Storage USA's board of
directors), Mr. Jernigan advised the board that he previously had a
conversation with Mr. Sanders at a NAREIT CEO conference in Scottsdale, Arizona
in February 2001, in which Mr. Jernigan discussed with Mr. Sanders Security
Capital's previously publicly announced strategy with respect to its
investments. Mr. Jernigan stated that it was his conclusion from his
conversation with Mr. Sanders that Security Capital might be interested in
acquiring Storage USA. After a discussion of Storage USA's strategic
positioning, its capital sources and future prospects, Mr. Jernigan proposed
that the board undertake a review of Storage USA's long-term plans and
strategic alternatives.
Storage USA's outside legal advisor, Hunton & Williams, outlined the
directors' duties under applicable law and recommended that the board form a
special committee consisting of independent directors to conduct the proposed
review. The board then unanimously resolved to form a special committee,
consisting of Messrs. Graf (Chairman), Colhoun, Jorgensen, McCann and Thie, in
order to review Storage USA's current long-term plan, investigate the strategic
alternatives available to Storage USA and report its findings and
recommendations to the board of directors. The board resolved that the special
committee should not include any representatives of Security Capital or members
of management because they might have a significant interest in some of the
strategic alternatives to be investigated. The resolutions establishing the
special committee prohibited it from approving or authorizing any transaction
or agreement that would result in a change in control of Storage USA or
25
taking any action that would result in the waiver or termination of the
standstill provisions of the Strategic Alliance Agreement.
The first meeting of the special committee occurred on March 1, 2001. At
this meeting, the special committee discussed its purpose, the general approach
the special committee would take to investigate Storage USA's strategic
alternatives and the process of interviewing financial advisors.
On March 2, 2001, the board of directors of Security Capital was apprised of
the formation of Storage USA's special committee and discussed the status of
Security Capital's investment in Storage USA.
At meetings of the special committee held on March 12, 2001, March 15, 2001
and March 22, 2001, the special committee discussed and reviewed the
qualifications of various financial advisors, including, among other factors,
their business relationships with Security Capital. Members of management were
also present for portions of the March 22, 2001 meeting of the special
committee and discussed Storage USA's market position and current business plan
with the special committee. On April 3, 2001, Mr. McCann on behalf of the
special committee interviewed several financial advisors. On April 5, 2001, Mr.
McCann submitted a recommendation to the special committee that the special
committee hire Lehman Brothers due to their experience in real estate strategic
assignments and the absence of business dealings with Security Capital.
At a meeting of the special committee on April 10, 2001, the special
committee approved the retention of Lehman Brothers as its financial advisor in
investigating the strategic alternatives of Storage USA. On May 1, 2001, the
special committee met with representatives from Lehman Brothers to discuss the
scope of their engagement and their progress to date.
At a meeting of the special committee on May 24, 2001, the special committee
determined to hire independent legal counsel that had not previously
represented Storage USA, and retained Goodwin Procter LLP as its independent
legal counsel. The special committee retained Bass, Berry & Sims PLC as special
Tennessee counsel on June 18, 2001.
On June 22, 2001, the board of directors reaffirmed in principle the
formation of the special committee and authorized the special committee to
consider the advisability of receiving a proposal from Security Capital with
respect to an extraordinary transaction involving Storage USA which Security
Capital was otherwise prohibited from making by the terms of the Strategic
Alliance Agreement. The board also reaffirmed the authority of the special
committee to initiate preliminary, confidential contacts with Security Capital,
to retain financial and legal advisors which the committee deemed appropriate
and to consider the appropriateness of indemnification agreements. Because
doing so would likely have released Security Capital from its standstill
obligations under the Strategic Alliance Agreement, the special committee was
not authorized to and did not contact other potential purchasers.
At a meeting of the special committee on June 25, 2001, the special
committee's legal advisor discussed the duties and responsibilities of the
special committee members and engaged in a general discussion of Storage USA's
and Security Capital's respective rights and obligations under the Strategic
Alliance Agreement. The members of the special committee also discussed the
facts and circumstances surrounding the independence of each member of the
committee, and the special committee engaged in a general discussion of the
independence of each of its members. After this discussion, Lehman Brothers
provided its first phase report concerning its preliminary views with respect
to the value of Storage USA's common stock based on management's business plan,
which showed among other things an annual FFO per share growth rate of 10%, and
Storage USA's performance as compared to publicly-traded competitors in the
self-storage sector.
26
The results of Lehman Brothers' analyses with respect to the valuation of
Storage USA's common stock are summarized in the following table:
Type of Analysis Implied Valuation Range Per Share
---------------- ---------------------------------
Equity Research Analyst Price Targets $33.00 - $36.00
Comparable Company Analysis.......... $32.00 - $41.50
Capitalization Rate Analysis......... $37.00 - $43.00
Discounted Cash Flow Analysis
5-Year Unlevered.................. $35.50 - $40.50
5-Year Dividend Discount Model.... $38.50 - $41.00
10-Year Dividend Discount Model... $41.50 - $47.00
Comparable Transactions Analysis..... $38.50 - $42.00
Lehman Brothers analyzed the historical financial performance of Storage USA
and its competitors and compared the performance of the self-storage REIT
sector to other REIT property sectors. These comparisons were made on the basis
of capital structure, institutional ownership, reports of equity research
analysts, current valuation measures and historical financial performance,
including growth in per share funds from operations, or FFO, and same-store net
operating income, returns to shareholders and net asset value, or NAV, as well
as trading prices relative to NAV and trading multiples of per share FFO.
The report also discussed certain trends in the REIT industry relating to
valuation, consolidation, trading liquidity and cost of capital. The report
provided analyses of Storage USA based on projections supplied by Storage USA's
management, including in the context of various hypothetical sale and merger
scenarios.
On June 29, 2001, the special committee met to further consider and evaluate
the independence of each member of the special committee. The members of the
special committee acknowledged and discussed that Mr. Jorgensen owned
securities in Security Capital. The members of the special committee also
acknowledged and discussed that Mr. Peter Willmott is a director of Security
Capital and a director of FedEx Corporation, of which Mr. Graf is the chief
financial officer. The other special committee members unanimously agreed that
these members of the special committee were independent of third party
influence despite such security holdings or relationship because Mr.
Jorgensen's security holdings in Storage USA exceeded his security holdings in
Security Capital and both Mr. Jorgensen and Mr. Graf had demonstrated their
independence in their past actions as directors of Storage USA. The special
committee recommended that Mr. Jorgensen decrease his ownership interest in
Security Capital and, shortly thereafter, Mr. Jorgensen disposed of
approximately 53% of his holdings in Security Capital.
At a meeting of the special committee on July 18, 2001, the special
committee, with the assistance of its legal advisor, reviewed hypothetical
strategic alternatives and the effect of the Strategic Alliance Agreement upon
such alternatives. The special committee also determined that representatives
of Storage USA, Messrs. Graf and McCann, would report the special committee's
findings to date to Security Capital and inform Messrs. Sanders and Blankenship
that while the special committee did not have the authority to request a
proposal, were it to have such authority it would not request a proposal from
Security Capital unless the proposal would provide for a purchase price payable
all in cash, the opportunity for Storage USA to solicit superior proposals
which, if accepted, Security Capital would support under certain circumstances,
the opportunity for the limited partners of Storage USA's operating
partnership, in certain circumstances, to remain limited partners of the
operating partnership and the right to include in any superior proposal equity
securities as part of the consideration to shareholders. The special committee
determined that any proposal from Security Capital would need to contain a
purchase price payable all in cash in order to maximize value for shareholders.
The special committee also considered that (1) the value of cash would be more
certain than the value of equity securities, particularly with respect to
Security Capital's securities because Security Capital had recently begun to
implement its strategy of focusing its capital in six operating divisions (as
described under "--Security Capital's Purposes and Reasons for the
Transactions; Benefits and Detriments of the Transactions to Security Capital"
and "The Parties--Security
27
Capital Group Incorporated"); (2) the equity securities of an acquiror such as
Security Capital that is not a real estate investment trust are not fungible
for the shares of common stock of Storage USA, principally due to the fact that
real estate investment trusts are required to distribute to their shareholders
virtually all of their taxable income; and (3) Security Capital had expressed a
preference for an all cash transaction. The special committee also determined
that, in order to increase the likelihood of receiving a superior proposal, any
proposal from Security Capital should allow for superior proposals where the
consideration offered could include equity securities and not only cash, in
part because the special committee believed that one or more REITs in the
self-storage industry would be likely to offer its securities as consideration.
Further, any proposal from Security Capital would need to provide that limited
partners of the operating partnership could, in certain circumstances, remain
as limited partners of the operating partnership and thus provide them with
continued tax deferral (as there were tax deferral agreements associated with a
substantial majority of the limited partnership units) leaving them in the same
relative tax position after the Transactions as they were prior to the
Transactions.
Also at this meeting, Lehman Brothers provided additional valuation analyses
of Storage USA, using the methodologies previously described, based on various
projected scenarios supplied by Storage USA's management and projected per
share FFO growth rates. In particular, Lehman Brothers analyzed management's
projections using three different levels of per share FFO growth rates: 10%
growth, 4.4% growth and negative 2.4% growth. The results of Lehman Brothers'
analyses are shown in the following table:
Type of Analysis 10.0% Growth 4.4% Growth (2.4%) Growth
---------------- --------------- --------------- ---------------
Equity Research Analyst Price Targets $33.00 - $36.50 $33.00 - $36.50 $33.00 - $36.50
Comparable Company Analysis.......... $32.50 - $42.00 $30.00 - $38.50 $28.50 - $36.50
Capitalization Rate Analysis......... $35.00 - $41.00 $35.00 - $40.00 $34.50 - $39.50
Discounted Cash Flow Analysis
5-Year Unlevered.................. $36.00 - $41.00 $29.50 - $34.00 $22.00 - $26.00
5-Year Dividend Discount Model.... $38.00 - $41.00 $32.00 - $34.50 $25.50 - $27.00
10-Year Dividend Discount Model... $41.00 - $47.00 $30.00 - $34.00 $19.50 - $21.50
Comparable Transactions Analysis..... $38.50 - $41.50 $38.50 - $41.50 $38.50 - $41.50
Lehman Brothers also reported on the results of its comparison between its
preliminary analysis of NAV, of approximately $39.00 per share, to the NAV
calculations provided by Storage USA's management, of approximately $41.50 per
share (in each case, NAV calculations were made before giving effect to change
of control and transaction costs). Lehman Brothers noted that the major
differences between its NAV analysis and management's NAV analysis related to
the following four categories of assets: mature properties; development
properties; mortgage loans receivable; and other assets, consisting primarily
of corporate property, plant and equipment. Within each of these categories of
assets, the primary differences between Lehman Brothers' and management's
valuations resulted from the fact that Lehman Brothers used somewhat more
conservative projections, assumptions and valuations in their calculations than
management. Lehman Brothers indicated that its NAV analysis was still
preliminary in nature and that it would continue to discuss its assumptions and
methodologies with Storage USA's management to gain a more complete
understanding of management's calculation of NAV.
At a meeting of the special committee on July 26, 2001, Lehman Brothers
indicated that the range of values for Storage USA's common stock derived from
its ten-year dividend discount analysis (which was one of the seven valuation
analyses that Lehman Brothers included in its presentation at the July 18th
meeting) assuming a 7.5% annual per share FFO growth rate (which the special
committee determined may be more appropriate than 10.0% and 4.4% growth based
on historical growth rates) would be approximately $36.50 to $41.50 per share.
Based on this analysis and the analysis that Lehman Brothers had performed in
connection with the July 18th meeting, Lehman Brothers indicated that it
believed that, from a financial point of review, $38.00 to $41.00 per share was
a reasonable range of value for Storage USA's common stock, as of that date,
based on management's projections and its preliminary analysis to date. The
special committee reaffirmed that Messrs. Graf and McCann should informally
meet with representatives of Security Capital, subject to the limitations of
the Strategic Alliance Agreement and the authority granted to the special
committee by the board of directors.
28
On July 30, 2001, the board of directors of Storage USA unanimously voted to
increase the authority of the special committee to permit it to engage in
discussions with Security Capital to determine whether it would be advisable to
(1) receive a proposal from Security Capital and (2) enter into one or more
letter agreements with Security Capital which would modify or waive the
standstill limitations in the Strategic Alliance Agreement for the limited
purpose of permitting Security Capital (a) to engage in discussions with the
special committee and its representatives concerning Security Capital's
intentions relating to its investment in Storage USA and (b) if Security
Capital desired, to make a proposal to engage in an extraordinary transaction
with Storage USA. The authority of the special committee, however, did not
permit it to unilaterally enter into such letter agreements.
On July 31, 2001, Messrs. Graf and McCann, on behalf of the special
committee, met informally with Messrs. Sanders and Blankenship and described
the general criteria which the special committee had earlier determined that
any potential proposal to acquire Storage USA would need to satisfy in order
for the special committee to consider any such proposal. Messrs. Sanders and
Blankenship expressed that they would be interested in continuing their
discussions with Storage USA and in pursuing further diligence and analysis of
Storage USA.
At a meeting of the special committee shortly after such meeting with
Security Capital on July 31, 2001, Messrs. Graf and McCann summarized their
discussions with Messrs. Sanders and Blankenship. The special committee
determined that until it engaged in further discussions with Security Capital
regarding its intentions, it was premature to recommend that the board of
directors increase the special committee's authority to allow it to enter into
an agreement with Security Capital to modify the standstill limitations in the
Strategic Alliance Agreement.
On August 7, 2001, Mr. Graf met with Mr. Blankenship and discussed Security
Capital's views with respect to the general criteria for any potential proposal
which Messrs. Graf and McCann had presented at their last meeting on July 31,
2001: namely, an all cash purchase price, an opportunity to solicit superior
proposals, an opportunity for limited partners of the operating partnership to
remain as limited partners and the right to include equity securities as part
of the consideration for a superior proposal. Mr. Blankenship and Storage USA
did not discuss these criteria in detail at this time as Security Capital
indicated that it would need additional time to consider the matter.
Mr. Blankenship generally indicated that Security Capital might be interested
in making such a proposal; however, he expressed that Security Capital would
not be interested in selling its shares of Storage USA in connection with a
superior transaction.
The special committee met on August 14, 2001 and September 4, 2001 and
discussed, among other things, the discussions that had taken place on August
7, 2001 among Messrs. Graf and McCann and Mr. Blankenship.
On August 23, 2001, Messrs. Graf and McCann, on behalf of the special
committee, spoke with Mr. Blankenship. Mr. Blankenship raised several questions
concerning the status and performance of certain of Storage USA's investments
and properties. Messrs. Graf, McCann and Blankenship engaged in a general
discussion of the terms of any possible transaction, including the general
criteria which the special committee had determined any such transaction would
need to satisfy in order for the special committee to consider a proposal, as
well as the duration of any solicitation period, what would constitute a
"superior transaction" and the conditions under which Security Capital would be
willing to sell its Storage USA shares to another party in connection with a
superior transaction. Mr. Blankenship stated that if after completing its
diligence review of Storage USA Security Capital were to decide that it desired
to make a proposal, Security Capital would be agreeable to the payment of any
potential purchase price in cash and to selling its shares in Storage USA
pursuant to the terms of a superior transaction provided that the consideration
to Security Capital was payable entirely in cash.
On September 7, 2001, upon the recommendation of the special committee and
the approval of the board of directors of Storage USA, Storage USA, the
operating partnership and Storage USA Trust entered into a letter agreement
with Security Capital modifying the standstill limitations in the Strategic
Alliance Agreement for a
29
period of 30 days to permit Security Capital to engage in further discussions
with the special committee concerning Security Capital's intentions with
respect to its investments in Storage USA and as to whether it would be
advisable for Storage USA to receive a proposal from Security Capital with
respect to an extraordinary transaction which Security Capital would otherwise
be prohibited from making by the terms of the Strategic Alliance Agreement. The
letter agreement did not otherwise modify the restrictions in the Strategic
Alliance Agreement with respect to Security Capital making a proposal to effect
an extraordinary transaction involving Storage USA. Also on September 7, 2001,
Security Capital filed an amendment to its Schedule 13D filed under the
Exchange Act with respect to its investment in Storage USA in connection with
the letter agreement.
On September 10, 2001, Storage USA issued a press release announcing the
letter agreement modifying the standstill limitations in the Strategic Alliance
Agreement and the formation of the special committee. Mr. McCann met with Mr.
Blankenship, who expressed Security Capital's continued interest and desire to
conduct due diligence with respect to Storage USA. Mr. Graf participated in the
meeting by telephone. On that same day, the special committee met and discussed
the recent meeting between Mr. McCann and Mr. Blankenship in which Mr.
Blankenship indicated that Security Capital would agree to sell its shares to a
superior bidder, subject to negotiating the specific terms and conditions of
Security Capital's obligation and provided that Security Capital received all
cash for its shares.
On September 12, 2001, September 14, 2001 and September 26, 2001, Messrs.
Graf and/or McCann spoke with Messrs. Sanders and Blankenship regarding the
results of Security Capital's initial due diligence investigation of Storage
USA.
On October 2, 2001, Messrs. Graf and McCann and Messrs. Blankenship and
Szurek met and discussed Security Capital's views on the value of Storage USA
based upon preliminary findings from the due diligence investigation it had
conducted. Messrs. Blankenship and Szurek indicated that Security Capital would
need to engage in additional due diligence before Security Capital could
determine its valuation of Storage USA and submit a proposal.
At a meeting of the special committee on October 3, 2001, Messrs. McCann and
Graf reported on their discussions with Messrs. Blankenship and Szurek on
October 2, 2001. The special committee authorized an extension of the
modification of the standstill limitations.
Storage USA, the operating partnership, Storage USA Trust and Security
Capital entered into a letter agreement on October 7, 2001 extending the
modification of the standstill limitations through October 31, 2001. On October
8, 2001, Storage USA issued a press release, and Security Capital filed an
amendment to its Schedule 13D, announcing the extension of the modification of
the standstill.
On October 22, 2001, Messrs. McCann and Graf spoke with Mr. Blankenship.
During the discussion, Mr. Blankenship stated that Security Capital might be
interested, under certain circumstances, in acquiring the remaining outstanding
common stock of Storage USA at a price of approximately $41.00 per share and
otherwise on terms comparable to those specified by Messrs. Graf and McCann at
prior meetings.
At a meeting of the special committee on October 23, 2001, Messrs. Graf and
McCann reported on their discussions with Mr. Blankenship, in which Mr.
Blankenship indicated that Security Capital would be willing to permit Storage
USA to actively solicit alternative acquisition proposals for a period of
thirty days after entering into an agreement with Security Capital, and to
support a superior transaction for a period of four months from the date
Storage USA terminated the agreement with Security Capital to enter into a
superior transaction .
The special committee decided to inform Security Capital that it would not
accept a proposal at $41.00 per share if such a proposal were made because it
believed that $41.00 per share was not a significant enough premium to Storage
USA's net asset value based upon Lehman Brothers' preliminary calculation of
Storage USA's net asset value at approximately $40.00 per share, which was
based on the financial information available
30
to Lehman Brothers at that time. The special committee, however, determined
that it would consider a cash proposal at a higher price provided that the
other terms previously specified by the special committee for submitting a
proposal were also satisfied, including the right to actively solicit superior
transactions for a period of time. Towards that end, the special committee did
not present a specific counter-proposal to Security Capital. Rather the special
committee authorized Messrs. Graf and McCann to engage in discussions with
representatives of Security Capital with respect to the special committee's
conclusions and to determine whether Security Capital would be willing to
increase its proposal.
During the meeting, Lehman Brothers provided an updated NAV analysis,
indicating that, based on the most recent financial information that it had
received and its discussions with management, Lehman Brothers estimated that
Storage USA's current NAV was approximately $40.00 per share before giving
effect to change of control and transaction costs and approximately $38.00
after giving effect to change of control and transaction costs. Lehman Brothers
then compared its revised analysis to management's revised analysis. In
particular, Lehman Brothers reviewed the factors, assumptions and methodologies
underlying Storage USA management's revised NAV of approximately $43.50 per
share before giving effect to change of control and transaction costs. Lehman
Brothers indicated that it had discussed with management the variations between
their respective calculations of NAV. Finally, Lehman Brothers also analyzed
the performance of Storage USA's stock price relative to other self-storage
companies and the market generally.
On October 29, 2001 and October 30, 2001, Messrs. Graf and McCann spoke
again with Mr. Blankenship and conveyed the conclusions of the special
committee from its October 23, 2001 meeting. Mr. Blankenship indicated that
Security Capital might be willing to make a proposal to acquire the remaining
outstanding shares of common stock of Storage USA at $42.00 per share in cash,
to provide limited partners in the operating partnership the right to receive
$42.00 per unit in cash or to remain, in certain circumstances, as limited
partners, and to permit Storage USA for a period of 45 days to solicit a
superior proposal which, if accepted, Security Capital would support provided
it was paid all cash for its shares, subject to negotiating the specific terms
and conditions of Security Capital's obligations. Messrs. Graf, McCann and Mr.
Blankenship also discussed the size of the termination fee and the special
committee's desire to structure a potential transaction as a merger and not as
a statutory liquidation.
At a meeting of the special committee on October 30, 2001, Messrs. Graf and
McCann reported on their discussions with Security Capital. The special
committee, with the assistance of its financial and legal advisors, discussed
the terms of the potential proposal outlined by Security Capital. The special
committee engaged in a discussion with its financial advisor concerning its
analyses of Storage USA's net asset valuation. The special committee determined
that in light of its financial advisor's valuation of Storage USA and other
analyses, the potential proposal would be favorable to Storage USA and its
shareholders and that it was advisable to receive such proposal from Security
Capital. The special committee authorized the waiver of the standstill
limitations in the Strategic Alliance Agreement to permit Security Capital to
make a proposal to acquire Storage USA.
On October 31, 2001, Storage USA, the operating partnership, Storage USA
Trust and Security Capital entered into a letter agreement waiving certain
provisions of the Strategic Alliance Agreement until November 21, 2001 in order
to permit Security Capital, if it so desired, to make a proposal to effect an
extraordinary transaction with Storage USA and to engage in further discussions
with the special committee and its agents and representatives concerning the
terms and conditions of any such proposal. On that same day, Storage USA issued
a press release and Security Capital filed an amendment to its Schedule 13D
disclosing the letter agreement.
Also on that day, the board of directors unanimously determined that it was
appropriate to expand the authority of the special committee to, among other
things, receive a proposal from Security Capital with respect to an
extraordinary transaction involving Storage USA, engage in all actions which
the special committee deems appropriate to consider such proposal, negotiate,
draft and authorize the execution of all agreements in connection with such
proposal and take all other actions as contemplated under such agreements.
31
On November 5, 2001, Security Capital submitted a proposal to Storage USA to
effect an extraordinary transaction with Storage USA in which, among other
things, the public shareholders of Storage USA would receive $42.00 in cash for
each share of Storage USA common stock owned, and the limited partners of
Storage USA's operating partnership (other than Security Capital) would receive
$42.00 in cash for each unit of limited partnership owned, unless they elected
(and were qualified) to continue as limited partners of the operating
partnership. The proposal also provided Storage USA with the ability, during
the 45-day period following execution of a definitive agreement relating to the
transaction, to (1) solicit competing proposals, subject only to the obligation
to notify Security Capital, and (2) terminate the agreement with Security
Capital in favor of a "superior transaction" subject generally to the payment
of a $22.5 million termination fee; and provided that Security Capital would
support the superior transaction, if entered during the 45-day period, for a
period of four months after termination. On November 6, 2001, Security Capital
issued a press release and filed an amendment to its Schedule 13D announcing
its proposal to Storage USA.
The special committee met on November 6, 2001 to discuss Security Capital's
proposal. The special committee, with the assistance of its financial and legal
advisors, discussed the terms of Security Capital's proposal. The special
committee directed its legal advisors to negotiate certain aspects of the
proposal, including, among others, the scope and nature of the obligation of
Security Capital to agree to sell its shares in the event of a superior
proposal and Storage USA's right to pay dividends to its shareholders through
the closing of the transaction.
On November 6, 2001, the special committee communicated proposed revisions
to the proposal to Mr. Blankenship. Representatives of the special committee
and Mr. Blankenship engaged in discussions and negotiations concerning the
terms of the proposal over the course of the next week.
In response to the proposal, on November 7, 2001, Storage USA issued a press
release announcing that it had received a proposal from Security Capital to
acquire Storage USA. Also on November 7, 2001, Security Capital filed an
amendment to its Schedule 13D with respect to Storage USA's press release and a
presentation made publicly available to investors by Security Capital
containing information about the proposed transaction with Storage USA.
On or about November 6 and 8, 2001, several purported class actions were
filed naming Storage USA, each of our directors, Storage USA Trust, the
operating partnership and Security Capital as defendants and alleging, among
other things, that the individual defendants breached their fiduciary duties to
shareholders in connection with the proposed transaction (see "--Litigation in
Connection with the Transactions").
On November 13, 2001 and November 17, 2001, respectively, Security Capital
and its advisors delivered an initial draft of the purchase agreement and an
amended and restated agreement of limited partnership of the operating
partnership to the special committee and its advisors.
On November 14, 2001, Messrs. Graf and McCann spoke with Messrs. Sanders and
Blankenship regarding the terms of the purchase agreement, including in
particular the termination fee to be paid to Security Capital in the event that
Storage USA entered into an alternative agreement and the distributions to be
paid to shareholders and to operating partnership unitholders through the
closing of the Transactions.
From November 13, 2001 until December 5, 2001, Storage USA and Security
Capital and their respective representatives engaged in extensive discussions
and negotiations concerning the terms and conditions of the purchase agreement
and the amended and restated agreement of limited partnership of the operating
partnership. In particular, on November 18, 2001, November 21, 2001, November
26, 2001, November 28, 2001 and November 29, 2001, Messrs. Graf and/or McCann
and Messrs. Sanders and/or Blankenship discussed the terms and timing of the
Transactions. Some of the matters discussed and resolved during this period
were that:
. the take-along period should be extended for regulatory delays that result
in a superior transaction not closing within the agreed four month period;
32
. the Transactions would not be conditioned on Storage USA receiving consent
from any of its lenders or joint venture partners to complete the
Transactions;
. Security Capital's standstill under the Strategic Alliance Agreement would
not terminate upon expiration of the take-along period if Storage USA
entered into an agreement for a superior transaction but failed to close
the superior transaction during such period;
. the Transactions would not be conditioned upon Security Capital obtaining
financing but would include as a condition that no condition to lending
would be invoked and be continuing under the commitment letter obtained by
Security Capital in connection with the Transactions based upon or related
to a material adverse disruption or material change in financial, banking
or capital markets conditions;
. a "material adverse effect" would be limited to the definition described
under "Terms of the Transactions--Material Adverse Effect";
. the consideration offered by another bidder could include cash, publicly
traded securities or a combination thereof, as opposed to only cash, but
Security Capital would only agree to receive cash in exchange for its
shares; and
. an agreement providing for a superior transaction did not have to contain
exactly the same conditions to closing as the Transactions.
On November 21, 2001, Storage USA, the operating partnership, Storage USA
Trust and Security Capital entered into a letter agreement extending the waiver
of the standstill limitations through December 10, 2001. Storage USA issued a
press release on that date announcing that it was continuing discussions with
Security Capital with respect to an extraordinary transaction and announcing
the extension of the waiver of the standstill limitations. Also, Security
Capital amended its Schedule 13D announcing the extension of the waiver of the
standstill limitations.
On December 3, 2001, the special committee unanimously approved, and
recommended that the board of directors of Storage USA approve and adopt, the
purchase agreement and the amended and restated agreement of limited
partnership of the operating partnership (with such changes as approved by the
appropriate officers of Storage USA) and the Transactions contemplated by such
agreements. On December 3, 2001, prior to such approval, Lehman Brothers
delivered a written opinion to the special committee that, as of that date, the
cash consideration to be paid to Storage USA shareholders, other than Security
Capital and its affiliates, is fair from a financial point of view to such
shareholders.
At a meeting of the board of directors of Storage USA held on December 3,
2001 immediately following the special committee meeting, the board members
unaffiliated with Security Capital, upon the recommendation of the special
committee, unanimously adopted the purchase agreement and the amended and
restated agreement of limited partnership of the operating partnership, with
such changes as approved by the appropriate officers of Storage USA, and
approved the Transactions contemplated by such agreements.
From December 3, 2001 to December 5, 2001, Messrs. Graf and McCann and other
representatives of Storage USA continued to negotiate and finalize terms of the
purchase agreement and the amended and restated agreement of limited
partnership of the operating partnership with Mr. Blankenship.
On December 4, 2001, by unanimous written consent, the board of directors of
Security Capital approved and adopted the purchase agreement and authorized
Security Capital's management to enter into and deliver the purchase agreement.
On December 5, 2001, the board of directors of Storage USA unanimously
authorized the special committee to take all actions with respect to those
matters contemplated by the purchase agreement, including those provisions of
the purchase agreement concerning soliciting a superior proposal, but
specifically not including any authorization to enter into an agreement
providing for an acquisition proposal or a superior transaction, except upon
the recommendation of the special committee to and approval by the board of
directors at a meeting duly called and held.
33
Storage USA and Security Capital executed the purchase agreement on December
5, 2001. Shortly thereafter on December 5, 2001, Storage USA issued a press
release announcing the signing of the purchase agreement. On December 6, 2001,
Security Capital amended its Schedule 13D announcing the signing of the
purchase agreement.
Also on December 5, 2001, after the issuance of the press release, Lehman
Brothers began contacting parties which it considered might be interested in
acquiring Storage USA.
On December 14, 2001, Security Capital announced that it had entered into an
Agreement and Plan of Merger with General Electric Capital Corporation, or GE
Capital, and an indirect wholly-owned subsidiary of GE Capital, providing for
the acquisition of Security Capital by GE Capital. Following this announcement
of that transaction, the special committee, together with its financial and
legal advisors, examined the possible implications of the announced acquisition
of Security Capital on the process leading up to the signing of the purchase
agreement and on the Transactions, and in particular on the ability of the
special committee to effectively solicit alternative third party offers to
purchase Storage USA. In connection with that examination, on December 20, 2001
the special committee obtained from Storage USA's board of directors expanded
authority to approve alternative acquisition agreements without having to first
obtain the approval of the board of directors. Separately, as a result of a
request from a possible alternative bidder, the special committee sought and
obtained Security Capital's consent to reimburse a potential alternative bidder
for Storage USA for $2 million for expenses in connection with the potential
bidder's consideration of whether to make an acquisition proposal for Storage
USA, if it in fact made a bona fide written acquisition proposal which, in the
reasonable judgment of Storage USA, satisfied the definition of "superior
transaction" in the purchase agreement.
On January 16, 2002, the special committee unanimously approved a form of
memorandum of understanding, as part of the settlement of the shareholder class
action litigation commenced in connection with the Transactions, as described
under "--Litigation in Connection with the Transactions," under which Security
Capital agreed to increase the consideration to be paid in the Transactions to
Storage USA shareholders from $42.00 to $42.50 per share. The special committee
also unanimously approved a form of amendment to the purchase agreement
reflecting the increased consideration and reaffirmed its determination that
the purchase agreement, as proposed to be amended, and the Transactions are
advisable and in the best interests of Storage USA and our shareholders, other
than Security Capital and its affiliates. In addition, the special committee
reaffirmed its recommendation that our board of directors approve and adopt the
purchase agreement, as proposed to be amended, and the Transactions.
On January 17, 2002, the board of directors of Storage USA unanimously
approved the memorandum of understanding, dated January 17, 2002, and the
settlement of the shareholder class action litigation as contemplated by the
memorandum of understanding. The members of the board of directors unaffiliated
with Security Capital unanimously approved the letter agreement, dated as of
January 17, 2002, entered into by the parties to the purchase agreement,
amending the purchase agreement to reflect the increased transaction
consideration set forth in the memorandum of understanding, and reaffirmed
their determination that the purchase agreement, as amended, and the
Transactions are advisable and in the best interests of Storage USA and our
shareholders unaffiliated with Security Capital. In addition, the members of
the board of directors unaffiliated with Security Capital reaffirmed their
recommendation that our shareholders approve and adopt the purchase agreement,
as amended, and the Transactions. Also on January 17, 2002, the board of
directors of Security Capital approved the settlement, the related increase
from $42.00 to $42.50 per share in the transaction consideration and the letter
agreement.
On January 18, 2002, Security Capital amended its Schedule 13D announcing
the increase in the transaction consideration and the signing of the letter
agreement.
On January 19, 2002, the permitted solicitation period expired; despite the
extensive solicitation process conducted by the special committee with the
assistance of its financial advisor, Storage USA did not receive any
alternative acquisition proposals by that date.
34
During the solicitation period, Lehman Brothers contacted nine parties which
it believed might be interested in acquiring Storage USA. The parties included
self-storage owners and operators, real estate opportunity funds, financial
sponsors and diversified financial institutions. Lehman Brothers began
contacting these parties immediately after the Transactions were publicly
announced. Five of these parties initially expressed an interest to learn more
about the process; however, only one party, a leading participant in the
self-storage industry (which we refer to in this section as the "potential
bidder"), sent representatives to Storage USA's data room for the purpose of
conducting additional due diligence.
Lehman Brothers first met with representatives of the potential bidder on
December 6, 2001. In attendance at the meeting from the potential bidder were
its president, chief executive officer, chief financial officer and general
counsel. At the meeting, Lehman Brothers discussed the process for making a
proposal, the procedures for visiting the data room and the provisions of the
purchase agreement that related to the circumstances under which Storage USA
could enter into an agreement providing for a superior transaction. Over the
next several days, representatives of Lehman Brothers and the potential bidder
engaged in conversations regarding logistics, the terms of the purchase
agreement and the process for submitting a proposal. On December 10, 2001,
Storage USA and the potential bidder entered into a confidentiality agreement.
From December 11, 2001 to December 13, 2001, the potential bidder reviewed
the materials in the data room that Storage USA had prepared. Over the next
several weeks, the potential bidder analyzed the information that Storage USA
had provided. During this period, representatives of the potential bidder,
Storage USA and Lehman Brothers engaged in numerous discussions concerning
various diligence items.
In early January 2002, the potential bidder indicated to Lehman Brothers
that it might be interested in submitting a proposal to Storage USA if Storage
USA were willing to reimburse it for up to $2 million of expenses. On January
10, 2002, Storage USA entered into a letter agreement and agreed to pay the
potential bidder $2 million for expenses if it made a proposal for a superior
transaction and Storage USA did not accept such proposal. Storage USA did not
reimburse any expenses of the potential bidder because the potential bidder did
not submit a proposal to acquire Storage USA.
Fairness of the Transactions; Recommendation of the Special Committee of the
Board of Directors
The special committee has determined that the purchase agreement and the
Transactions are advisable and in the best interests of, and substantively and
procedurally fair to, our shareholders, other than Security Capital and its
affiliates. The special committee unanimously recommended that our board of
directors approve and adopt the purchase agreement and the Transactions. The
special committee believes that the Transactions more effectively maximize
value for the shareholders unaffiliated with Security Capital than any of the
other alternatives available to Storage USA, including continuing to operate as
an independent company, and that they are substantively and procedurally fair
to our shareholders based upon the factors described below.
In reaching its conclusions, the special committee consulted with its
independent legal and financial advisors and our management. In addition, the
special committee considered the short-term and long-term interests of Storage
USA and our shareholders and of the operating partnership and its partners.
Because, at the time of the special committee's determination on December 3,
2001, the shareholder class action litigation commenced in connection with the
Transactions had not been settled, the following factors considered by the
special committee at that time did not reflect the increase from $42.00 to
$42.50 per share in the consideration payable to our shareholders as a result
of the settlement described under "--Litigation in Connection with the
Transactions." As noted below, the special committee subsequently reaffirmed
its initial fairness determination in light of these events.
The special committee carefully considered the following potentially
positive factors:
. Lehman Brothers' Fairness Opinion and Financial Analyses. The opinion of
its financial advisor, Lehman Brothers, described in detail under
"--Opinion of the Financial Advisor to the Special Committee," concludes
that, as of December 3, 2001, the $42.00 per common share cash
consideration to be offered in the Transactions to the holders of Storage
USA's common stock, other than Security Capital
35
and its affiliates, is fair to such holders from a financial point of
view. Lehman Brothers' opinion was based upon the procedures and subject
to the assumptions, qualifications and limitations described in its
opinion letter, the text of which is attached to this proxy statement as
Appendix C.
. Value of Consideration under the Transactions as Compared to Historical
Market Price of Storage USA's Common Stock. The $42.00 per share cash
consideration represents a premium of approximately 19% over the average
closing price of our common stock over the 52-week period ending on
December 5, 2001, the day of the announcement of the Transactions, and a
premium of approximately 14.8% over the average closing price of our
common stock over the one-month period prior to September 7, 2001 (the
last business day prior to the announcement that Storage USA and Security
Capital had modified their standstill arrangement), and a premium of
approximately 14.1% over the closing price of our common stock on
September 7, 2001.
. Value of Consideration under the Transactions as Compared to Net Asset
Value Analyses. The $42.00 per share cash consideration represents a
premium over the net asset value calculations of: (1) six financial
institutions publishing research coverage of Storage USA as of November
30, 2001; (2) Lehman Brothers; and (3) after giving effect to change of
control and transaction costs, Storage USA's management (Storage USA
management's calculation of net asset value would exceed $42.00 per share
if change of control and transaction costs were not included in the
calculation).
. Terms and Timing of the Transactions. The special committee determined
that the terms were favorable because (1) there do not appear to be any
particularly difficult or onerous requirements or conditions to the
Transactions, (2) the consideration to be paid (other than to Security
Capital and its affiliates) in the Transactions is all cash, (3) Security
Capital appears to have the financial and other resources to complete the
Transactions expeditiously, and (4) Storage USA and the operating
partnership may continue to pay regular quarterly dividends and
distributions, respectively, up to $0.71 per share, consistent with past
practice in the ordinary course of business with respect to each complete
quarter prior to the closing of the Transactions, and (as part of the
consideration to be paid in the Transactions to Storage USA shareholders,
optionholders and operating partnership unitholders) a pro rated portion
of such normal quarterly dividends or distributions for the quarterly
period in which the closing of the Transactions occurs. The special
committee determined that the timing was favorable with respect to
engaging in the Transactions as Security Capital might be willing to pay a
higher premium for Storage USA's common stock in light of its strategy
announced in the third quarter of 1999 of focusing its capital in up to
six operating divisions and selling its interests in its other operating
divisions (as more fully described under "--Security Capital's Purposes
and Reasons for the Transactions; Benefits and Detriments of the
Transactions to Security Capital" and "The Parties--Security Capital Group
Incorporated").
. Solicitation of Alternative Proposals. The purchase agreement permitted
us during the 45-day period following the date of the purchase agreement
(which "permitted period" expired on January 19, 2002), to solicit
inquiries and proposals regarding other potential business combinations
and negotiate with and provide information to third parties with respect
to such other business combinations (see "--Background of the
Transactions"). After January 19, 2002, we are subject to restrictions
with respect to our ability to solicit alternative acquisition proposals,
change our recommendation with respect to the Transactions and enter into
alternative acquisition agreements. However, we may furnish information
to, and engage in negotiations and discussions with, any person making an
unsolicited proposal, which did not result from a breach of the
restrictions against the solicitation of proposals, regarding a business
combination with us which the special committee determines in good faith
(after consultation with outside counsel and its financial advisor) is a
proposal to effect a superior transaction (as more fully described under
"Terms of the Transactions--Solicitation of Proposals by Storage USA and
Alternative Acquisition Transactions"). Subject to satisfaction of the
conditions described under "Terms of the Transactions--Solicitation of
Proposals by Storage USA and Alternative Acquisition Transactions," we may
enter into an alternative agreement providing for a superior transaction
with a third party and terminate the purchase agreement, provided that
concurrently with such termination we pay to Security Capital a $22.5
million termination fee (as described under "Terms of the
Transaction--Termination of the Purchase Agreement and
36
Termination Fee"). If we had entered into a superior transaction agreement
during the "permitted period," Security Capital had agreed to vote our
shares of common stock owned by it and its affiliates, under certain
circumstances, in favor of that agreement. Security Capital has not agreed
to vote in favor of a superior transaction agreement entered into on or
after January 20, 2002 (see "Terms of the Transactions--Solicitation of
Proposals by Storage USA and Alternative Acquisition Transactions").
Despite an extensive solicitation process conducted by the special
committee through its financial advisor, Storage USA did not receive any
alternative acquisition proposals during the permitted period.
. Financing of the Transactions. As more fully described under "--Sources
and Uses of Proceeds; Financing for the Transactions" the purchase
agreement does not provide for a financing condition, except as described
under "Terms of the Transactions--Conditions to Closing" with respect to
the commitment Security Capital obtained from Wells Fargo Bank, and
Security Capital has informed us that it expects to have sufficient funds
at the closing to finance the Transactions.
. Recent Market Price of Storage USA's Common Stock May Reflect Anticipation
of Transactions. The special committee, after discussions with its
financial advisor, believes that the increase in the market price of our
common stock since September 7, 2001 (the last business day prior to the
announcement that Storage USA and Security Capital had modified their
standstill arrangement) might reflect, in whole or in part, anticipation
of a possible acquisition by Security Capital, rather than a higher
intrinsic value for the common stock, and therefore the common stock price
might otherwise have remained the same as or decreased below its level of
$36.82 per share prior to such announcement.
. The special committee considered the following strategic alternatives to
the Transactions:
. remaining independent and continuing to operate under the current
business plan;
. restructuring the business and operations of Storage USA to reduce
operating costs and increase profitability and efficiency; and
. attempting to sell Storage USA to a third party other than Security
Capital.
The special committee evaluated and rejected these alternatives in favor of
the Transactions based upon its determination that the Transactions more
effectively maximize shareholder value because of (1) the risks and
uncertainties associated with continuing to operate Storage USA or
restructuring the business, as compared to the cash purchase price offered by
Security Capital and (2) the difficulties and costs associated with
restructuring the business and operations of Storage USA.
Furthermore, the modifications to the standstill provisions in the Strategic
Alliance Agreement between Storage USA and Security Capital (described under
"--Background of the Transactions") permitted Storage USA to respond to
unsolicited inquiries with respect to an extraordinary transaction during the
period which Storage USA negotiated with Security Capital. However, if Storage
USA solicited indications of interest in connection with an extraordinary
transaction with a party other than Security Capital prior to entering into the
purchase agreement, Security Capital's standstill obligations would have
terminated (see "--Past Transactions and Relationships"). Subsequent to
entering into the purchase agreement, under its terms Storage USA was permitted
to solicit proposals for superior transactions from third parties through
January 19, 2002 (see "Terms of the Transactions-Solicitation of Proposals by
Storage USA and Alternative Acquisition Transactions"). The special committee
believed that its ability to solicit alternative proposals for the acquisition
of Storage USA served as a principal means to verify the substantive fairness
of the proposed Transactions with Security Capital.
The special committee also considered the following potentially adverse
factors:
. Recent Increase in Stock Price. Our stock price had increased from
$36.82, on September 7, 2001 (the last business day prior to the
announcement that Storage USA and Security Capital had modified their
standstill arrangement), to $42.82 on December 3, 2001, the day of the
special committee's approval of the Transactions, and had traded as high
as $43.50 during that period.
37
. Inability to Participate in Future Growth. Completion of the Transactions
will preclude our shareholders and the operating partnership's limited
partners, other than to the extent the limited partners are qualified and
elect to receive all or a portion of their consideration in units of the
surviving partnership, from having the opportunity to participate in the
future growth in the value of our assets and in our funds from operations.
. Tax Consequences. The Transactions will be taxable to our shareholders,
as more fully described under "Material Federal Income Tax Consequences."
. Significant Costs Involved. Significant legal, financial advisor and
accounting costs are involved in connection with completing the
Transactions, and substantial management time and effort is required to
effectuate the Transactions.
. Potentially Divergent Interests. A number of members of our management
have interests in the Transactions that may be different from, or in
addition to, the interests of our shareholders, as described under
"--Interests of Storage USA's Executive Officers and Directors in the
Transactions," including potential severance payments, the acceleration of
the vesting of all outstanding options to acquire our common stock, the
vesting and removal of restrictions on restricted shares of our common
stock and the indemnification and insurance benefits provided to our
directors and officers if the Transactions are completed.
. Limitations on Ability to Pursue Alternative Transactions. As described
under "Terms of the Transactions--Solicitation of Proposals by Storage USA
and Alternative Acquisition Transactions," after January 19, 2002 the
purchase agreement limits our ability to pursue alternative transactions
with parties other than Security Capital. In addition, if at any time we
terminate the purchase agreement to enter into an agreement providing for
a superior transaction, as described under "Terms of the
Transactions--Termination of the Purchase Agreement and Termination Fee,"
we are required to pay a termination fee of $22.5 million to Security
Capital concurrently with such termination.
The special committee believes that the purchase agreement and the
Transactions are procedurally fair to Storage USA's unaffiliated shareholders
in light of the following factors, and notwithstanding (1) the absence of
appraisal rights, (2) the absence of the opportunity for individual
shareholders unaffiliated with Security Capital to review our corporate files
or to obtain counsel or appraisal services at our expense (as described below,
however, the special committee acting on behalf of the shareholders
unaffiliated with Security Capital and at the expense of Storage USA did obtain
access to corporate files and independent legal and financial advice, including
a fairness opinion), (3) the fact that a member of the special committee owns
shares of common stock in Security Capital, and (4) the absence of a
requirement that a majority of our unaffiliated shareholders approve the
Transactions:
. the special committee consisted entirely of non-management, independent
directors whose sole objective was to represent the interests of
securityholders unaffiliated with Security Capital;
. the special committee consisted of a majority of the board of directors
who were not employees of Storage USA;
. the special committee, at our expense, retained its own financial advisor,
Lehman Brothers, and its own legal advisors, Goodwin Procter and Bass,
Berry & Sims, each of which is unaffiliated with Security Capital, to,
among other things, negotiate the terms of the Transactions and, in the
case of Lehman Brothers, prepare a fairness report relating to the
Transactions on behalf of the shareholders unaffiliated with Security
Capital;
. the special committee, with the assistance of its advisors, undertook an
extensive evaluation of Storage USA and engaged in negotiations with
Security Capital over a period of many months concerning the terms and
conditions of the Transactions; and
. the special committee discussed and evaluated the independence of the
member of the committee owning shares of common stock of Security Capital
with the assistance of its legal advisors, and concluded that
38
such member was independent of Security Capital based upon his past
actions as a director of Storage USA and the fact that his ownership
interest in Storage USA exceeded his ownership interest in Security
Capital (which he reduced by approximately 53% at the request of the
special committee).
The special committee subsequently approved the letter agreement amending
the purchase agreement to increase the consideration payable in the
Transactions from $42.00 to $42.50 per share and reaffirmed, after considering
the increase in the consideration and the potential release of certain
shareholder claims in connection with the settlement of the shareholder
litigation, its determination that the purchase agreement, as amended, and the
Transactions are advisable and in the best interests of, and substantively and
procedurally fair to, our shareholders, other than Security Capital and its
affiliates. The special committee also reaffirmed its recommendation that the
board of directors approve and adopt the purchase agreement, as amended, and
the Transactions (see "--Background of the Transactions"). In reaffirming its
conclusion, the special committee noted that the increased consideration of
$42.50 per share represents a greater premium to historical trading prices of
Storage USA's common stock and to the net asset value analyses described above
than $42.00 per share.
In view of the large number of factors considered by the special committee
in connection with the evaluation of the Transactions and the complexity of
these matters, the special committee did not consider it practicable to, nor
did it attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its decision, nor did it evaluate
whether these factors were of equal importance. In addition, each member of the
special committee may have given different weight to the various factors. The
special committee held extensive discussions with Lehman Brothers with respect
to the quantitative and qualitative analysis of the financial terms of the
Transactions. The special committee also conducted several discussions of the
factors described above, including asking questions of the Storage USA
management and the special committee's financial and legal advisors, in
reaching its conclusion that the Transactions are advisable and in the best
interests of, and substantively and procedurally fair to, Storage USA and its
shareholders unaffiliated with Security Capital.
In the opinion of the special committee, the above factors represent the
principal potential positive and adverse factors related to the Transactions.
Certain other factors the special committee did not consider relevant and/or
important to its analysis of the advisability of the Transactions include:
. Storage USA's net book value, which was approximately $24.00 per share as
of September 30, 2001, because the special committee believes net book
value does not have a significant connection with the net asset value of
Storage USA, as net book value represents depreciated cost of assets,
unlike net asset value which represents the likely sale value of assets
before transaction costs and taxes;
. Storage USA's liquidation value, which is approximately net asset value of
Storage USA's assets less transaction costs, discounts associated with
selling these assets as part of a liquidation and early repayment of debt,
because the special committee believes that Storage USA's liquidation
value is at a discount to its net asset value due to such costs, the time
required to effect a liquidation and the uncertainty associated with
liquidating assets;
. Storage USA's going concern value, which the special committee does not
view as being relevant for a real estate company due to the
unpredictability of future earnings;
. purchase prices paid by Security Capital for purchases of our common
stock, which occurred too far in the past (the last purchase occurred more
than two years ago) and involved too few shares to be used as a reliable
basis for valuation (although the consideration to be paid in the
Transactions to Storage USA shareholders exceeds the average price of
$33.52 per share paid by Security Capital-US Realty for its shares in
Storage USA); and
. other firm offers relating to an extraordinary transaction involving
Storage USA during the two years preceding the special committee's
determination, as there have been none.
In the event that the Transactions are not completed for any reason, we and
our subsidiaries will continue to pursue our respective business objectives of:
39
. maximizing funds from operations and cash available for distributions to
our shareholders and to the limited partners of the operating partnership,
and
. increasing the value of our and our subsidiaries' respective assets by
continuing growth through the active management, expansion and
redevelopment of existing self-storage facilities and selective
development and acquisition of new self-storage facilities.
In addition, we may seek to pursue other acquisition or business combination
opportunities or to issue additional debt or equity. Security Capital's
ownership of approximately 41.1% of our outstanding common stock and the
Strategic Alliance Agreement restrict our ability to engage in certain
alternative business combinations without the support of Security Capital or
triggering the early termination of Security Capital's standstill period in the
Strategic Alliance Agreement.
Storage USA and Security Capital agreed to structure the Transactions as
described under "Terms of the Transactions--Structure of the Transactions" in
the form of a sale of Storage USA's assets to Security Capital to allow
Security Capital to receive a tax basis for federal income tax purposes in all
real estate and other assets owned directly or indirectly by Storage USA
equivalent to Security Capital's purchase price (other than assets owned
through the two corporate subsidiaries purchased separately from the operating
partnership and Mr. Jernigan).
Recommendation of the Board of Directors
The members of our board of directors unaffiliated with Security Capital
unanimously adopted the purchase agreement and approved the Transactions based
on their belief that the purchase agreement and the Transactions are advisable
and in the best interests of our shareholders, and unanimously recommend
approval, of the purchase agreement and the Transactions by our shareholders at
the special meeting. The board of directors believes that the Transactions are
substantively and procedurally fair to our shareholders, including our
shareholders unaffiliated with Security Capital, based upon the following
factors. Because, at the time of the board determination on December 3, 2001,
the shareholder class action litigation commenced in connection with the
Transactions had not been settled, the following factors considered by the
board of directors at that time did not reflect the increase from $42.00 to
$42.50 per share in the consideration payable to our shareholders as a result
of the settlement, and the potential release of the shareholder claims in
connection with the settlement, described under "--Litigation in Connection
with the Transactions" (however, as noted below, the board subsequently
reaffirmed its initial fairness determination in light of these events):
. the recommendation, conclusion and analyses of the special committee,
which the board of directors expressly adopted;
. the potential positive and adverse factors referred to above that the
special committee took into account in its determination; and
. the fact that the consideration to be paid to our shareholders and to the
limited partners of the operating partnership and the other terms of the
Transactions were the result of extensive negotiations between the special
committee and representatives of Security Capital (see "--Background of
the Transactions").
The members of the board of directors unaffiliated with Security Capital
unanimously approved the letter agreement amending the purchase agreement to
increase the consideration payable in the Transactions from $42.00 to $42.50
per share and reaffirmed, after considering the increase in the consideration
and the potential release of certain shareholder claims in connection with the
settlement of the shareholder litigation, its determination that the purchase
agreement, as amended, and the Transactions are advisable and in the best
interests of, and substantively and procedurally fair to, our shareholders. The
board of directors also reaffirmed its recommendation that our shareholders
approve the purchase agreement, as amended, and the Transactions (see
"--Background of the Transactions").
In view of the variety of factors considered by the board of directors, the
board of directors did not find it practicable to, and it did not, quantify or
otherwise attempt to assign specific or relative weights to the factors
40
considered in making its determination. In considering the factors described
above, individual members of the board of directors may have given different
weight to different factors.
The board of directors believes that the purchase agreement and the
Transactions are procedurally fair to Storage USA's unaffiliated shareholders
in light of the following factors, and notwithstanding (1) the absence of
appraisal rights, (2) the absence of the opportunity for individual
shareholders unaffiliated with Security Capital to review our corporate files
or to obtain counsel or appraisal services at the expense of Storage USA (as
described below, however, the special committee acting on behalf of the
shareholders unaffiliated with Security Capital and at the expense of Storage
USA did obtain access to corporate files and independent legal and financial
advice, including a fairness opinion), (3) the fact a member of the special
committee owns shares of common stock in Security Capital and (4) the absence
of a requirement that a majority of our unaffiliated shareholders approve the
Transactions:
. the special committee consisted entirely of non-management, independent
directors whose sole objective was to represent the interests of Storage
USA's shareholders unaffiliated with Security Capital;
. the special committee consisted of a majority of the board of directors
who were not employees of Storage USA;
. the special committee, at our expense, retained its own financial advisor,
Lehman Brothers, and its own legal advisors, Goodwin Procter and Bass,
Berry & Sims, each of which is unaffiliated with Security Capital, to,
among other things, negotiate the terms of the Transactions and, in the
case of Lehman Brothers, prepare a fairness opinion relating to the
Transactions, on behalf of the shareholders unaffiliated with Security
Capital;
. the special committee, with the assistance of its advisors, undertook an
extensive evaluation of Storage USA and engaged in negotiations with
Security Capital and its representatives over the terms and conditions of
the Transactions over a period of many months;
. consistent with the terms of the purchase agreement, the special
committee, with the assistance of its advisors, actively solicited
alternative acquisition proposals for a period from December 5, 2001 until
and including January 19, 2002, and no alternative acquisition proposal
was received during that period;
. the special committee, with the assistance of its legal advisor, discussed
and evaluated the independence of the member of the committee who owns
shares of common stock of Security Capital, and concluded that such member
was independent of Security Capital based upon his past actions as a
director of Storage USA and the fact that his ownership interest in
Storage USA exceeded his ownership interest in Security Capital (which he
reduced by approximately 53% at the request of the special committee);
. the transaction consideration and the other terms and conditions of the
purchase agreement and transaction documents resulted from extensive
negotiations between the special committee and representatives of Security
Capital and their respective advisors; and
. the purchase agreement and the Transactions were approved by a majority of
Storage USA's directors not affiliated with Security Capital.
The operating partnership, through the members of the board of directors of
its general partner who are unaffiliated with Security Capital, and Storage USA
Trust, through its trustees who are unaffiliated with Security Capital and are
also members of Storage USA's board of directors, have each concluded that the
purchase agreement, as amended, and the Transactions are procedurally and
substantively fair to our shareholders unaffiliated with Security Capital based
upon the recommendation, conclusion and analyses of the special committee
(which they have each expressly adopted), and the potential positive and
potential adverse factors that the special committee took into account in
making its determination.
41
Security Capital's Purposes and Reasons for the Transactions; Benefits and
Detriments of the Transactions to Security Capital
Security Capital currently has direct or indirect ownership positions in 10
real estate businesses (reduced from 18 in the third quarter of 1999),
including Storage USA. Security Capital's strategy is to reposition or sell its
investment in some of these businesses and focus its capital in up to six real
estate companies which ultimately would be operated as private divisions. Since
the beginning of 2001, Security Capital has completed a number of transactions
related to this strategy. For example, in January 2001, Security Capital
acquired the remaining shares of Security Capital-US Realty it did not already
own; in February 2001, it disposed of its interest in Archstone Communities
Trust; in August 2001, it sold all of its interest in CWS Communities Trust;
and in November and December 2001, it sold all of its interests in Homestead
Village Incorporated and CarrAmerica Realty Corporation. The proposed
Transactions with Storage USA and the timing of the Transactions reflect
Security Capital's strategy to operate retained businesses as private
divisions. Security Capital has been the largest shareholder of Storage USA
since 1996 and has three representatives on Storage USA's board of directors.
Security Capital took into account the following factors in deciding to
purchase Storage USA's assets:
. Security Capital believes that user demand for self-storage properties
will continue to grow steadily each year consistent with historical
trends, and that at the present time the over-supply which arose during
the late 1990's has been absorbed, which should result in sustainable
internal growth and rental rates from storage properties as a sector;
. Security Capital believes that storage properties typically require lower
ongoing repair, maintenance and capital expenditures than most other real
estate classes, and therefore have the potential to provide a relatively
more attractive economic return;
. Security Capital believes that the storage business is management
intensive because of the short-lease terms, geographic distribution of
small properties, and difficulties in obtaining zoning and other approvals
for developing new properties in attractive locations. Security Capital
believes it can create value in these circumstances because of its ability
to leverage technology and create economies of scale as well as its
expertise in operating development organizations that have historically
performed well in other real estate sectors;
. Storage USA is the second largest owner of self-storage properties in the
country, and has significant name recognition in some markets, which
Security Capital believes it can expand into a recognized brand;
. Security Capital believes that it can reduce Storage USA's operating costs
once it is a private division by eliminating redundant functions, taking
advantage of investments Security Capital has already made in enterprise
reporting systems and internet transaction systems, and sharing corporate
practices and disciplines, all of which Security Capital believes will
improve profitability;
. if Security Capital is successful in improving the profitability of
Storage USA's storage business, it believes this improvement will result
in additional opportunities to generate service income from new
franchisees or joint venture investors; and
. Security Capital believes that the attainment of its operating goals for
Storage USA will result in an appropriate, risk-adjusted, net operating
income and cash flow return on Security Capital's investment in a
privatized Storage USA.
Security Capital did not consider alternatives to taking Storage USA
private, as the Transactions fit within Security Capital's stated strategy with
respect to its business. However, the terms of the purchase agreement
contemplate that, if prior to January 20, 2002, Storage USA had terminated the
agreement in connection with entering into an alternative agreement with a
third party providing for a superior transaction, Security Capital
42
would have supported such superior transaction and sold its Storage USA shares
to such third party, subject to the terms and conditions of the purchase
agreement (including Security Capital's right to receive a termination fee).
On December 14, 2001, Security Capital entered into a merger agreement with
GE Capital providing for the acquisition of Security Capital by GE Capital
through the merger of a wholly-owned subsidiary of GE Capital with and into
Security Capital. Security Capital has informed Storage USA that it did not
take into account its proposed acquisition by GE Capital, which was announced
subsequent to the date of the purchase agreement, in connection with entering
into the Transactions, and that it does not anticipate that the pending
acquisition of Security Capital by GE Capital will change Security Capital's
current intention to continue to own and operate Storage USA as a wholly owned
subsidiary (subject to the continuing interests of the limited partners) if the
Storage USA acquisition is consummated.
In order to achieve an appropriate return on Security Capital's investment
in a privatized Storage USA, Security Capital believes that it is essential to
achieve a tax basis in the Storage USA assets that is equivalent to the
investment Security Capital will have in those assets. Security Capital also
believes that it is appropriate that a buyer have a tax basis in purchased
assets that is similar to the purchase price. In order to achieve a tax basis
that would be equivalent to its investment basis, Security Capital and Storage
USA structured the Transactions as a purchase by Security Capital of all of
Storage USA's assets (including all the partnership interests held by Storage
USA in its operating partnership) followed by a merger of Storage USA with and
into the operating partnership. This transaction structure enables Security
Capital to receive a step-up in the federal income tax basis of all real estate
and other assets owned directly or indirectly by Storage USA, other than assets
owned through certain controlled corporate subsidiaries, the stock of which
Security Capital has agreed to acquire separately.
Currently, through its equity ownership in Storage USA, Security Capital has
an approximately 41.1% interest in Storage USA's assets, representing
approximately $278.6 million of Storage USA's net book value as of December 31,
2001 and approximately $26.5 million of Storage USA's net earnings for the year
ended December 31, 2001. If the Transactions are completed, Security Capital
will own substantially all of Storage USA's assets immediately prior to the
consummation of the Transactions, net book value (totaling approximately $674.5
million as of December 31, 2001) and net earnings (totaling approximately $64.2
million for the year ended December 31, 2001), and will become the general
partner and majority limited partner of the operating partnership and the sole
general partner of SUSA Holdings, L.P.
Security Capital currently has over $1.4 billion of cash invested in money
market funds with an average yield of approximately 2.0% over the past 30 days.
Security Capital believes that following the closing of the Transactions, it
will receive an annualized pre-tax earnings yield on the new amounts invested
in Storage USA of 5.3% and an annualized earnings before depreciation,
amortization, and deferred taxes, or EBDADT, yield of 8.8% in 2002, which will
significantly improve Security Capital's results of operations relative to
retaining its investments in cash and cash equivalents.
Position of Security Capital Regarding Fairness of the Transactions
Because Security Capital currently beneficially owns approximately 41.1% of
the outstanding shares of Storage USA, Security Capital is deemed an
"affiliate" of Storage USA that is engaging in a "going-private" transaction
under Rule 13e-3 of the Exchange Act. Accordingly, and in such capacity,
Security Capital is required to express its belief as to the fairness of the
Transactions to Storage USA's shareholders who are not affiliated with Security
Capital.
Security Capital believes that the Transactions and the consideration to be
paid to Storage USA shareholders are substantively and procedurally fair to
Storage USA's shareholders who are not affiliated with Security Capital, on the
basis of the observations described below, and notwithstanding the fact that
(1) approval of a
43
majority of unaffiliated shareholders is not required, (2) appraisal rights are
not available, (3) a member of the special committee owns shares of common
stock in Security Capital and (4) individual shareholders of Storage USA
unaffiliated with Security Capital have not been given access to the corporate
files of Storage USA or afforded the opportunity to obtain counsel or appraisal
services at the expense of Storage USA (as noted below, however, the special
committee acting on behalf of the shareholders unaffiliated with Security
Capital and at the expense of Storage USA did obtain access to corporate files
and independent legal and financial advice, including a fairness opinion).
Because, at the time of Security Capital's determination on December 4, 2001,
the shareholder class action litigation commenced in connection with the
Transactions had not been settled and the "permitted period" during which
Storage USA was permitted to solicit alternative acquisition proposals had not
expired, the following factors considered by Security Capital at that time did
not reflect the increase from $42.00 to $42.50 per share in the consideration
payable to Storage USA shareholders as a result of the settlement, and the
potential release of certain shareholder claims in connection with the
settlement, described under "--Litigation in Connection with the Transactions"
or the fact that, during the permitted period, no alternative acquisition
proposals were submitted to the special committee. As noted below, Security
Capital subsequently reaffirmed its initial fairness determination in light of
these events.
. As described under "--Past Transactions and Relationships," under the
terms of the Strategic Alliance Agreement, Security Capital was not
permitted to make a proposal to engage in an extraordinary transaction
with Storage USA unless and until Storage USA had agreed to allow Security
Capital to do so. Furthermore, after Storage USA acting through the
special committee had permitted Security Capital to make such a proposal
(see "--Background of the Transactions"), Security Capital continued to be
prohibited from pursuing the proposal or taking any steps to effect the
proposed transaction, other than continuing discussions with the special
committee, unless and until the special committee had determined to
recommend such transaction to the board of directors of Storage USA. The
power of the special committee in this regard, and the contractual
prohibitions under the Strategic Alliance Agreement on Security Capital's
ability to exercise the rights and influence that would otherwise have
been available to a shareholder with an equity interest as large as
Security Capital's interest in Storage USA, gave the special committee a
considerable degree of flexibility in dealing with Security Capital.
. The purchase agreement permitted Storage USA, during the 45-day period
following the date of the purchase agreement (which "permitted period"
expired on January 19, 2002), to solicit alternative acquisition
proposals, and provides that Storage USA may enter into an alternative
superior transaction, subject to the payment of an agreed upon termination
fee. Security Capital had agreed in the purchase agreement to vote its
Storage USA shares in favor of a superior transaction entered into during
the "permitted period," as more fully described under "Terms of the
Transactions--Solicitation of Proposals by Storage USA and Alternative
Acquisition Transactions."
. The $42.00 per share cash consideration originally agreed to be paid to
Storage USA shareholders represented an approximately 14.3% premium over
the average closing price of Storage USA's stock for the 60 trading days
immediately preceding September 7, 2001, the last business day prior to
the announcement that Storage USA and Security Capital had modified their
standstill arrangements, an approximately 13.5% premium over the 45
trading days immediately preceding September 7, 2001, and an approximately
14.1% premium over the closing price on September 7, 2001.
. The $42.00 per share cash consideration originally agreed to be paid to
Storage USA shareholders exceeded the net asset value estimates of six
research analysts who had published estimates of Storage USA's net asset
value prior to November 5, 2001, the day on which Security Capital
submitted its proposal to the special committee.
. Security Capital did not view the relatively small number of shares of
Security Capital held by a member of the special committee as material to
its fairness determination.
. A special committee of non-management directors unaffiliated with Security
Capital was established before a proposal was made. The special committee
retained its own financial and legal advisors and,
44
over a period of many months, conducted a vigorous process of evaluation
and negotiation with Security Capital and its representatives and advisors.
. Lehman Brothers, the financial advisor to the special committee, delivered
its written opinion dated December 3, 2001 to the special committee to the
effect that, as of the date of such opinion and based on the assumptions
and qualifications contained in the opinion, the $42.00 per share cash
consideration to be offered in the Transactions to the Storage USA
shareholders, other than Security Capital and its affiliates, is fair from
a financial point of view.
. The special committee unanimously recommended that the purchase agreement
and the Transactions be approved by the Storage USA board of directors and
that the board recommend approval of the purchase agreement and the
Transactions by Storage USA's shareholders. The members of the Storage USA
board of directors unaffiliated with Security Capital determined that the
purchase agreement and the Transactions are advisable and in the best
interests of Storage USA's shareholders and recommend that the Storage USA
shareholders approve the purchase agreement and the Transactions.
. Security Capital was aware that a member of the special committee owned
shares in Security Capital and that the special committee had recommended
that he reduce his share ownership of Security Capital, but did not view
such ownership as material in connection with its determination of the
fairness of the Transactions.
Security Capital did not find it practicable to, and therefore did not,
quantify or otherwise assign relative weights to the individual factors it
considered in reaching its conclusion as to fairness.
Security Capital's belief should not be construed as a recommendation to any
shareholder as to how they should vote on the Transactions. Security Capital
has not considered any factors, other than as stated above, regarding the
fairness of the Transactions to Storage USA shareholders who are not affiliated
with Security Capital, as it believes the factors it considered provided a
reasonable basis to form its belief. Specifically, Security Capital has not
independently considered with respect to such fairness:
. Storage USA's net book value of approximately $24.00 per share as of
September 30, 2001, which Security Capital believes is not relevant in
measuring the economic value of Storage USA, as net book value represents
depreciated cost of assets (unlike net asset value, which represents the
likely sale value of assets before transaction costs and taxes), although
the consideration offered to Storage USA shareholders exceeds Storage
USA's net book value;
. Storage USA's liquidation value, which was approximately Storage USA's net
asset value less transaction costs, debt prepayment penalties and
discounts associated with selling Storage USA's assets in a shortened time
frame due to a liquidation, which Security Capital does not view as
relevant because it believes that Storage USA's liquidation value is at a
discount to its net asset value due to such costs;
. purchase prices paid by Security Capital for purchases of Storage USA
common stock, which occurred too far in the past (the last purchase
occurred more than two years ago) to be a relevant measure of current
value (although the consideration offered to Storage USA shareholders
exceeds the average price paid by Security Capital-US Realty of $33.52 per
share for its shares in Storage USA);
. Storage USA's going concern value, which Security Capital does not view as
being as relevant for a real estate company than net asset value due to
the unpredictability of future earnings and the lack of consideration for
post-acquisition synergies; and
. the fact that no other firm offers relating to an extraordinary
transaction involving Storage USA had been received during the two years
preceding Security Capital's determination.
Security Capital initially reached its conclusion about the fairness of the
Transactions to Storage USA's shareholders based on the consideration of $42.00
per share it had originally agreed to pay in the purchase agreement based on
the factors discussed above. Security Capital subsequently reaffirmed its
conclusion in light
45
of the increase in the purchase price to $42.50 per share that, following the
signing of the purchase agreement, it agreed to pay to Storage USA shareholders
as part of the settlement of the shareholder class action litigation commenced
in connection with the Transaction, and the potential release of certain
shareholder claims in connection with the settlement, as described under
"--Litigation in Connection with the Transactions." In arriving at its
conclusion as of the date of this proxy statement, Security Capital also
considered that, during the permitted period (from December 5, 2001 to and
including January 19, 2002), the special committee, through its financial
advisor, conducted an active solicitation of alternative acquisition proposals
for Storage USA and did not receive any alternative acquisition proposals.
Opinion of the Financial Advisor to the Special Committee
Lehman Brothers has acted as financial advisor to the special committee in
connection with the Transactions.
As part of Lehman Brothers' role as financial advisor to the special
committee, on December 3, 2001 Lehman Brothers delivered its written opinion
dated December 3, 2001 to the special committee that, as of such date, and
based upon and subject to certain matters stated in the opinion, the
consideration of $42.00 per common share payable in cash to be offered in the
Transactions to the holders of Storage USA's common stock, other than Security
Capital and its affiliates, is fair, from a financial point of view, to such
holders.
The full text of Lehman Brothers' written opinion, dated December 3, 2001,
is attached to this proxy statement as Appendix C. You should read this opinion
for a discussion of the assumptions made, procedures followed, factors
considered and limitations upon the review undertaken by Lehman Brothers in
rendering its opinion. The following is a summary of Lehman Brothers' opinion
and the methodology that Lehman Brothers used to render its fairness opinion.
No limitations were imposed by the special committee on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion, except that prior to the execution of the purchase
agreement the special committee did not authorize Lehman Brothers to solicit,
and Lehman Brothers did not solicit, proposals from third parties with respect
to the purchase of any or all of Storage USA's business. The form and amount of
the consideration to be offered to the holders of Storage USA's common stock
were determined through negotiations between Security Capital and the special
committee. In arriving at its opinion, Lehman Brothers did not ascribe a single
specific range of value to Storage USA, but rather made its determination as to
the fairness, from a financial point of view, of the consideration to be
offered to the holders of common stock, on the basis of the multiple financial
and comparative analyses described below. Lehman Brothers' opinion was provided
for the use and benefit of the special committee and was rendered to the
special committee in connection with its consideration of the Transactions.
Lehman Brothers' opinion to the special committee was one of many factors taken
into consideration by the special committee in making its decision to recommend
the Transactions to the full board of directors. Consequently, Lehman Brothers'
analyses described below should not be viewed as determinative of the special
committee's recommendation to the board of directors. Lehman Brothers' opinion
is not intended to be and does not constitute a recommendation to any
shareholder of Storage USA as to whether to accept the cash consideration
offered in the Transactions. Lehman Brothers was not requested to opine as to,
and its opinion does not address, Storage USA's underlying business decision to
proceed with or consummate the Transactions.
Overview of Lehman Brothers' Financial Analyses. In arriving at its
opinion, Lehman Brothers reviewed and analyzed:
. the purchase agreement and the terms of the Transactions;
. agreements between Storage USA and Security Capital including, among
others, the Stock Purchase Agreement dated March 1, 1996, as amended; the
Strategic Alliance Agreement, as amended; and the Registration Rights
Agreement dated March 19, 1996;
46
. publicly available information concerning Storage USA that Lehman Brothers
believed to be relevant to its analysis, including Storage USA's Annual
Report on Form 10-K, as amended, for the year ended December 31, 2000 and
Storage USA's Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001, June 30, 2001 and September 30, 2001;
. financial and operating information with respect to the business,
operations and prospects of Storage USA furnished to Lehman Brothers by
Storage USA, including Storage USA's net asset value analysis and
financial projections of Storage USA prepared by Storage USA's management;
. a trading history of Storage USA's common stock from its initial public
offering in March 1994 to November 30, 2001 and a comparison of that
trading history with those of other companies that Lehman Brothers deemed
relevant;
. a comparison of the financial terms of the Transactions with the financial
terms of other transactions that Lehman Brothers deemed relevant; and
. published reports of third party research analysts with respect to the net
asset value, stock price targets and future financial performance of
Storage USA.
In addition, Lehman Brothers had discussions with the management of Storage
USA concerning Storage USA's business, operations, assets, financial condition
and prospects and undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the statements of management of Storage USA
that they were not aware of any facts or circumstances that would make such
information inaccurate or misleading in any material respect. With respect to
the financial projections of Storage USA, upon the advice of Storage USA,
Lehman Brothers assumed that such financial projections were reasonably
prepared on a basis reflecting the best estimates and judgments of the
management of Storage USA then available as to its future financial performance
and that Storage USA would perform substantially in accordance with such
projections. However, for purposes of its analysis, Lehman Brothers also
considered somewhat more conservative assumptions which resulted in an
adjustment to the net asset value of Storage USA as used in Lehman Brothers'
net asset value analysis described below. Lehman Brothers discussed these
adjustments with the management of Storage USA and management agreed with the
reasonableness of the use of such adjustments in arriving at Lehman Brothers'
opinion. The special committee did not ask Lehman Brothers to address, and
Lehman Brothers did not in any manner consider, any of the tax consequences of
the Transactions to Storage USA's shareholders. In arriving at its opinion,
Lehman Brothers conducted only a limited physical inspection of some of the
properties and facilities of Storage USA and did not make or obtain any
evaluations or appraisals of the assets or liabilities of Storage USA. Lehman
Brothers' opinion necessarily was based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of the
opinion.
In connection with the preparation and delivery of its opinion, Lehman
Brothers performed a variety of financial and comparative analyses. All
material analyses performed by Lehman Brothers are described below. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis and
the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of its analyses, without
considering all of the analyses, could create a misleading or incomplete view
of the process underlying its opinion.
47
In its analyses, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Storage USA. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than estimated. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
The following summaries of Lehman Brothers' financial analyses present some
information in tabular format. In order to fully understand the financial
analyses used by Lehman Brothers, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete description
of the financial analyses. Accordingly, the analyses listed in the tables and
described below must be considered as a whole. Considering any portion of such
analyses and the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
Lehman Brothers' opinion. References to Storage USA in this section include the
operating partnership and the other entities that are consolidated with Storage
USA for financial reporting purposes.
In connection with the preparation and delivery of its opinion, Lehman
Brothers performed eight material analyses, each of which resulted in an
implied per share value range for Storage USA's common stock as shown in the
following table:
Type of Implied Valuation Range
Analysis Per Share
-------- -----------------------
Equity Research Analyst Price Targets.. $36.00 -- $37.50
Equity Research Analyst NAV Estimates.. $37.00 -- $41.00
52-Week Trading Range.................. $27.50 -- $39.50
Comparable Company Analysis............ $39.00 -- $42.00
Net Asset Value Analysis............... $37.00 -- $39.50
Unlevered Discounted Cash Flow Analysis $40.00 -- $43.00
Dividend Discount Model................ $40.50 -- $43.50
Comparable Transactions Analysis....... $36.00 -- $44.00
Lehman Brothers did not attempt to combine these eight analyses into one
composite valuation range, nor did Lehman Brothers assign any quantitative
weight to any of the analyses or the other factors considered. To the contrary,
Lehman Brothers arrived at its opinion by considering these analyses and such
other factors as a whole and making qualitative judgments as to the
significance and relevance of the various analyses and factors in light of one
another. Lehman Brothers believes that its analyses must be considered as a
whole and that considering any single analysis, without considering all
analyses, could create a misleading or incomplete view of the process
underlying its opinion.
Each of Lehman Brothers' eight material analyses is described in more detail
below.
Equity Research Analyst Price Targets. Lehman Brothers reviewed and
considered research reports published by six financial institutions providing
research coverage of Storage USA. Three of these institutions' reports include
12-month price targets for Storage USA's common stock. A price target is a
research analyst's prediction of a stock's market price at a specified time in
the future. Each of these three institutions revised their published price
targets for Storage USA's stock shortly after September 10, 2001, the date on
which Storage USA announced its discussions with Security Capital. Lehman
Brothers noted that following Storage USA's announcement, the published price
targets increased by an average of 11.4%. In general, Lehman Brothers' analyses
place less emphasis on post-announcement share price data and estimates because
Lehman Brothers believes post-announcement figures are relatively more likely
to be influenced by short-term speculative expectations and less likely to be
reflective of underlying values. Accordingly, Lehman Brothers surveyed the
research analysts' pre-announcement predicted price targets, which gave rise to
a valuation range of $36.00 to $37.50 per share.
48
The following table shows the twelve month price targets for Storage USA's
common stock as reported by six of the financial institutions providing
research coverage for Storage USA:
12-Month Price Target
----------------------------------
Company 12/3/01 Prior to 9/10/01 Difference
------- ------- ---------------- ----------
Green Street Advisors $41.69 $37.68 10.6%
Goldman Sachs........ N/A N/A N/A
Merrill Lynch........ N/A N/A N/A
Morgan Stanley....... N/A N/A N/A
Robertson Stephens... $40.00 $36.50 9.6%
Salomon Smith Barney. $41.00 $36.00 13.9%
------ ------ ----
Average.............. $40.90 $36.73 11.4%
Equity Research Analyst Net Asset Value Estimates. Lehman Brothers noted
that six of the financial institutions publishing research coverage of Storage
USA have estimated Storage USA's net asset value, commonly known as NAV, as
shown in the following table. Lehman Brothers also noted that following Storage
USA's announcement of its discussions with Security Capital, these published
NAV estimates increased by an average of 4.4%. Unlike the price target analysis
above, Lehman Brothers' survey of research analysts' NAV estimates was based on
each analyst's most recent (post-announcement) estimate because, in comparison
to stock prices targets, Lehman Brothers considers NAV estimates to be less
susceptible to speculative pressures. Lehman Brothers' survey of these third
party equity research analysts' NAV estimates resulted in a valuation range for
Storage USA of approximately $37.00 to $41.00 per share.
NAV Estimates
-----------------------------------------
Company 12/3/01 Prior to 9/10/01 Difference
------- ------------- ---------------- ----------
Green Street Advisors $40.00 $37.50 6.7%
Goldman Sachs........ $40.00 N/A N/A
Merrill Lynch........ $39.28 $37.94 3.5%
Morgan Stanley....... $37.00-$39.00 $37.00 2.7%
Robertson Stephens... $39.92 $39.80 0.3%
Salomon Smith Barney. $40.94 $37.66 8.7%
------------- ------ ----
Average.............. $39.69 $37.98 4.4%
Historical Share Price and Premium Analysis. Lehman Brothers considered
historical data concerning the trading prices for Storage USA's common stock
during the period from its initial public offering in 1994 to November 30,
2001. On September 7, 2001, which was the last trading day before Storage USA's
announcement of its discussions concerning the Transactions with Security
Capital, the closing price of Storage USA's common stock was $36.82 per share.
Lehman Brothers calculated the premium of the $42.00 cash consideration as
compared to Storage USA's common stock closing price on various dates during
the 52-week period prior to the Transactions' announcement, as shown in the
following table. Lehman Brothers' historical share price analysis resulted in a
valuation range for Storage USA of $27.50 to $39.50 per share, and Lehman
Brothers' historical merger premium analysis resulted in a premium range for
Storage USA of 6.4% to 54.1%.
Consideration
Date Relative to September 7, 2001 Share Price Premium
- ---------------------------------- ----------- -------------
Closing Price on September 7, 2001 $36.82 14.1%
1-Week Prior...................... $37.70 11.4%
20-Days Prior..................... $37.05 13.4%
1-Month Prior..................... $36.57 14.8%
Prior 52 Week High................ $39.48 6.4%
Prior 52 Week Low................. $27.25 54.1%
49
Comparable Company Analysis. Lehman Brothers reviewed publicly available
financial and operating data and projected financial performance (based upon
third party research analysts' estimates provided by I/B/E/S, a division of
Thomson Financial) of three publicly traded companies Lehman Brothers
considered comparable to Storage USA, namely, Public Storage, Inc., Shurgard
Storage Centers, Inc. and Sovran Self Storage, Inc. Lehman Brothers selected
these candidates as comparable to Storage USA because each of them, like
Storage USA, is a REIT engaged in the business of owning and operating
self-storage facilities. Like many REITs, each of these comparable companies
reports its quarterly funds from operations, commonly called FFO. The
relationship between a REIT's FFO and its stock price is measured by dividing
the REIT's stock price by its FFO per share, and the result is known as the
stock's FFO multiple. As shown in the table below, Lehman Brothers calculated
the comparable companies' FFO multiples, and used them to determine an implied
valuation range for Storage USA's common stock, as follows: Lehman Brothers
calculated the multiple at which each comparable company's common stock was
trading on November 30, 2001 over the same company's projected FFO for the
years 2001 and 2002, as estimated by third party research analysts; and Lehman
Brothers then found the arithmetic average of the comparable companies'
projected 2001 and 2002 FFO multiples and applied each average to Storage USA's
FFO projections, as prepared by management, for the years 2001 and 2002,
respectively. This method produced an implied valuation range of $39.04 to
$39.82 per share of Storage USA common stock. Lehman Brothers arrived at an
additional implied valuation through a similar procedure based on the
comparable companies' average stock-price-to-NAV premium (or discount) as
follows: Lehman Brothers calculated the percentage premium (or discount) at
which each comparable company's stock was trading on November 30, 2001 over
that company's per share NAV, as estimated by Green Street Advisors; and Lehman
Brothers then found the average of these premiums and applied it to Storage
USA's NAV as estimated by Green Street Advisors. This method produced an
implied valuation of $41.88 per share of Storage USA common stock. Considering
these implied valuations together, Lehman Brothers' comparable company analysis
resulted in a valuation range for Storage USA of $39.00 to $42.00 per share.
FFO Multiple Stock Price Premium
Stock (Based on (Discount) To
Price I/B/E/S/ Estimates) Green Street NAV
------ ------------------ -------------------
Company 2001 2002
------- ------ ------
Storage USA(1).............. $42.00 11.4x 10.4x 5.0%
Public Storage.............. $34.00 11.7x 10.7x 13.3%
Shurgard.................... $30.45 10.4x 9.7x (4.1%)
Sovran...................... $29.09 9.7x 9.2x 4.8%
------ ------ ------ ------
Self Storage Average(2)..... 10.6x 9.9x 4.7%
Storage USA Estimates(3).... $ 3.69 $ 4.04 $40.00
Storage USA Implied Value(4) $39.04 $39.82 $41.88
- --------
(1) Storage USA price quoted at offer price of $42.00.
(2) Self-storage average includes Public Storage, Shurgard and Sovran.
(3) FFO projections provided by Storage USA management. Storage USA's NAV
estimate provided by Green Street Advisors as of November 1, 2001.
(4) The components of the Storage USA Implied Value (i.e., the FFO Multiples
and Storage USA Estimates) have been rounded for purposes of presentation.
50
Because of the inherent differences between the businesses, operations and
prospects of Storage USA and the businesses, operations and prospects of the
selected comparable companies, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis. Accordingly, Lehman Brothers also made qualitative
judgments concerning differences between the financial and operating
characteristics of Storage USA and the selected comparable companies that would
affect the public trading values of Storage USA and such comparable companies.
Net Asset Value Analysis. Lehman Brothers performed an analysis of Storage
USA's net asset value, i.e., the estimated market value of Storage USA's real
estate and certain other assets less its liabilities. Lehman Brothers
calculated Storage USA's NAV based on information and valuations supplied by
management, adjusted by Lehman Brothers to reflect somewhat more conservative
assumptions. Lehman Brothers discussed these adjustments with the management of
Storage USA and management agreed with the reasonableness of the use of such
adjustments for the purpose of this analysis. Applying capitalization rates
ranging from 9.5% to 10.0%, Lehman Brothers' net asset value analysis resulted
in a valuation range for Storage USA of $37.00 to $39.50 per share. The NAV
range used to derive the valuation range of $37.00 to $39.50 was $36.95 to
$39.55, based on a range of capitalization rates from 9.5% to 10.0%. Lehman
Brothers' calculation of NAV differed from management's estimate of $43.50 as a
result of two factors: (1) management's NAV was calculated without giving
effect to change in control and transaction costs and (2) Lehman Brothers'
valuations of four asset classes (mature properties, development properties,
mortgage loans receivable and other assets) used somewhat more conservative
projections, assumptions and valuations in their calculation of NAV than
management.
Unlevered Discounted Cash Flow Analysis. Lehman Brothers calculated the
present value of Storage USA's projected unlevered net cash flow for the
five-year period ending December 31, 2006. For purposes of this analysis,
Lehman Brothers assumed that Storage USA would continue as an independent
public company throughout the period and at year-end 2006 would realize its
projected enterprise value. For these purposes, Storage USA's projected net
cash flow over the period was calculated as Storage USA's earnings before
interest, taxes, depreciation and amortization, known as EBITDA, minus capital
expenditures, minus investments (including acquisitions, development and joint
ventures), plus proceeds from asset dispositions, plus franchise loan
repayments, all as projected by Storage USA's management. To determine Storage
USA's terminal enterprise value at year-end 2006, Lehman Brothers first
estimated a range for Storage USA's equity per share on such date based on
Storage USA's projected 2006 FFO per share, as estimated by Storage USA's
management, multiplied by two alternative FFO multiples of 10.5x and 11.0x.
Second, Lehman Brothers converted this equity value range into an enterprise
value range by adding Storage USA's outstanding debt and preferred stock at
year-end 2006, each as projected by management of Storage USA. The sum of the
projected net cash flows and Storage USA's projected terminal enterprise value
range was then discounted to present value using discount rates ranging from
12.0% to 12.5%. This discounted cash flow analysis resulted in a valuation
range for Storage USA of $40.00 to $43.00 per share. (Further sensitivity
analysis using discount rates from 11.5% to 13.0% and terminal FFO multiples
from 10.0x to 11.5x, as shown in the table below, caused the high end of the
range to increase by a maximum of $3.50 per share and caused the low end of the
range to decrease by a maximum of $3.00 per share.)
Discount Rate
- ---------------------------
Terminal FFO Multiple 11.50% 12.00% 12.50% 13.00%
--------------------- ------ ------ ------ ------
10.0x $41.10 $39.72 $38.38 $37.07
--------------
10.5x $42.83 $41.41 $40.03 $38.68
11.0x $44.56 $43.10 $41.68 $40.30
--------------
11.5x $46.29 $44.79 $43.34 $41.92
Dividend Discount Model. Lehman Brothers calculated the present value of
Storage USA's projected dividend stream over the five-year period ending
December 31, 2006, as estimated by Storage USA's management. For purposes of
this analysis, Lehman Brothers assumed that Storage USA would continue as an
51
independent public company throughout the period and estimated a range for
Storage USA's stock price at year-end 2006 by multiplying Storage USA's
projected 2006 FFO per share, as estimated by Storage USA's management, by two
alternative FFO multiples of 10.5x and 11.0x. Assuming that the appropriate
discount rate for the recipient of the dividend stream ranges from 15.0% to
16.0%, Lehman Brothers' dividend discount model resulted in a valuation range
for Storage USA of $40.50 to $43.50 per share. (Further sensitivity analysis
using discount rates from 14.0% to 17.0% and terminal FFO multiples from 10.0x
to 11.5x, as shown in the table below, caused the high end of the range to
increase by a maximum of $3.00 per share and caused the low end of the range to
decrease by a maximum of $3.00 per share.)
Discount Rate
---------------------------
Terminal FFO Multiple 14.00% 15.00% 16.00% 17.00%
--------------------- ------ ------ ------ ------
10.0x $42.21 $40.63 $39.13 $37.70
--------------
10.5x $43.70 $42.06 $40.50 $39.01
11.0x $45.19 $43.48 $41.86 $40.32
--------------
11.5x $46.68 $44.91 $43.23 $41.63
Comparable Transactions Analysis. Lehman Brothers reviewed information
regarding thirteen selected closed or pending transactions involving publicly
traded REITs announced since mid-1998. Of the thirteen transactions Lehman
Brothers reviewed in this analysis, only one occurred in the self-storage
sector, as set forth in the following table:
Comparable Self-Storage Transaction
-----------------------------------
Premium Premium
over over Multiple
Premium 20-Days Prior to Last
over Prior 52-Week Four
Date Property Previous Share High Quarters'
Announced Acquired Company Acquiror Sector Close Price Price FFO
- --------- -------------------- -------------------- ------------ -------- ------- ------- ---------
11/12/98 Storage Trust Realty Public Storage, Inc. Self-Storage 2.8% 4.3% (15.2%) 10.0x
Lehman Brothers determined that the Storage Trust transaction was the only
public merger or acquisition with a significant transaction value in the
self-storage industry since 1993. The other twelve comparable transactions
selected by Lehman Brothers are identified on the following page.
52
Comparable Transactions Outside the Self-Storage Sector
-------------------------------------------------------
Premium Premium
over over Multiple
Premium 20-Days Prior to Last
over Prior 52-Week Four
Date Property Previous Share High Quarters'
Announced Acquired Company Acquiror Sector Close Price Price FFO
- --------- ------------------------ ------------------ ----------- -------- ------- ------- ---------
10/29/01 Cabot Industrial Trust CalWest Industrial Industrial 20.3% 15.7% 0.8% 10.0x
Properties LLC
5/4/01 Charles E. Smith Archstone Multifamily 9.2% 8.4% 20.7% 13.3x
Residential Communities
Trust
2/23/01 Spieker Properties Inc. Equity Office Office 12.3% 14.3% (0.6%) 13.7x
Properties Trust
9/26/00 Urban Shopping Rodamco North Mall 39.4% 38.9% 1.3% 13.2x
Centers Inc. America NV
5/15/00 Bradley Real Estate Inc. Heritage Property Retail 18.9% 27.5% 2.3% 9.4x
Invest. Trust
2/11/00 Cornerstone Properties Equity Office Office 21.0% 16.1% 6.3% 11.3x
Inc. Properties Trust
9/24/99 Walden Residential Olympus Real Multifamily 24.0% 24.0% (1.8%) 9.2x
Properties Inc. Estate Corp.
4/14/99 Berkshire Realty Berkshire Realty Multifamily 8.9% 7.7% (0.5%) 10.5x
Company, Inc. Holdings
3/1/99 Weeks Corporation Duke Realty Diversified 11.5% 10.5% (8.8%) 11.3x
Investments
12/1/98 Irvine Apartment The Irvine Multifamily 26.8% 29.8% 5.6% 15.5x
Communities Company
11/17/98 Meridian Industrial ProLogis Trust Industrial 12.7% 9.0% (6.1%) 13.2x
Trust
7/8/98 Merry Land & Investment Equity Residential Multifamily 16.3% 18.8% 9.4% 11.8x
Co. Inc. Properties Trust
Mean 18.4% 18.4% 2.4% 11.9x
Median 17.6% 15.9% 1.1% 11.6x
High 39.4% 38.9% 20.7% 15.5x
Low 8.9% 7.7% (8.8%) 9.2x
Lehman Brothers reviewed the prices paid (whether paid in cash, in stock or
some combination of both) in these transactions. Lehman Brothers calculated the
following statistics for the Storage Trust transaction and for each of the
twelve non-self-storage transactions (and then found the arithmetic average of
each statistic for the non-self-storage transactions):
. 1-Day Premium: the merger premium, expressed as a percentage of the
acquired company's closing price 1-day prior to the merger announcement;
. 20-Day Premium: the merger premium, expressed as a percentage of the
acquired company's closing price 20-days prior to the merger announcement;
. 52-Week High Premium: the merger premium, expressed as a percentage of
the acquired company's highest closing price during the 52 weeks prior to
the merger announcement; and
. Merger Price FFO Multiple: the multiple of the merger price to the
acquired company's total FFO per share for the prior four fiscal quarters.
53
In each case, Lehman Brothers' calculations were based on publicly available
data or the estimates of third party research analysts as provided by I/B/E/S.
Lehman Brothers next calculated the price range implied by such comparable
transaction data for Storage USA's common stock. Lehman Brothers' analysis
emphasized Storage USA's closing price on September 7, 2001, which was the last
trading day before Storage USA first announced its discussions concerning the
Transactions with Security Capital (September 10, 2001). Lehman Brothers
emphasized this day's price because it was thought to be the most current share
price not unduly influenced by short-term speculative pressures relating to the
Transactions. Lehman Brothers separately adjusted Storage USA's September 7,
2001 closing price (and Storage USA's prior four quarters' FFO per share) by
the percentage premiums (and FFO multiple) derived from the Storage Trust
transaction and by the average percentage premium (and FFO multiple) derived
from the non-self-storage transactions. Lehman Brothers' comparable
transactions analysis resulted in a valuation range for Storage USA of $36.00
to $44.00 per share.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Storage USA and the comparable acquired companies, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis. Accordingly, Lehman Brothers also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Transactions that would affect the acquisition
values of Storage USA and such acquired companies.
Financial Projections. The projections provided to Lehman Brothers by
Storage USA's management anticipate a compounded annual growth rate in per
share FFO for the period from 2002 to 2006 of approximately 9% and anticipate
net income of approximately $76.2 million for fiscal year 2002, $88.9 million
for fiscal year 2003, $101.8 million for fiscal year 2004, $113.1 million for
fiscal year 2005 and $123.3 million for fiscal year 2006; and property revenues
of $303.6 million for fiscal year 2002, $328.6 million for fiscal year 2003,
$350.5 million for fiscal year 2004, $370.8 million for fiscal year 2005 and
$391.2 million for fiscal year 2006. In preparing the projections, Storage
USA's management made seven significant assumptions: (1) that the compounded
annual growth rate from 2002 to 2006 for same-store net operating income would
be 4.4%, (2) that the acquisition volume in 2002 and 2003 would be $20 million
and $12 million for each year thereafter, (3) that the development volume would
be approximately $20 million per year, (4) that the interest rate on Storage
USA's lines of credit would be 3.35% at the beginning of 2002 and would
gradually increase to 6.45% at the end of 2006, (5) that the $200 million of
public notes that will come due prior to the end of 2006 will be refinanced at
the same rate of interest, (6) that no common stock issuances will occur during
the period, other than issuances related to anticipated exercises of stock
options, and (7) that Storage USA will not repurchase any of its stock during
the period.
Storage USA does not, as a matter of course, publicly disclose projections
as to future revenues or earnings. The projections were not prepared with a
view to public disclosure and are included in this proxy statement only because
such information was considered by the special committee, the board of
directors and Lehman Brothers in connection with approving the Transactions.
Accordingly, it is expected that there will be differences between actual and
projected results, and actual results may be materially different than those
set forth below. These projections were not prepared with a view to compliance
with the published guidelines of the SEC regarding projections, nor were they
prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections. Moreover, Arthur Andersen, Storage USA's independent
auditor, has not examined, compiled or applied any procedures to the
projections in accordance with standards established by the American Institute
of Certified Public Accountants and expresses no opinion or any assurance on
their reasonableness, accuracy or achievability. These forward-looking
statements reflect numerous assumptions made by Storage USA's management. In
addition, factors such as industry performance, general business, economic,
regulatory, and market and financial conditions, all of which are difficult to
predict, may cause these projections or the underlying assumptions to be
inaccurate. Accordingly, there can be no assurance that the Storage USA
projections will be realized, and actual results may be materially more or less
favorable than those contained in the Storage USA projections.
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The inclusion of the Storage USA projections herein should not be regarded
as an indication that the special committee, the board of directors, Storage
USA or Lehman Brothers considered or consider the Storage USA projections to be
a reliable prediction of future events, and the Storage USA projections should
not be relied upon as such. None of the special committee, the board of
directors, Storage USA, or Lehman Brothers intends to update or otherwise
revise the Storage USA projections to reflect circumstances existing after the
date when made or to reflect the occurrence of future events even in the event
that any or all of the assumptions underlying the Storage USA projections are
shown to be in error or to otherwise have changed.
Lehman Brothers' Experience and Relationship with Storage USA. Lehman
Brothers is an internationally recognized investment banking firm which, as
part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The special committee selected
Lehman Brothers because of Lehman Brothers' expertise, reputation and
familiarity with the real estate industry, its independence from Security
Capital and because Lehman Brothers' investment banking professionals have
substantial experience in transactions similar to the proposed Transactions.
As compensation for its services in connection with the Transactions, Lehman
Brothers has received $500,000 for its services and will receive an additional
$7 million upon completion of the Transactions. We have also agreed to
reimburse Lehman Brothers for reasonable expenses (including professional and
legal fees and disbursements) incurred in connection with its engagement, and
to indemnify Lehman Brothers and related persons against certain types of
liabilities in connection with its engagement, including liabilities under the
federal securities laws.
In the ordinary course of its business, Lehman Brothers actively trades in
the equity securities of Storage USA for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in these securities.
Role of the Financial Advisor to Security Capital
Security Capital's financial advisor, J.P. Morgan Securities Inc., assisted
Security Capital in conducting due diligence with respect to the books and
records of Storage USA and reviewing models which would assist Security Capital
in forecasting the potential operating results of Storage USA under various
sets of assumptions and sensitivities. J.P. Morgan Securities also reviewed the
financial models prepared by Security Capital's internal staff. Security
Capital did not request, nor did it receive from its financial advisor any
reports, opinions or appraisals, whether oral or written, as to the fairness of
the Transactions or the consideration to be paid in the Transactions to Storage
USA's shareholders or the operating partnership's limited partners.
Certain Effects of the Transactions
If completed, the Transactions will result in Security Capital owning 100%
of our assets, and becoming the general partner and majority limited partner of
the operating partnership and the general partner and majority limited partner
of SUSA Holdings, L.P. The Transactions will also have the following effects:
. Unless you are a limited partner of the operating partnership under the
circumstances described below, you will no longer have the opportunity to
participate in our future earnings, profits and growth or the right to
vote on corporate matters relating to Storage USA;
. Our shares of common stock will cease to be traded publicly and to be
listed on the NYSE. In addition, the registration of our shares of common
stock under the Exchange Act will be terminated, and we will no longer be
required to make filings with the SEC or otherwise to comply with the
SEC's reporting rules for public companies; and
55
. Limited partners of the operating partnership, other than Security
Capital, are entitled to receive their portion of the transaction
consideration, unless they are qualified and elect to continue as limited
partners in the surviving partnership. Limited partners who do not elect
or are not so qualified to receive all or a portion of their consideration
in units of the surviving partnership will not have the opportunity to
participate in the operating partnership's future earnings, profits and
growth. The rights and obligations of the limited partners in the
surviving partnership will be modified as set forth in an amended and
restated agreement of limited partnership of the operating partnership.
Shareholders who are also limited partners of the operating partnership and
who qualify and elect to continue as limited partners in the surviving
partnership will continue to participate in the future earnings, profits and
growth of the surviving partnership.
Acquisition of Security Capital by GE Capital
On and as of December 14, 2001, Security Capital entered into an Agreement
and Plan of Merger with General Electric Capital Corporation, or GE Capital,
and an indirect, wholly owned subsidiary of GE Capital, providing for the
merger of such subsidiary with and into Security Capital, as a result of which
Security Capital would become an indirect wholly owned subsidiary of GE Capital
and holders of Security Capital class B stock would receive $26.00 in cash for
each of their class B shares (subject to the substitution, at the option of GE
Capital, of a combination of cash and common shares of beneficial interest of
ProLogis Trust owned by Security Capital with an agreed aggregate value of
$26.00 per share) and holders of Security Capital class A stock would receive
50 times the per share class B consideration of each of their class A shares.
With respect to the Transactions, the Agreement and Plan of Merger with GE
Capital provides that:
. Security Capital may consummate and otherwise perform the Transactions
contemplated by the agreements with Storage USA without GE Capital's
consent, except that Security Capital may not increase the transaction
consideration or make any material change to the Transaction agreements or
grant any material waiver, consent or election thereunder without GE
Capital's consent, which response must be given (or, in the absence of any
response from GE Capital, will be deemed to have been given) within 24
hours of the delivery of such a request;
. in any case where Security Capital has a contractual right to consent to
any matter requested or proposed by Storage USA, Security Capital will not
so consent without GE Capital's consent, which may not be unreasonably
withheld or delayed; and
. if a third party seeks to acquire Storage USA for consideration in excess
of the transaction consideration, and Security Capital does not seek GE
Capital's consent to offer to increase the price to be paid by Security
Capital, then, at the written request of GE Capital, Security Capital must
offer to increase the transaction consideration on such terms as GE
Capital may designate. In the event of any termination of the GE Capital
merger agreement, GE Capital will pay to Security Capital an amount equal
to the aggregate amount of any such price increase.
The closing of the GE Capital/Security Capital merger is not conditioned on
the closing of the Transactions.
Plans for Storage USA after the Transactions
Security Capital presently does not intend to make any substantial changes
in the way Storage USA operates its business. Security Capital will evaluate
existing assets to determine whether any of them should be sold in the future
to more effectively redeploy the capital, but Security Capital currently has no
immediate plans to dispose of any assets. Security Capital will also seek to
achieve savings in general and administrative expenses by eliminating functions
which are duplicative to functions which can be performed by Security Capital's
shared services center, and also by using enterprise reporting software and
internet processing technologies which Security Capital uses in its other
businesses. Security Capital will continue to evaluate Storage USA's business
practices, operations, capitalization, and personnel and will implement changes
as it deems appropriate in the future. Security Capital has informed Storage
USA that neither Security Capital nor GE Capital (if the proposed
56
merger of Security Capital with GE Capital's subsidiary is completed) has any
present intention of eliminating the minority limited partners of the operating
partnership following the completion of the Transactions.
If Security Capital's proposed merger with a GE Capital subsidiary occurs
(as described under "--Acquisition of Security Capital by GE Capital"),
Security Capital will receive advice and assistance from GE Capital in pursuing
these cost savings and the implementation of future asset or business changes.
Conduct of the Business of Storage USA if the Transactions are Not Completed
If the Transactions are not completed, our board of directors expects that
current management will continue to operate our business substantially as
presently operated. We are not presently considering any other alternative.
Interests of Storage USA's Executive Officers and Directors in the Transactions
General. Storage USA's executive officers and directors who own shares of
our common stock will be entitled to receive their portion of the transaction
consideration for their shares. The number of shares of Storage USA common
stock owned by our directors and executive officers appears below under
"Security Ownership of Certain Beneficial Owners and Management." In addition,
some members of our management and board of directors have interests in the
Transactions that may be different from, or in addition to, the interests of
our shareholders generally. The special committee and our board of directors
were aware of these interests and considered them in approving the purchase
agreement and the Transactions. These additional interests, to the extent
material, are described below. In addition to the following, the information
relating to compensation plans and executive compensation as disclosed in our
Proxy Statement for the 2001 Annual Meeting, filed March 31, 2001, is
incorporated by reference into this proxy statement except as amended or
superseded by the following.
Stock Options. All options held by our employees and directors to acquire
shares of our common stock will become vested and immediately exercisable upon
consummation of the Transactions, and will be cashed out in the manner
described under "Terms of the Transactions--Consideration to Securityholders."
In settlement of all outstanding stock options held by the following directors
and executive officers of Storage USA, such executive officers and directors
will receive approximately the following amounts:
Total Cash Proceeds
Options to Officer(1)
- --------- -------------
C. Ronald Blankenship 7,000 $ 90,125
Francis C. Brown, III 49,547 $ 433,349
Howard P. Colhoun.... 10,318 $ 131,061
Alan B. Graf, Jr..... 7,000 $ 90,125
Karl T. Haas......... 91,960 $ 952,770
Dean Jernigan........ 446,909 $ 6,363,505
Mark Jorgensen....... 9,376 $ 115,101
Christopher P. Marr.. 142,998 $ 1,676,594
Caroline S. McBride.. 8,000 $ 96,000
John P. McCann....... 10,318 $ 131,061
John W. McConomy..... 92,571 $ 1,022,349
William D. Sanders... 7,722 $ 95,811
Richard B. Stern..... 59,498 $ 558,567
Bruce F. Taub........ 41,915 $ 558,843
Harry J. Thie........ 10,318 $ 131,061
Mark E. Yale......... 39,471 $ 475,665
--------- -----------
Totals.............. 1,034,921 $12,921,986
- --------
(1) This amount is subject to adjustment as described under "Terms of the
Transactions--Consideration to Securityholders."
57
Restricted Stock. Prior to the closing of the Transactions, each restricted
share of our common stock and restricted share units will become immediately
unrestricted and any performance targets will be deemed achieved in full. In
settlement of all outstanding restricted shares and restricted share units held
by the following executive officers and directors, such executive officers and
directors will receive approximately the following amounts:
Total Aggregate
Restricted Consideration for
Stock and Restricted Stock
- Units and Units
- ---------- -----------------
Francis C.Brown.... 1,765 $ 75,013
Karl T. Haas....... 2,751 $ 116,918
Dean Jernigan...... 9,960 $ 423,300
Christopher P. Marr 3,410 $ 144,925
John W. McConomy... 2,717 $ 115,473
Richard B. Stern... 1,764 $ 74,970
Bruce F. Taub...... 1,761 $ 74,843
Mark E. Yale....... 2,113 $ 89,803
------ ----------
Totals............ 28,536 $1,212,783
All restricted shares and restricted share units held by the above executive
officers are included in the beneficial ownership table on page 72 of this
proxy statement.
Severance Agreements. Storage USA has change in control severance
agreements with each of Messrs. Jernigan (Chief Executive Officer and
President), Marr (Chief Financial Officer), McConomy (Executive Vice President,
General Counsel and Secretary), Haas (Executive Vice President, Operations),
Yale (Senior Vice President, Financial Reporting), Taub (Senior Vice President,
Acquisitions), Brown (Senior Vice President, E-Commerce), Stern (Senior Vice
President, Development and Construction) (each of whom we refer to as an
"Executive") and twelve other Storage USA employees. The completion of the
Transactions will constitute a "change in control" under these agreements.
However, these agreements provide for severance payments and other benefits to
be paid to each employee only if his employment is terminated within two years
following a change in control of Storage USA (a) voluntarily, for "good reason"
(as defined in each agreement), by the employee within two years following a
change in control of Storage USA (as defined in each agreement), or (b)
involuntarily and without "cause" (as defined in each agreement). In such a
case, the employee would be entitled to:
. the payment of an amount equal to three times (for Messrs. Jernigan and
Marr), two times (for the other Executives) or one and a half times (for
the other employees) the employee's base salary plus certain bonus amounts;
. the vesting of all outstanding unvested options and restricted stock, if
not already vested pursuant to the applicable plan;
. the cancellation of any portion of a loan under Storage USA's 1995
Employee Stock Purchase and Loan Plan or its 1996 Officers' Stock Option
Loan Program to the extent it exceeds the fair market value of the stock
(or options) securing the loan (however, none of the loans exceeds the
fair market value of the underlying stock based on the consideration of
$42.50 per share to be paid in the Transactions);
. the continuation of certain health insurance benefits; and
. certain other benefits.
Any cash amounts due under the severance agreements are payable in lump sums.
Shareholder Value Plan. Our executive officers have received unit awards
under the Storage USA Shareholder Value Plan. The shareholder value plan is
designed to measure Storage USA's total return to shareholders (i.e. share
price increase plus dividend yield) against the total return of other public
self-storage companies and all REITs and rewards the executives accordingly. As
a result, amounts actually paid to
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executives will depend on the performance of Storage USA in relation to other
self storage companies and REITs generally at the time of closing.
The table below shows a threshold, which assumes the performance of Storage
USA over the three-year term of the awards that would yield the minimum payout
($500 per unit) under the plan if any payout is due and the maximum payout
($3,000 per unit) under the plan. If minimum performance criteria are not met,
no payout will be due. Awards will be paid in either cash or restricted stock
under the Storage USA 1993 Omnibus Stock Plan. According to the terms of the
shareholder value plan, units under the plan will be accelerated and
immediately paid as a result of the Transactions. The following table shows
potential payments to our executive officers.
Number Estimated Future
Units Maturity Payouts
------ -------- ------------------
Threshold Maximum
Dean Jernigan........ 234 12/31/02 $117,000 $702,000
Christopher P. Marr.. 63 12/31/02 $ 31,500 $189,000
John W. McConomy..... 50 12/31/02 $ 25,000 $150,000
Karl T. Haas......... 48 12/31/02 $ 24,000 $144,000
Richard B. Stern..... 24 12/31/02 $ 12,000 $ 72,000
Francis C. Brown, III 24 12/31/02 $ 12,000 $ 72,000
Bruce F. Taub........ 24 12/31/02 $ 12,000 $ 72,000
Mark E. Yale......... 21 12/31/02 $ 10,500 $ 63,000
Executive Financial Counseling Plan. Under our Executive Financial
Counseling plan, as a result of the Transactions our executive officers are
entitled to receive reimbursement of financial counseling costs for a period of
two years following the closing of the Transactions. The maximum reimbursement
under the plan is $10,000 for Messrs. Jernigan and Marr, $7,500 for Mr.
McConomy, and $5,000 for Messrs. Brown, Stern, Taub, Haas and Yale.
Employment Agreements. Messrs. Jernigan, Marr, McConomy, Brown, Stern,
Taub, and Yale each have employment agreements with Storage USA. These
agreements provide for a base salary for such Executives as follows: Jernigan,
$493,500; Marr, $270,375; McConomy, $229,110; Brown, $183,750; Stern, $183,750;
Taub, $183,812; and Yale, $175,776; all such amounts are subject to increase by
our Chief Executive Officer. These agreements entitle the Executives to
continue to receive their base salary then in effect for two years in the case
of Messrs. Jernigan and Marr, one and a half years for Mr. McConomy and one
year for Messrs. Brown, Yale, Taub and Stern if they are terminated "without
cause" or resign for "good reason" as defined in each employment agreement;
provided, however, that in the event an Executive begins employment with
another employer or becomes self-employed in such period, the continuation of
these base salary payments will be reduced to the extent of the base salary
received from such new employer or to the extent of self-employment earnings.
In the event of a termination "without cause" or for "good reason," each
employment agreement also generally provides for:
. the vesting of all outstanding unvested options and restricted stock, if
not already vested pursuant to the applicable plan, or a cash payment for
such options;
. the cancellation of any portion of a loan under Storage USA's 1995
Employee Stock Purchase and Loan Plan or its 1996 Officers' Stock Option
Loan Program to the extent it exceeds the fair market value of the stock
(or options) securing the loan;
. the continuation of certain health insurance benefits; and
. certain other benefits.
However, any action by Storage USA or termination of an employee's
employment with Storage USA that constitutes or otherwise gives rise to a
"change in control" termination under a severance agreement will be governed
exclusively by that severance agreement, without duplication of payments under
the employee's employment agreement.
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Indemnification and Directors and Officers Insurance. The purchase
agreement provides each of our and our subsidiaries' former and present
directors, trustees and officers with the indemnification and insurance
benefits described under "Terms of the Transactions--Indemnification; Directors
and Officers Insurance."
Past Transactions and Relationships
Strategic Alliance Agreement with Security Capital
General. On March 19, 1996, we entered into a Strategic Alliance Agreement
with Security Capital-US Realty (an affiliate of Security Capital), which has
since been amended, in connection with US Realty's initial purchase of
approximately 28.7% our shares of common stock. The Strategic Alliance
Agreement, as amended, permitted US Realty (and presently permits Security
Capital) to purchase up to 42.5% of our common stock, on a fully diluted basis,
and to participate in certain offerings of our equity securities. In January
2001, SC Realty Corporation, an indirect wholly-owned subsidiary of Security
Capital, acquired all of the Storage USA shares that were owned by US Realty.
Pursuant to a July 7, 2000 letter agreement, Storage USA had agreed to permit
this transaction, provided that Security Capital agreed to be bound by the
Strategic Alliance Agreement and that, among other things, the standstill
provisions of that agreement were extended from June 5, 2003 to December 5,
2004. The Strategic Alliance Agreement has been further modified by letter
agreements modifying the standstill limitations, as described under
"--Background of the Transactions." Security Capital and its affiliates
currently own approximately 41.1% of our outstanding shares of common stock.
Restrictions on Storage USA. The Strategic Alliance Agreement places
several restrictions on the ability of Storage USA and its subsidiaries to
engage in specified corporate actions, including:
. incurring total indebtedness in an amount exceeding 60% of the sum of (1)
the market value of our outstanding equity on a fully-diluted basis (based
on $31.30 per share, the price paid by US Realty in connection with its
acquisition of our shares), (2) our consolidated debt as of March 1, 1996
(the date of the purchase by US Realty of our shares), and (3) the
acquisition cost of properties acquired after March 1, 1996 (less any
proceeds of property dispositions that are distributed to shareholders
after that date);
. owning real property other than self-storage facilities or land suitable
for the development of self-storage facilities, the value of which exceeds
10%, at cost, of our consolidated property assets; and
. terminating our eligibility for treatment as a REIT for federal income tax
purposes (or taking any action that would have that effect).
These restrictions lapse on the earlier to occur of:
. the termination of Security Capital's standstill obligations as described
below; and
. generally, the first date on which, for a continuous period of 180 days,
Security Capital's ownership of our common stock has been below 20% of our
outstanding shares.
The Strategic Alliance Agreement also gives Security Capital consultation
rights with respect to major enumerated transactions (such as the acquisition
or sale of any assets having a value in excess of $25,000,000 or the issuance
of any debt in excess of $150,000,000) and information rights with respect to
Storage USA's business and other corporate matters.
Restrictions on Security Capital. The standstill arrangement in the
Strategic Alliance Agreement prohibits Security Capital and its affiliates from
acquiring more than 42.5% of our outstanding shares of common stock (or
securities convertible into or exchangeable for such shares), on a fully
diluted basis. During the standstill period, Security Capital and its
affiliates also are prohibited from:
. becoming members of a "group" for purposes of Section 13(d) of the
Exchange Act with an unaffiliated party;
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. selling or otherwise disposing of our common stock, except for transfers
(1) in compliance with Rule 144 under the Securities Act, pursuant to a
negotiated transaction with a third party, pursuant to the registration
rights agreement described below or in connection with a public offering,
to affiliates or to bona fide financial institutions for purposes of
securing bona fide indebtedness, and (2) which otherwise are not made in
violation of our charter or result in any person beneficially owning more
than 9.8% of our outstanding shares of common stock;
. soliciting, encouraging or proposing an extraordinary or change of control
transaction involving Storage USA;
. soliciting proxies, becoming a participant in an election contest,
submitting shareholder proposals, or taking similar action involving
Storage USA shareholders; and
. seeking representation on, or a change in the composition of, our board of
directors, except as otherwise permitted by the Strategic Alliance
Agreement.
These restrictions and the standstill period expire on December 5, 2004,
which date will be extended for one-year periods unless earlier terminated by
Security Capital or upon the occurrence of an "early termination event."
An "early termination event" is any of the following:
. a material default under any of our or our subsidiaries' debt agreements,
instruments, or arrangements;
. the acquisition by any person or group (other than Security Capital or its
affiliates) of more than 9.8% of our voting securities, and the failure of
our board of directors to enforce the ownership limits contained in our
charter;
. any person or group having a number of directors on our board (other than
not more than two management directors), or having the right or power to
elect a number of directors on our board, equal to or greater than the
number of directors to which Security Capital is entitled;
. the authorization by us, our board of directors or any committee of the
board (with all directors appointed by Security Capital abstaining or
voting against) of the solicitation of offers or proposals or indications
of interest with respect to any extraordinary or change of control
transaction involving Storage USA;
. the written submission by any person or group (other than Security Capital
or its affiliates) of a proposal to us, our board of directors or any of
our representatives or affiliates with respect to, or otherwise expressing
an interest in pursuing any extraordinary or change of control transaction
referred to above (other than a proposal that our board of directors
promptly determines is not in the best interest of Storage USA);
. in connection with any extraordinary or change of control transaction
referred to above, the removal of any rights plan or anti-takeover
provision of our organizational documents;
. any material (and uncured) breach of the Strategic Alliance Agreement by
us or our subsidiaries; or
. any violation of the restrictions on our ability to incur debt, purchase
properties or terminate our REIT eligibility described above.
The purchase agreement provides that execution, delivery and performance of
the purchase agreement or of an agreement providing for a superior transaction,
in compliance with the terms of the purchase agreement, will not constitute an
"early termination event" under the Strategic Alliance Agreement. Further, the
exercise of any rights in the purchase agreement, in accordance with and
subject to its terms, and the consummation of any of the Transactions
contemplated by the purchase agreement shall not constitute a violation or
attempted violation of any provision of the Strategic Alliance Agreement or
Storage USA's charter or bylaws.
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Also, during the standstill period, Security Capital must vote its shares of
our common stock either in accordance with the recommendation of our board of
directors or proportionately, in accordance with the votes of the other
shareholders. Security Capital may, however, vote such shares in its discretion
with respect to the following matters:
. any extraordinary transaction submitted to a shareholder vote;
. any amendment to our charter or bylaws that would reasonably be expected
to materially adversely affect Security Capital; or
. the election of Security Capital's nominees to our board of directors.
Security Capital's Preemptive Rights. Security Capital is generally
entitled under the Strategic Alliance Agreement to purchase up to 35% of any
shares of capital stock we issue or shares of capital stock issued by any of
our subsidiaries having assets in excess of $200 million, other than in
connection with issuances of operating partnership units or issuances pursuant
to instruments in existence on the date of the Strategic Alliance Agreement.
Payments by Storage USA to Security Capital Affiliates. The Strategic
Alliance Agreement provides that Security Capital will make available to us, at
our request, its expertise and capabilities with respect to miscellaneous
business and operating matters. During 2000 and 2001, payments totaling
$1,565,911, were made to Security Capital or its affiliates in connection with
services provided pursuant to those provisions, excluding payments made to Ms.
McBride and Messrs. Sanders and Blankenship in their capacity as directors. The
amounts paid were as follows:
. $312,556 to SC Group, Inc. as consideration for real estate market
research, property tax services, insurance procurement and risk management
services. This amount was based in part on a percentage of the total
premium dollars for Storage USA's property and casualty insurance plus
claims administration fees; and
. $1,253,355 to Macquarie Capital Partners, LLC for investment banking and
advisory services in connection with assisting Storage USA in securing
debt financing for its acquisition and development activities. Macquarie
Capital Partners was formed as a new entity in January 2001 with Macquarie
Bank Limited and the management of Security Capital's Capital Markets
Group. Security Capital contributed to the new entity certain assets of
Security Capital Markets Group Incorporated and the stock of Security
Capital Markets Ltd. in exchange for a 40% ownership interest.
All such services were rendered pursuant to agreements negotiated at
arm's-length, taking into account fees charged by other providers of similar
services.
Security Capital's Nominees to Storage USA's Board of Directors. Security
Capital has the right under the Strategic Alliance Agreement to nominate for
election to our board of directors a number of qualified individuals
proportional to the percentage of our common stock owned by Security Capital
and Storage USA has agreed to support such nominations. Based on its
approximately 41.1% current ownership of our outstanding common stock, Security
Capital is entitled to nominate three of our directors. Security Capital is
also generally entitled to one representative on any board committee to the
extent permitted under applicable laws, regulations and stock exchange
requirements.
The current Security Capital nominees on our board of directors are C.
Ronald Blankenship, Caroline S. McBride and William D. Sanders. Mr. Blankenship
has been the Chief Operating Officer and a director and Vice Chairman of
Security Capital since May 1998, and a member of our board since 1997. Ms.
McBride has been a managing director of the capital division of Security
Capital since March 1997, and a member of our board since 1997. Mr. Sanders has
been the Chairman of the Board and Chief Executive Officer of Security Capital
since
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1990, and a member of our board since 1996. Messrs. Blankenship and Sanders
also serve on various committees of our board of directors, and in their
respective capacities as members of our board of directors have engaged in
continuous contact and discussions with other of our directors as well as with
members of our management concerning the general operations of Storage USA and
its subsidiaries. More information about Security Capital's nominees to our
board of directors can be found under "Directors and Executive Officers of
Storage USA."
Strategic Alliance with Security Capital Affiliates
In May 2000, we entered into a strategic alliance with Access Storage, S.A.,
the leading self-storage operator in Europe, and Millers Storage, S.A., the
leading self-storage operator in Australia, to provide management advisory
services. As part of the agreement, we received an option to purchase
convertible debt and also to acquire up to a 20% interest in these companies,
which are indirect affiliates of Security Capital. These options had not been
exercised as of the date of this proxy statement. Security Capital owns 34.5%
of the capital stock of, and is the adviser to, Security Capital European
Realty, which in turn owns all of the capital stock of each of Access Storage
and Miller Storage.
Transactions Between Storage USA and its Directors and Executive Officers
Jonathan Perry, Mr. Jernigan's son-in-law, has been employed by Storage USA
since February 2, 1998, and is presently a Manager of Human Resources Analysis.
Mr. Perry's annual salary is $65,801, and his cash bonus for 2001 was $8,109.
Christopher L. Jernigan, Mr. Jernigan's son, has been employed by Storage
USA since April 2, 2001 and is presently a Manager of Business Development.
Christopher Jernigan's annual salary is $55,000, and his cash bonus for 2001
was $4,413.
James G. Williams, Mr. Jernigan's brother-in-law, is currently a consultant
to Storage USA in connection with the divestitures of properties. Since January
1, 2000, Storage USA has paid a total of $175,000 to Mr. Williams in consulting
fees.
On January 2, 2001, SUSA Partnership, L.P. purchased from Mr. Jernigan 250
shares of Class A Voting Stock of Storage USA Franchise Corp. (representing a
2.5% economic interest in that company and all of its voting stock) for
$203,391, based on a valuation of such shares performed by Storage USA. The
methodology for such valuation was reviewed by PricewaterhouseCoopers LLP, and
the transaction was unanimously approved by the board of directors.
Storage USA has entered into a lease under which it is the principal tenant
of the Moore Building, a historic structure in Memphis, Tennessee. On December
29, 1998, the Moore Building was sold to its current owner, Moore Building
Associates, L.P., by a charitable foundation. To assure that the foundation
would receive from the buyer the fair value of historic rehabilitation tax
credits generated by the renovation of the building, Mr. Jernigan agreed to
guarantee that the buyer would realize certain amounts from the resale of those
tax credits, as permitted by applicable law. The value of the tax credits is
dependent, in part, on Storage USA's performance under its lease. None of
Storage USA or its affiliates have any affiliation with Moore Building
Associates, L.P. Storage USA has subleased space in the building to a sublessee
whose principals guaranteed the sublease and to secure such guaranty pledged
their minority ownership interest in Moore Building Associates, L.P. to Storage
USA as security for their guaranteed obligations.
In July 2000, the operating partnership purchased a self-storage facility in
Memphis, Tennessee from Covington Way Storage Co., LLC, a limited liability
company controlled by James G. Williams, Mr. Jernigan's brother-in-law, for
$3,685,387.
63
The following loans have been made to members of management pursuant to the
1995 Employee Stock Purchase and Loan Plan and 1996 Officers Stock Option Loan
Program for Storage USA:
Maximum
Indebtedness Indebtedness at Shares of
Since December 31, Common Stock
January 1, 2000 2001 Pledged as
($) ($) Security
--------------- --------------- ------------
1995 Employee Stock Purchase and Loan Plan
- ------------------------------------------
Francis C. Brown III........... 542,802 359,960 10,000
Karl T. Haas................... 273,245 254,392 10,000
Dean Jernigan.................. 4,615,988 4,456,892 150,000
Christopher P. Marr............ 424,333 403,860 15,000
John W. McConomy............... 447,623 437,069 15,000
Richard B. Stern............... 99,134 95,080 3,000
Bruce F. Taub.................. 298,220 288,999 10,000
Mark E. Yale................... 152,684 149,709 5,000
1996 Officers' Stock Option Loan Program
- ----------------------------------------
Dean Jernigan.................. 750,000 750,000 --
Christopher P. Marr............ 80,762 75,000 --
Loans made under the 1995 plan bear interest at rates ranging from 5.81% to
9.16% per annum and are collateralized by the Storage USA common stock
purchased with the proceeds of the loans. Loans under the 1996 plan bear
interest at 7.7% per annum, and are collateralized by any shares of Storage USA
common stock which may be obtained by the executives' exercise of options.
These loans must be paid in full before these executives can receive the
consideration in the Transactions for the common stock used as collateral for
the loans.
Additional Agreements with Respect to Securities of Storage USA
Certain directors, officers and employees of Storage USA are parties with
Storage USA to stock option agreements and restricted stock agreements under
which such directors, officers and employees hold stock options and restricted
stock of Storage USA. The effect of the Transactions on such stock options and
restricted stock is described under "Terms of the Transactions--Employee
Matters."
As a result of the acquisition of US Realty, Security Capital became a party
to the registration rights agreement, entered into by and among US Realty,
Security Capital Holdings S.A. and Storage USA at the time of and in connection
with the signing of the Strategic Alliance Agreement. Under that agreement,
subject to its limitations and conditions:
. Security Capital may require us to file a registration statement for the
offering, on a continuous or delayed basis, of all shares of our common
stock acquired by Security Capital in accordance with the Strategic
Alliance Agreement;
. Security Capital may include its shares in some registrations proposed by
us; and
. as long as Security Capital owns at least 9.8% of the outstanding shares
of our common stock on a fully-diluted basis and the standstill period is
in effect, in the event of a sale or issuance of our common stock solely
for cash to a third party in connection with an extraordinary transaction
involving the sale or issuance of at least 30% (on a fully-diluted basis)
of our capital stock, Security Capital has the right to include in such
sale or issuance any Storage USA shares owned by it at such time on a pro
rata basis.
In connection with the closing of the operating partnership's joint venture
with GE Capital, the GE Capital entity participating in the joint venture,
Storage Ventures, LP, received warrants to purchase 1,250,000 shares of our
common stock at an exercise price of $42.00 per share pursuant to the terms of
a Warrant Purchase Agreement dated November 30, 1999, which expire on November
30, 2004. None of the warrants issued to Storage Ventures, LP has been
exercised. Other than the joint venture relationship between Storage Ventures,
LP and
64
Storage USA, there is no affiliation between these two parties. In connection
with the Warrant Purchase Agreement, Storage USA and Security Capital entered
into an agreement dated November 12, 1999, under which Storage USA agreed that
in lieu of Security Capital's participation rights under the Strategic Alliance
Agreement, Security Capital would have the right to participate in any issuance
of our capital stock under the Warrant Purchase Agreement to the same extent it
would have been entitled to do so under the Strategic Alliance Agreement.
Storage USA has entered into registration rights agreements with certain
limited partners of the operating partnership who contributed property to the
operating partnership in exchange for units in the operating partnership. Those
agreements require Storage USA to register with the SEC the shares of Storage
USA's common stock issuable on redemption of such units.
Sources and Uses of Proceeds; Financing for the Transactions
It is estimated that approximately $1.07 billion will be required to effect
the Transactions, including repayment of the operating partnership's credit
lines and payment of transaction fees and expenses. Security Capital intends to
finance the Transactions using cash on hand and, to the extent necessary,
borrowed funds. Between the signing of the purchase agreement and the date of
this proxy statement, Security Capital received a significant amount of cash
from the sale of its stock in other entities, and has informed us that
currently it has, and expects that at the closing it will have, sufficient cash
on hand to consummate the Transactions.
In connection with entering into the purchase agreement, Security Capital
proposed modifications to its existing $450 million unsecured revolving line of
credit to allow for the credit line to remain outstanding following
consummation of the Transactions. In addition, Security Capital obtained from
Wells Fargo Bank, N.A., the Co-Lead Arranger, Joint Book Manager and
Administrative Agent under the credit line, a Revolver Commitment Letter, dated
November 28, 2001, under which Wells Fargo has agreed to arrange for the
proposed modifications to the credit line and, subject to specified conditions,
to fund up to $55 million under the credit line plus an additional $60 million
(or a total of $115 million) in connection with the Transactions, in the event
that any of the lenders decline to agree to the proposed modifications to the
credit line. Additional modifications have become necessary to the credit line
as a result of the sale by Security Capital, following the date of the purchase
agreement, of stock it owned in other entities. Security Capital does not,
however, currently plan to seek modifications to its existing credit line,
unless significant investment opportunities arise for Security Capital prior to
completion of the Transactions.
The completion of the Transactions is not conditioned on Security Capital
obtaining the proposed modifications to its credit line. If Security Capital
were to seek those modifications, a condition to the obligation of Security
Capital under the purchase agreement to consummate the Transactions is that, at
the time of such consummation, no condition to lending or funding has been
invoked and is continuing (after any applicable cooling off or similar period),
under or in connection with Wells Fargo's commitment, based upon or related to
a material disruption of, or material adverse change in, financial, banking or
capital market conditions, with the effect that all or part of the committed
financing will not be available to Security Capital.
Regulatory Matters
Storage USA and Security Capital are not aware of material federal or state
regulatory approvals, filings or notices that are required in connection with
the Transactions, including under antitrust laws and regulations, other than
approvals, filings or notices required under federal securities laws and the
filing of a certificate of merger with the Secretary of State of the State of
Tennessee.
Accounting Treatment of the Transactions
The Transactions will be accounted for under the purchase method of
accounting in accordance with United States generally accepted accounting
principles. Under this method, the total consideration paid, including
65
expenses, in the Transactions will be allocated among Storage USA's
consolidated assets and liabilities based on their fair values, and any excess
of the purchase price over the estimated net fair value would be recorded as
goodwill by Security Capital. Storage USA's operating results will be
consolidated with Security Capital's operating results beginning on the date
that the merger is effective.
Litigation in Connection with the Transactions
Shareholder Litigation
Seven putative class action lawsuits were filed on or about November 6 and
8, 2001, by alleged shareholders of Storage USA in the Chancery Court of
Memphis, Tennessee. An additional suit was filed in the Chancery Court of
Davidson County. On December 14, 2001, a Consent Order was entered providing
for the consolidation of the Shelby County actions and similar actions
thereafter filed, the designation of lead plaintiffs' counsel and the filing of
a Consolidated and Amended Class Action Complaint. The Order further provides
that upon transfer of the Davidson County action to Shelby County, that action
will be consolidated with those in Shelby County. On December 17, 2001, lead
plaintiffs' counsel filed a putative Consolidated and Amended Class Action
Complaint in the Chancery Court of Shelby County. The defendants named in that
complaint are Storage USA, each of the Directors of Storage USA, Security
Capital, Storage USA Trust and the operating partnership.
The complaint alleges, among other things, that the individual defendants
have breached their fiduciary duties to shareholders by structuring the
purchase agreement so as to deprive themselves of the ability to consider
certain possible competing proposals and by delegating to Security Capital the
authority to set the parameters for acceptance or rejection of any offer of
superior value for Storage USA, thereby depriving plaintiffs of the true value
of their investment in Storage USA. The complaint also alleges that Security
Capital breached fiduciary duties to other shareholders of Storage USA and
failed to treat those shareholders with entire fairness. On December 19, 2001,
plaintiffs filed a Motion for Preliminary Injunction seeking, among other
things, to enjoin the proposed transaction between Security Capital and Storage
USA, or in the alternative, to declare certain sections of the purchase
agreement between Security Capital and Storage USA invalid and void, and if the
Transactions are consummated, to rescind them and recover rescissionary and
other damages suffered by the plaintiffs as a result of the Transactions.
Following negotiations subsequent to the announcement of the Transactions,
on January 17, 2002, the parties to the litigation entered into a memorandum of
understanding setting forth an agreement in principle with respect to the
settlement of the purported class actions. As part of the settlement, Security
Capital agreed to increase the consideration to be paid in the Transactions to
Storage USA shareholders from $42.00 to $42.50 per share.
In the memorandum of understanding the parties to the litigation agreed to
use their best efforts to execute as soon as practicable final settlement
documentation as may be required in order to obtain final court approval of the
settlement, the dismissal of the actions and the release of all claims against
the defendants, in accordance with the terms of the memorandum of
understanding. In addition to court approval, consummation of the settlement is
subject to the completion by the plaintiffs of confirmatory discovery
reasonably satisfactory to plaintiffs' counsel and to consummation of the
Transactions. The increase from $42.00 to $42.50 in the cash consideration
payable to Storage USA shareholders and limited partners of the operating
partnership was negotiated at arm's length in a series of discussions between
representatives of plaintiffs' counsel and counsel for Security Capital, in
which a financial expert retained by plaintiffs' counsel and representatives of
Security Capital's financial advisor also participated.
In connection with the settlement, the parties to the purchase agreement
entered into the letter agreement amending the purchase agreement to provide
that all references in the purchase agreement to $42.00 will for all purposes
be deemed references to $42.50. Regardless of whether court approval of the
settlement is obtained prior to consummation of the Transactions or the other
conditions to the settlement are satisfied, Storage USA shareholders will
receive the increased consideration if the Transactions are consummated.
66
In the event that the court approves the proposed settlement in accordance
with its terms, members of the class defined in the settlement will be deemed
to have released all claims they had or may have had with respect to the
Transactions and related matters as reflected in the settlement agreement and
proposed final judgment, and will accordingly be barred from asserting any such
claims in judicial proceedings. Members of the class defined in the settlement
consist of public shareholders of Storage USA (other than Security Capital and
its affiliates) at any time during the period from September 10, 2001 (the date
on which Storage USA announced that it had modified its standstill arrangement
with Security Capital to permit Security Capital to engage in discussions with
the special committee concerning Security Capital's intentions relating to its
investment in Storage USA) through and including the date of completion of the
Transactions.
In connection with the litigation, each of our directors and executive
officers who are parties to indemnification agreements with Storage USA (as
described under "Terms of the Transactions-- Indemnification; Directors and
Officers Insurance") have submitted claims to us for reimbursement of
indemnifiable expenses under such indemnification agreements.
Limited Partner Litigation
On March 12, 2002, a group of limited partners of the operating partnership
owning in the aggregate 463,732 limited partnership units filed suit in the
Chancery Court of Tennessee for the Thirtieth Judicial District at Memphis
against Storage USA, the operating partnership and Security Capital. The
plaintiffs purport to bring the action individually on their own behalf and as
a class action on behalf of all limited partners of the operating partnership
and on behalf of a subclass of those limited partners who are parties to tax
deferral agreements with the operating partnership. The plaintiffs seek to
enjoin the Transactions on the grounds that the Transactions are in violation
of the existing partnership agreement of the operating partnership, of the
Tennessee Revised Uniform Limited Partnership Act and of the tax deferral
agreements. The plaintiffs allege in the complaint that they seek to prevent
the plaintiffs and other limited partners of the operating partnership from
being cashed out from the operating partnership without a vote and without
appraisal rights and at an unfair price and from being coerced to give up their
existing contractual rights under the existing partnership agreement and the
tax deferral agreements. The complaint purports to state causes of action
against all of the defendants for breach of fiduciary duty and for violation of
the Tennessee Revised Uniform Limited Partnership Law, against Storage USA and
the operating partnership for breach of the existing partnership agreement and
the tax deferral agreements, and against Security Capital for interference with
contractual relations and interference with economic advantages.
The relief sought in the complaint includes preliminarily and permanently
enjoining the Transactions, rescinding and setting aside the proposed
Transactions in the event they are consummated, ordering the appointment of a
special committee comprised of limited partners and the plaintiff class
representatives and their attorneys to insure fair protection and adequate
procedural safeguards in connection with any transaction for the buyout of the
limited partners' units of the operating partnership, specifically enforcing
the existing partnership agreement and the tax deferral agreements, and
awarding compensatory damages, prejudgment interest, and attorneys' and
experts' fees and expenses. We and Security Capital believe the plaintiffs'
allegations in the complaint are without merit.
67
SUMMARY FINANCIAL INFORMATION
The following schedule sets forth summary financial information of Storage
USA, Inc. You should read this information in conjunction with our consolidated
financial statements and related notes thereto. The summary financial
information for each of the years in the two year period ending December 31,
2000 have been derived from our audited financial statements, which are
incorporated herein by reference to our Annual Report on Form 10-K for the year
ended December 31, 2000. The summary financial information for the fiscal year
ended 2001 has been derived from our unaudited financial statements for the
year ended December 31, 2001, which are incorporated herein by reference to our
Form 8-K filed on February 1, 2002.
For the Year
Ended For the Year For the Year
12/31/01 Ended Ended
(unaudited) 12/31/00 12/31/99
------------ ------------ ------------
(Amounts in thousands, except share and per share data)
Operating revenues........................................ $ 295,370 $ 264,443 $ 251,211
Operating expenses........................................ 168,599 144,402 131,994
Income from operations.................................... 126,771 120,041 119,217
Interest expense, net..................................... 49,085 (45,237) (41,297)
----------- ----------- -----------
Income before minority interest and gain
on exchange............................................. $ 77,686 $ 74,804 $ 77,920
Gain/(loss) on sale/exchange of self-storage
facilities.............................................. (291) 1,175 181
Minority interest......................................... (13,163) (13,742) (14,154)
Net income................................................ 64,232 62,237 63,947
Basic net income per common share......................... 2.34 2.27 2.29
Diluted net income per common share....................... 2.31 2.26 2.28
Distributions per common share............................ 2.84 2.76 2.68
Funds from operations (FFO)/(1)/.......................... 100,466 94,313 92,721
Ratio of earnings to fixed charges........................ 2.17 2.08 2.21
Ratio of earnings to combined fixed charges and preference
distributions........................................... 1.99 1.91 2.02
----------- ----------- -----------
Cash flows provided by/(used in):
Operating activities...................................... $ 129,186 $ 115,625 $ 99,595
Investing activities...................................... (26,519) (43,462) (29,660)
Financing activities...................................... (104,548) (68,817) (71,059)
=========== =========== ===========
As of As of As of
12/31/01 12/31/00 12/31/99
------------ ------------ ------------
Total assets.............................................. $ 1,756,334 $ 1,766,770 $ 1,754,919
Total debt................................................ 854,174 873,982 818,116
Shareholders' equity...................................... 674,493 652,147 690,895
Common shares outstanding................................. 28,278,104 27,019,095 27,865,932
Book value per share...................................... 23.85 24.14 24.79
=========== =========== ===========
- --------
(1) We believe funds from operations, or "FFO", should be considered in
conjunction with net income and cash flows when evaluating our operating
results because it provides investors an understanding of our ability to incur
and service debt and to make capital expenditures. FFO should not be considered
as an alternative to net income, as a measure of our financial performance or
as an alternative to cash flows from operating activities as a measure of
liquidity. FFO does not represent cash generated from operating activities in
accordance with GAAP
68
and is not necessarily indicative of cash available to fund cash needs. We
follow the current National Association of Real Estate Investment Trust's
(NAREIT) definition of FFO which, effective January 1, 2000, includes
non-recurring results of operations except those defined as "extraordinary
items" under GAAP. Since we have historically not added back non-recurring
items to our calculation, we were not required to restate prior period FFO
amounts. In calculating FFO, we add back to net income any gains or losses
recognized on the sale of self-storage facilities and depreciation and
amortization relating only to revenue-producing property including such
depreciation from unconsolidated entities. Investors should be aware that items
excluded from or added back to FFO are significant components in understanding
and assessing our financial performance. In addition, our FFO may not be
comparable to similarly titled measures of other REITs that calculate FFO
differently. For example, our FFO may not be comparable to other REITs that may
add back total depreciation and amortization.
MARKET PRICES AND DIVIDEND INFORMATION
Storage USA's common stock has been listed on the New York Stock Exchange
since March 16, 1994 under the symbol "SUS." The following table sets forth the
high and low sales prices on the New York Stock Exchange for the applicable
periods and the dividends paid in each quarter per share of our common stock.
High Low Dividends
------ ------ ---------
2002
First Quarter (through March 15, 2002) $43.15 $42.05 --
2001
First Quarter......................... $33.75 $29.74 $0.71
Second Quarter........................ $36.50 $31.52 $0.71
Third Quarter......................... $40.49 $35.00 $0.71
Fourth Quarter........................ $43.50 $38.67 $0.71
2000
First Quarter......................... $32.00 $28.81 $0.69
Second Quarter........................ $31.81 $28.88 $0.69
Third Quarter......................... $31.50 $28.81 $0.69
Fourth Quarter........................ $32.63 $27.13 $0.69
The number of shareholders of record on March 11, 2002 was 28,640,470.
69
FORWARD-LOOKING STATEMENTS
This proxy statement (including information incorporated by reference)
contains forward-looking statements relating to the financial condition,
results of operations, plans, objectives, future performance and businesses of
Storage USA and Security Capital, as well as information relating to the
Transactions, including, without limitation, statements concerning the expected
closing of the Transactions, the conduct of the business of Storage USA if the
Transactions are not completed, Security Capital's plans for Storage USA after
the Transactions, sources and uses of the transaction proceeds, tax
consequences of the Transactions for shareholders and unitholders of the
operating partnership and the future projected financial performance of Storage
USA. The forward-looking statements include statements regarding the intent,
belief or current expectations of Storage USA or Security Capital, members of
Storage USA's management team, members of Storage USA's board of directors or
Storage USA's advisors, as well as the assumptions on which those statements
are based. Words such as "believes," "expects," "anticipate," "intends,"
"plans" and "estimates" and variations of such words and similar words also
identify forward-looking statements. Such statements are forward-looking in
nature and involve a number of risks and uncertainties and, accordingly, actual
results may differ materially.
We caution you not to place undue reliance on any such forward-looking
statements. We assume no obligation to update any forward-looking statements as
a result of new information, subsequent events or any other circumstances. Such
statements speak only as of the date that they are made.
70
THE PARTIES
Storage USA, Inc.
Storage USA, Inc. is a Tennessee corporation that was formed in 1985 to
acquire, develop, construct, franchise, and own and operate self storage
facilities throughout the United States. We are the second largest owner and
operator of self storage space in the United States. As of December 31, 2001,
we owned, managed and franchised 558 facilities containing 37.9 million square
feet in 33 states and the District of Columbia. We are structured as an
umbrella partnership real estate investment trust, commonly referred to as an
"UPREIT," in which substantially all of our business is conducted through SUSA
Partnership, L.P. (the "Partnership"). As of February 28, 2002, Storage USA had
an approximate 92.4% partnership interest in the Partnership. Our principal
office is located at 175 Toyota Plaza, Suite 700, Memphis, Tennessee, 38103 and
the telephone number of our offices is (901) 252-2000.
Storage USA Trust
Storage USA Trust, a wholly-owned subsidiary of Storage USA, is a Maryland
real estate investment trust through which we own most of our limited
partnership interests in the operating partnership. Storage USA Trust's
principal office is located at 175 Toyota Plaza, Suite 700, Memphis, Tennessee
38103 and the telephone number of its offices is (901) 252-2000.
SUSA Partnership, L.P.
SUSA Partnership, L.P. is a Tennessee limited partnership through which we
conduct substantially all of our and our subsidiaries' operations. The
operating partnership's principal office is located at 175 Toyota Plaza, Suite
700, Memphis, Tennessee 38103 and the telephone number of its offices is (901)
252-2000.
Security Capital Group Incorporated
Security Capital is an international real estate operating company. Security
Capital for much of its history had diverse investments in real estate
operating companies operating in most commercial real estate sectors, and some
of these investments were minority ownership of publicly traded companies. In
the third quarter of 1999, Security Capital embarked upon a strategy of
focusing its capital in up to six operating divisions that would ultimately be
private subsidiaries of Security Capital. Since initiating this strategy,
Security Capital has disposed of its investments in the office, apartment, and
lodging sectors, and has proposed to increase its investments in the storage,
parking and assisted living sectors. The combined assets of the entities in
which Security Capital holds investments total $14.1 billion. In addition,
Security Capital Research & Management Incorporated, a wholly owned subsidiary
of Security Capital, manages $2.8 billion of real estate securities
investments. A primary objective of Security Capital is to eliminate the
discount to the underlying value of assets and maximize value for shareholders.
Security Capital believes that having direct control over its investees will
provide cost savings and transparency which will help to eliminate the trading
discount. Security Capital's principal offices are located at 125 Lincoln
Avenue, Santa Fe, New Mexico 87501. Security Capital and its majority-owned
affiliates have offices also in Brussels, Chicago, El Paso, Houston, London,
Luxembourg and New York City. On December 14, 2001, General Electric Capital
Corporation, or GE Capital, through its Commercial Real Estate business,
entered into a definitive agreement with Security Capital for GE Capital to
acquire Security Capital. See "Special Factors--Acquisition of Security Capital
by GE Capital."
71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The total number of shares of Storage USA common stock, par value $0.01 per
share, outstanding on March 11, 2002, was 28,640,470. The following table sets
forth information regarding the beneficial ownership of shares of Storage USA
common stock outstanding as of March 11, 2002, by (1) each person or group
known to Storage USA to beneficially own more than 5% of the outstanding shares
of Storage USA common stock, (2) each of the directors and executive officers
of Storage USA, and (3) all directors and executive officers of Storage USA as
a group. Unless otherwise indicated in the footnotes, all of such interests are
owned directly, and the indicated person or entity has sole voting and
investment power. The "Shares of Common Stock Beneficially Owned" represents
the number of shares of Storage USA common stock the person holds, including
shares that may be issued upon the exercise of options that are exercisable
within 60 days of March 11, 2002. Unless otherwise indicated, the business
address for each of the individuals listed below is c/o Storage USA, Inc., 175
Toyota Plaza, Suite 700, Memphis, TN 38103.
Shares of Common
Stock Beneficially Percent of Shares
Owned (1) Outstanding
------------------ -----------------
Security Capital Holdings III Incorporated(2)............... 11,765,654 41.08%
3753 Howard Hughes Parkway
Las Vegas, NV 89109
Francis C. Brown, III....................................... 38,477(3) *
Karl T. Haas................................................ 75,684(4) *
Dean Jernigan............................................... 755,973(5) 2.62%
Christopher P. Marr......................................... 92,630(6) *
John W. McConomy............................................ 61,910(7) *
Richard B. Stern............................................ 41,589(8) *
Bruce F. Taub............................................... 33,086 *
Mark E. Yale................................................ 23,343(9) *
C. Ronald Blankenship....................................... 9,427 *
Howard P. Colhoun........................................... 15,874 *
Alan B. Graf, Jr............................................ 15,542 *
Mark Jorgensen.............................................. 24,545(10) *
Caroline S. McBride......................................... 10,607 *
John P. McCann.............................................. 20,136 *
William D. Sanders.......................................... 10,329 *
Harry J. Thie............................................... 20,303 *
All Directors and Executive Officers as a Group (16 persons) 1,249,455 4.27%
- --------
(1) Includes (1) shares of restricted stock and restricted stock units held
by executive officers, and (2) shares, in the amounts indicated, which
the following directors and executive officers have the right to acquire
within 60 days pursuant to the exercise of options: Brown, 24,850
shares; Haas, 57,324 shares; Jernigan, 254,717 shares; Marr, 72,587
shares; McConomy, 42,668 shares; Stern, 35,844 shares; Taub, 16,375
shares; Yale, 15,722 shares; Blankenship, 7,000 shares; Colhoun, 10,318
shares; Graf, 7,000 shares; Jorgensen, 9,376 shares; McBride, 8,000
shares; McCann, 10,318 shares; Sanders, 7,722 shares; Thie, 10,318
shares.
(2) Security Capital Holdings III Incorporated is a wholly owned subsidiary
of Security Capital
Holdings II Incorporated, which is a wholly owned subsidiary of Security
Capital Operations Incorporated, which is a wholly owned
subsidiary of SC Realty Incorporated, which is a wholly owned
subsidiary of SC Capital Incorporated, which is a wholly owned
subsidiary of Security Capital Group Incorporated.
(3) Also includes 18 shares owned indirectly, as custodian for his minor
children.
72
(4) Also includes 46 shares owned indirectly, as custodian for his minor
children.
(5) Also includes 4,171 shares owned indirectly, as custodian for his minor
children.
(6) Also includes 5 shares owned indirectly, as custodian for his minor
children.
(7) Also includes 2 shares owned indirectly, as custodian for his child.
(8) Also includes 22 shares owned indirectly, as custodian for his children.
(9) Also includes 12 shares owned indirectly, as custodian for his children.
(10) All shares are owned by the Jorgensen Family Trust, Mark and Wilhemina
Jorgensen, Trustees.
* Less than 1%.
None of these executive officers or directors has engaged in any
transactions of Storage USA common stock in the 60 days prior to the date
hereof, other than:
. grants of one share to each minor child of each executive officer pursuant
to our Employee Recognition Awards and Holiday Gifts to Employees' Minor
Children Plan; and
. non-discretionary purchases of shares pursuant to our Profit Sharing and
401K Plan and Stock Purchase and Dividend Reinvestment Plan.
Company Stock Repurchases
From October of 1999 to October of 2000, we purchased 1,402,022 shares of
our common stock pursuant to our stock repurchase plan at an average price of
$29.97 per share. The table below sets forth additional information regarding
those repurchases.
Average No. of
Quarter Price Range of Prices Shares Gross Price
------- ------- --------------- --------- -----------
4th Q 1999 $28.86 $28.46-$28.94 250,000 $ 7,215,309
1st Q 2000 $30.05 $29.83-$30.95 204,400 $ 6,142,897
2nd Q 2000 $30.27 $29.93-$31.00 679,700 $20,572,085
3rd Q 2000 $30.19 $29.96-$30.25 267,922 $ 8,087,525
Aggregate. $29.97 1,402,022 $42,017,817
In addition, from September of 2000 to August of 2001 we purchased 65,000
shares of our common stock from employees, which were purchased by such
employees under the 1995 Employee Stock Purchase and Loan Plan, whose
employment with Storage USA was terminated, at prices ranging from $30.44 per
share to $38.24 per share, and averaging $35.11 per share.
73
DIRECTORS AND EXECUTIVE OFFICERS OF STORAGE USA
The following persons are the executive officers and/or directors of Storage
USA as of the date of this proxy statement. None of Storage USA, the operating
partnership, Storage USA Trust or any of these persons have been convicted in
any criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors), nor have they been a party to any judicial
or administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws or a
finding of any violation of federal or state securities laws. Each of the
directors and executive officers of Storage USA is a citizen of the United
States of America, and his or her principal place of business is 175 Toyota
Plaza, Suite 700, Memphis, Tennessee 38103 unless otherwise stated below.
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
C. Ronald Blankenship/(1) 52 /Director of Storage USA, Inc. since November 5,
1997. Mr. Blankenship has been a Director, Vice
Chairman and Chief Operating Officer of Security
Capital Group Incorporated since May 1998. Mr.
Blankenship was Managing Director of Security
Capital from 1991 to 1998. Prior to June 1997, he
was the Chairman of Archstone Communities Trust.
Mr. Blankenship is a Trustee of ProLogis and a
Director of BelmontCorp, InterPark Holdings
Incorporated, Macquarie Capital Partners LLC and
Regency, and was Interim Chairman, Chief
Executive Officer and a Director of Homestead
Village Incorporated from May 1999 until November
2001.
Francis C. Brown, III 38 Senior Vice President, E-Commerce of Storage USA,
Inc. since February 2000. Senior Vice President,
Human Resources from February 1998 to January
2000. Vice President, Human Resources of
AutoZone, Inc., from December 1993 to February
1998.
Howard P. Colhoun/(2)(3)(4)
66 / Director of Storage USA, Inc. since March 23,
1994. Mr. Colhoun has been General Partner of
Emerging Growth Partners, Baltimore, Maryland, a
venture capital/small public company investment
partnership, since 1982. Mr. Colhoun also serves
as a Director of Harbor Funds.
Alan B. Graf, Jr./(1)(2)(4)
48 / Director of Storage USA, Inc. since August 6,
1997. Mr. Graf has been Executive Vice President
& Chief Financial Officer of FedEx Corporation
since 1998. Mr. Graf was Sr. Vice President &
Chief Financial Officer of Federal Express
Corporation from 1991 to 1998. Mr. Graf is also a
Director of Kimball International, Inc.
Karl T. Haas 50 Executive Vice President, Operations of Storage
USA, Inc. since March 1994.
Dean Jernigan 56 Chief Executive Officer, Director and Board
Chairman of Storage USA, Inc. since 1985. Mr.
Jernigan has been the Chief Executive Officer of
Storage USA, Inc. since its inception in 1985 and
has been President since May, 1998. Mr. Jernigan
has, since 1999, been a Director of Thomas &
Betts, Inc.
74
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
Mark Jorgensen/(3)(4) 61 / Director of Storage USA, Inc. since January 25,
1995. Mr. Jorgensen has been a private real
estate investor and has served as a real estate
consultant to the pension fund industry for over
five years.
Christopher P. Marr 37 Chief Financial Officer of Storage USA, Inc.
since August, 1998. Senior Vice President,
Finance and Accounting of Storage USA, Inc. from
July 1997 to August 1998. Vice President,
Financial Reporting and Controller of Storage
USA, Inc., from August 1994 to July 1997.
Caroline S. McBride 48 Director of Storage USA, Inc. since May 7, 1997.
Ms. McBride has been a Managing Director of the
Capital Division of Security Capital Group
Incorporated since March 1997, where she provides
operating oversight for companies in which
Security Capital has ownership positions. From
June 1996 to July 1997, Ms. McBride was Managing
Director of Security Capital Research and
Management Incorporated. Ms. McBride is also a
Director of InterPark Holdings and BelmontCorp.
John P. McCann/(1)(4) 57 / Director of Storage USA, Inc. since March 23,
1994. From 1978 until the spring of 2001, Mr.
McCann served as the Chairman of the Board and
Chief Executive Officer of United Dominion Realty
Trust, Inc., Richmond, Virginia. Mr. McCann is
currently a private real estate investor and
since 1997 has been a Director of LandAmerica
Financial Group, Inc.
John W. McConomy 52 Executive Vice President, General Counsel and
Secretary of Storage USA, Inc. since August 1998.
Vice President and Associate General Counsel,
Harrah's Entertainment, Inc. from February 1996
to August 1998.
William D. Sanders/(3) 60 / Director of Storage USA, Inc. since November 6,
1996. Mr. Sanders is the founder and, since 1990,
has been Chairman of the Board and Chief
Executive Officer of Security Capital Group
Incorporated. Mr. Sanders is a Director of
Security Capital European Realty and Macquarie
Capital Partners LLC, an Advisory Director of
Regency, and Chairman of the National Association
of Real Estate Investment Trusts.
Richard B. Stern 50 Senior Vice President, Development and
Construction of Storage USA, Inc. since September
1999. Senior Vice President, Development of
Storage USA, Inc. from June 1996 to August 1999.
Vice President/Senior Portfolio Manager of Kemper
Corporation from October 1992 to January 1996.
75
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
Bruce F. Taub 44 Senior Vice President, Acquisitions of Storage
USA, Inc. since March 2000. Senior Vice
President, Capital Markets of Storage USA, Inc.
from January 2000 to March 2000. Senior Vice
President and General Counsel, Storage USA
Franchise Corp., September 1998 to December 1999.
Partner at Shapiro and Olander from October 1996
to August 1998.
Harry J. Thie/(1)(2)(4) /59 Director of Storage USA, Inc. since March 23,
1994. Mr. Thie has been a senior researcher with
the RAND Corporation, a non-profit research
institute, since 1991.
Mark E. Yale 36 Senior Vice President, Financial Reporting of
Storage USA, Inc. since July 1999. Vice
President, Financial Reporting of Storage USA,
Inc. from August 1998 through June 1999. Senior
Audit Manager, PricewaterhouseCoopers LLP from
January 1994 to July 1998.
- --------
(1) Member of the Human Resources Committee
(2) Member of the Audit Committee
(3) Member of the Corporate Governance and Nominating Committee
(4) Member of the Special Committee
76
DIRECTORS AND EXECUTIVE OFFICERS OF SECURITY CAPITAL
The following persons are the executive officers and/or directors of
Security Capital as of the date of this proxy statement. Neither Security
Capital nor any of these persons have been convicted in any criminal proceeding
during the past five years (excluding traffic violations or similar
misdemeanors), nor have they been a party to any judicial or administrative
proceeding during the past five years that resulted in a judgment, decree or
final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws or a finding of any
violation of federal or state securities laws. Each of the directors and
executive officers of Security Capital is a citizen of the United States of
America, and his or her principal place of business is 125 Lincoln Avenue,
Santa Fe, New Mexico 87501 unless otherwise stated below.
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
C. Ronald Blankenship 52 Director, Vice Chairman and Chief Operating
Officer since May 1998. Previously, Mr.
Blankenship was Managing Director of Security
Capital since 1991. Prior to June 1997, he was
the Chairman of Archstone Communities Trust. Mr.
Blankenship is a Trustee of ProLogis and a
Director of BelmontCorp, InterPark Holdings
Incorporated, Macquarie Capital Partners LLC,
Regency and Storage USA, and was Interim
Chairman, Chief Executive Officer and a Director
of Homestead Village Incorporated from May 1999
until November 2001.
Hermann Buerger 58 Director since 1996. Mr. Buerger has been
Regional Board member of Commerzbank AG since
January 2002 and was Executive Vice President of
Commerzbank AG from 1989 to 2002. Mr. Buerger is
a Director of Ptek Holdings, Inc. and Commerzbank
Capital Markets Corporation.
John P. Frazee 57 Director since 1991. Mr. Frazee is a private
investor. Mr. Frazee was formerly Chairman and
Chief Executive Officer of Paging Network, Inc.
from 1997 to 2000, and President from 1997 to
1999. In 2000, Paging Network, Inc. filed for and
emerged from bankruptcy proceedings. From 2000
until 2001, Mr. Frazee was Non-Executive Chairman
of Vast Solutions, Inc., a subsidiary of Paging
Network, Inc. In 2001, Vast Solutions filed for
bankruptcy proceedings. Mr. Frazee was formerly
President and Chief Operating Officer of Sprint
Corporation. Mr. Frazee is a Director of Cable
Satellite Public Affairs Network (C-SPAN) and
Cabot Microelectronics Corporation.
Cyrus F. Freidheim, Jr. 66 Director since 1991. Vice Chairman of Booz Allen
Hamilton, Inc., an international management
consulting firm, which he joined in 1966. Mr.
Freidheim is a Director of Household
International Inc., CS Tech, Inc. and
Pharmaceutical Industries, LTD .
H. Laurance Fuller 63 Director since 1991. Mr. Fuller was Co-Chairman
and Director of BP Amoco p.l.c. from January 1999
until March 2000. Mr. Fuller was formerly
Chairman and Chief Executive Officer of Amoco
Corporation until 1998. He joined Amoco
Corporation in 1961. Mr. Fuller is a Director of
Abbott Laboratories, J.P. Morgan Chase
Corporation and Motorola, Inc.
77
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
Janet Hill 54 Director since 2001. Vice President of Alexander
& Associates, Incorporated, a corporate
consulting firm which she joined in 1981. Mrs.
Hill was the Special Assistant of the Secretary
of the Army from 1978 to 1981. Mrs. Hill is a
Director of Nextel Communications, Inc., Wendy's
International, Inc., Progressive Insurance
Company and Dean Foods Inc.
Ray L. Hunt 58 Director since 1991. Mr. Hunt has been Chairman
and Chief Executive Officer of Hunt Oil Company,
and Chairman, Chief Executive Officer and
President of Hunt Consolidated Inc. since 1981.
Mr. Hunt is a Director of Halliburton Company,
Electronic Data Systems Corporation, King Ranch,
Inc. and PepsiCo, Inc. and a Class C Director of
the Federal Reserve Bank of Dallas.
John T. Kelley, III 61 Director since 1991. Mr. Kelley is Founding
Officer and has been Advisory Trustee of ProLogis
since January 1993. Mr. Kelley was a Trustee of
Archstone Communities Trust from 1988 to February
2001, and has been a Director of Regency since
March 1999, prior to which he served as Chairman
of the Board of Pacific Retail Trust.
Jay O. Light 60 Director since 2001. Mr. Light has been a
Professor at Harvard University School of
Business Administration since 1970 and Senior
Associate Dean since 1988. Mr. Light has been a
Director of Security Capital European Realty
since 1997 and was a Director of Security
Capital-US Realty from 1996 until January 2001.
He is a Trustee of GMO Funds and a Director of
Harvard Management Company.
William D. Sanders 60 Founder, Chairman and Chief Executive Officer of
Security Capital. Mr. Sanders is a Director of
Security Capital European Realty, Storage USA and
Macquarie Capital Partners LLC, an Advisory
Director of Regency, and Chairman of the National
Association of Real Estate Investment Trusts.
Peter S. Willmott 64 Director since 1991. Mr. Willmott has been
Chairman and Chief Executive Officer of Willmott
Services, Inc., since 1989. Mr. Willmott is a
Director of FedEx Corporation.
Frank P. Lowy, Jr. 71 Advisory Director since 2000. Mr. Lowy has been
Chairman of Westfield America Management Limited
since 1996, Chairman of Westfield America, Inc.
since 1994, and Founder and Chairman of Westfield
Holdings Limited. Mr. Lowy has been a member of
the board of the Reserve Bank of Australia since
1995, and director of the Daily Mail and General
Trust p.1.c. (U.K.) since 1994. An Advisory
Director is permitted to attend Board meetings
but does not have a right to vote on matters
considered by the Board.
Jeffrey A. Klopf 53 Senior Vice President and Secretary of Security
Capital since January 1996. Mr. Klopf provides
legal services to Security Capital and some of
its directly-owned operating companies.
78
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
Anthony R. Manno, Jr. 49 Managing Director of Security Capital Research
and Management Incorporated since January 1995,
where he is responsible for investment strategy
and execution. Mr. Manno was a member of Security
Capital's investment Committee from March 1994 to
June 1996. Mr. Manno has been President of
SC-Preferred Growth since January 2000 and
Chairman and President of Security Capital Real
Estate Mutual Funds since January 1997.
Caroline S. McBride 48 Managing Director of the Capital Division since
March 1997, where she provides operating
oversight for companies in which Security Capital
has direct ownership positions. From June 1996 to
July 1997, Ms. McBride was Managing Director of
Security Capital Research and Management
Incorporated. Ms. McBride is a Director of
Storage USA, InterPark Holdings and BelmontCorp.
A. Richard Moore 56 Managing Director of Security Capital European
Realty since June 2000 and Managing Director of
the Capital Division since May 1998. Mr. Moore
was Interim Chief Financial Officer for Homestead
Village Incorporated from May 1999 to July 2000.
From March 1990 to May 1998, Mr. Moore was a Vice
President with Goldman, Sachs & Co., where his
most recent position was in the Equity Research
Department. Mr. Moore is a Director of Security
Capital European Realty, Access, Akeler,
Bernheim-Comofi and CWE Property Holdings S.A.
Constance B. Moore 46 Managing Director of the Capital Division since
January 1999, where she provides operating
oversight for companies in which Security Capital
has direct ownership positions. From July 1998 to
December 1998, Ms. Moore was Co-Chairman and
Chief Operating Officer of Archstone Communities
Trust, and a Trustee of Archstone from July 1998
to July 2000. From January 1996 to July 1998, Ms.
Moore was Co-Chairman, Chief Operating Officer
and Director of Security Capital Atlantic
Incorporated (which merged into Archstone). Ms.
Moore is a Trustee of Urban Growth and City
Center Retail and a Director of BelmontCorp,
InterPark Holdings, Interparking S.A. and
Macquarie Capital Partners LLC.
David T. Novick
37 Senior Vice President of Security Capital since
March 2001, and Vice President of Security
Capital from May 1998 to March 2001. From
September 1989 to May 1998, Mr. Novick was an
attorney, and most recently a Partner, with the
law firm of Katten Muchin & Zavis.
Russell C. Platt 41 Managing Director of Security Capital Research
and Management Incorporated since March 2001
where he is responsible for new product
development, global expansion and client capital.
From April 2000 to March 2001, Mr. Platt was
Managing Director of Forum Partners; from January
1999 to April 2000, he was President of JER
International. Mr. Platt was a Managing Director
with Morgan Stanley from August 1982 to July
1999, where he founded the global real estate
business of Morgan Stanley Asset Management and
served as a Director of the Morgan Stanley Real
Estate Funds.
79
Name and Address of Age Position with Storage USA and Business
Principal Place of Experience During Past Five Years
Business
Kenneth D. Statz 43 Managing Director of Security Capital Research
and Management Incorporated since December 1997,
where he is responsible for the development and
implementation of portfolio investment strategy.
From July 1996 to December 1997, Mr. Statz was
Senior Vice President of Security Capital
Research and Management Incorporated .
James C. Swaim 49 Managing Director of SCGroup since December 2000
and Senior Vice President of Security Capital
since December 1998. From December 1997 to
December 1998, Mr. Swaim was Vice President of
Security Capital. Mr. Swaim is the principal
accounting officer for Security Capital. From
July 1996 to December 1997, he was a private
business and financial consultant.
Paul E. Szurek 41 Managing Director of SCGroup and Chief Financial
Officer of Security Capital since July 1997. From
January 1996 through June 1997, Mr. Szurek was
Managing Director of Security Capital-U.S. Realty
and EU Management, where he was responsible for
operations, corporate finance and mergers and
acquisitions.
Thomas G. Wattles 50 Managing Director of Security Capital since 1991.
Mr. Wattles was Non-Executive Chairman of
ProLogis from March 1997 to May 1998, Co-Chairman
and Chief Investment Officer of ProLogis from
November 1993 to March 1997, and Director of
ProLogis' predecessor since its formation in
1991. Mr. Wattles is a Trustee of Urban Growth
Property Trust and ProLogis and a Director of
Access, Akeler, Bernheim-Comofi, CWE Property
Holdings S.A., InterPark Holdings, London &
Henley, Millers Storage, Regency, and Security
Capital European Realty.
80
TERMS OF THE TRANSACTIONS
The following is a summary of the material provisions of the purchase
agreement. A copy of the original purchase agreement and the letter agreement
amending the purchase agreement are attached as Appendices A and B,
respectively, to this proxy statement. This summary is qualified in its
entirety by reference to the full text of the purchase agreement, which is
incorporated into this proxy statement by reference.
General
Following approval of the purchase agreement by our shareholders and the
satisfaction or waiver of the other conditions to the Transactions, first,
Security Capital will purchase from the operating partnership and Storage USA's
Chairman, President and Chief Executive Officer two corporate subsidiaries
controlled by them, and then Security Capital will purchase all of our assets
(including all of our interest in the operating partnership) and assume all of
our liabilities. After the asset sale, we will purchase from Security Capital
all shares of our common stock owned by it and its affiliates. Immediately
thereafter, we will merge with and into the operating partnership, which at the
time of the merger will be a majority-owned subsidiary of Security Capital and
which will be the surviving entity in the merger. The closing of the
Transactions will take place no later than two business days after fulfillment
or waiver of the conditions to the Transactions or at such other time agreed to
by the parties.
The merger, which is the last step in the Transactions, will become
effective upon the filing of the certificate of merger with the Secretary of
State of the State of Tennessee or the later date and time agreed to by the
parties and set forth in the certificate of merger. At that time, we will cease
to exist as a separate entity.
The purchase agreement originally provided that, in the merger, Storage USA
shareholders would be entitled to receive $42.00 in cash (subject to the
adjustments described under "--Consideration to Securityholders") in respect of
each share of Storage USA common stock they own. However, as part of the
settlement of the shareholder class litigation commenced in connection with the
Transactions, as described under "Special Factors--Litigation in Connection
with the Transactions," Security Capital agreed to increase the transaction
consideration from $42.00 to $42.50 per share (subject to the same adjustment
and other provisions of the purchase agreement) and the parties to the purchase
agreement entered into the letter agreement amending the purchase agreement to
reflect the increase in the transaction consideration.
Structure of the Transactions
If completed, the Transactions are expected to occur on the same day in the
following sequence:
Subsidiary Sale. The operating partnership will sell all of its interests
in Storage USA Franchise Corp. and SUSA Management, Inc. to Security Capital
for an aggregate consideration of $15,859,000, and, pursuant to a separate
agreement, Dean Jernigan, our Chairman, Chief Executive Officer and President,
will sell all of his interests in SUSA Management, Inc. to Security Capital,
after which Security Capital will own all of the issued and outstanding stock
of these two entities. The consideration payable for Storage USA Franchise
Corp., a wholly-owned subsidiary of the operating partnership which conducts
our franchise operations is $15,858,059.50, representing a negotiated amount
for the entity as a whole. This amount is equivalent to a per share
consideration of $1,585.81. The consideration payable for SUSA Management, Inc.
is $950, representing the aggregate par value ($0.10 per share) of SUSA
Management, Inc.'s capital stock. Because SUSA Management, Inc. has no book
value, par value was determined by the general partner to be the appropriate
consideration on a per share basis. SUSA Management, Inc. has 9,500 issued and
outstanding shares, 9,405 of which are owned by the operating partnership and
95 of which are owned by Mr. Jernigan. Accordingly, the operating partnership
will receive total consideration of $940.50 for the sale to Security Capital of
its SUSA Management, Inc. shares, and (pursuant to a separate stock purchase
agreement with Security Capital) Mr. Jernigan will receive total consideration
of $9.50. We refer to these transactions as the "subsidiary sale."
Partnership Sale. Immediately following the subsidiary sale, we and
Storage USA Trust, a subsidiary through which we own most of our limited
partnership interests in the operating partnership, will sell all of our
respective interests in the operating partnership and SUSA Holdings L.P. to
Security Capital (all limited partnership interests and then the general
partnership interest), after which Security Capital will be the sole
81
general partner and majority limited partner of the operating partnership and
the sole general partner of SUSA Holdings, L.P. Security Capital may elect to
pay consideration for this transaction in the form of promissory notes (up to
an aggregate amount equal to the product of the number of shares of our common
stock held by Security Capital and its affiliates multiplied by $42.50). We
refer to this transaction as the "partnership sale."
Asset Sale and Assumption of Liabilities. Concurrently with the
partnership sale, we will sell to Security Capital all our interests in all of
our remaining assets, including all of the issued and outstanding shares of
capital stock of our subsidiaries Storage USA Trust, Huron Acquisitions, Inc.
and SUSA Finance Corp. At the same time, Security Capital will also assume all
of Storage USA's liabilities. The aggregate consideration to be paid by
Security Capital in the asset sale and in the partnership sale, not including
the assumption of all of our liabilities by Security Capital, will be equal to
the amount determined by adding the consideration to be paid to our common
shareholders and optionholders in the merger (currently expected to be
approximately $741 million) to the amount payable to Security Capital in
connection with the redemption described below. We refer to this transaction as
the "asset sale." The operating partnership's liabilities will remain
outstanding except to the extent repaid at closing as described under
"--Payments by Security Capital."
Redemption. Immediately after the partnership sale and the asset sale, we
will purchase from Security Capital and its affiliates all of the shares of our
common stock owned by them for an aggregate amount equal to the product of
$42.50 and the number of shares of our common stock held by Security Capital
and its affiliates in cash and/or, to the extent any portion of the
consideration paid in the partnership sale or the asset sale was paid by
Security Capital in notes, such notes. The redeemed shares will become
authorized but unissued shares of Storage USA. We refer to this transaction as
the "redemption."
Merger. As the final step in the Transactions, we will merge with and into
the operating partnership, which at the time of the merger will be a
majority-owned subsidiary of Security Capital, and the operating partnership
will be the surviving entity in the merger. In connection with the merger, the
shareholders and limited partners will have the right to receive $42.50 for
each share or unit they own, and the agreement of limited partnership of the
operating partnership will be amended and restated as set forth in the purchase
agreement. We refer to this transaction as the "merger."
Consideration to Securityholders
Consideration to Shareholders. In the merger, each share of our common
stock issued and outstanding immediately prior to the effective time of the
merger, other than the common stock (1) held by Storage USA as treasury stock
and (2) owned by any of our wholly owned subsidiaries, will be automatically
converted into the right to receive $42.50 in cash, without interest, per share
of common stock, which amount will be:
. increased by the pro rata portion of the per share amount of the quarterly
dividends normally paid on our common stock in the ordinary course of
business consistent with past practice (not to exceed $0.71 per share)
relating to the quarterly period in which the closing of the Transactions
occurs; and
. reduced by the per share amount of any dividend in excess of such
permissible normal quarterly dividends paid on our common stock after
December 5, 2001.
Security Capital will not receive any transaction consideration in the
merger because all shares of our common stock owned by it and its affiliates
will be acquired by us, prior to the merger, in connection with the redemption.
At the completion of the merger, all shares of our common stock will be
cancelled and retired and will cease to exist, and each certificate formerly
representing the shares, other than as described above, will thereafter
represent only the right to receive its portion of the transaction
consideration.
Consideration to Optionholders. In the merger, each holder of an option to
purchase shares of our common stock will have the right to receive, in exchange
for the cancellation of such option, a cash payment in an aggregate amount
equal to the product of: (1) the excess of $42.50 per share, adjusted as
described immediately above, over the exercise price per share of common stock
subject to such option and (2) the number of shares of our common stock subject
to such option.
82
Any consideration payable to optionholders will be reduced by the amount of:
. any income or employment tax withholding required under applicable tax
laws; and
. any unpaid loan from Storage USA to such holder to the extent the shares
of our common stock subject to such option were pledged as a security
interest for the payment of such loan.
Consideration to Operating Partnership Unitholders. Each unit of limited
partnership of the operating partnership issued and outstanding immediately
prior to the effective time of the merger, other than units held by Security
Capital or its subsidiaries or by a holder who is qualified and has elected to
continue as a limited partner of the surviving partnership, will be
automatically converted into the right to receive $42.50 in cash, without
interest, per unit, which amount will be:
. increased by the pro rata portion of the per unit amount of normal
distributions on operating partnership units relating to the quarterly
period in which the closing of the Transactions occurs; and
. reduced by the per unit amount of any distribution in excess of such
normal distributions paid by the operating partnership after December 5,
2001.
The purchase agreement also gives each operating partnership's limited
partner (other than Security Capital) otherwise entitled to receive their
portion of the transaction consideration the right to elect, with respect to
all or any part of the holder's units, to continue as a limited partner of the
surviving partnership, unless:
. the unitholder fails to make an election in accordance with the
requirements of the purchase agreement;
. the portion of the transaction consideration payable to such unitholder is
equal to $250,000 or less in the aggregate;
. the unitholder is not an "accredited investor" as defined under applicable
SEC rules; or
. Security Capital (after being advised by outside counsel) determines in
its reasonable judgment that the unitholder would not be eligible to
continue as a limited partner of the surviving partnership without
registration of such unitholder's units under applicable securities laws.
If any of these conditions is applicable, the unitholder will not be entitled
to elect to continue as a limited partner of the surviving partnership and will
only be entitled to the transaction consideration in respect of his units. We
refer to unitholders who have made elections with respect to any or all of
their units as the "electing holders."
Preferred Unitholders. Holders of 8 7/8% Series A Cumulative Redeemable
Preferred Units of limited partnership in the operating partnership will
continue as holders of such preferred units in the surviving partnership.
Security Capital has agreed to take all necessary and appropriate action to
designate or cause to be designated 650,000 shares of preferred stock of the
general partner of the surviving partnership as 8 7/8% Series A Cumulative
Redeemable Preferred Stock, for which the preferred units will be exchangeable,
having substantially the same terms as the Series A Preferred Stock of Storage
USA (none of which is presently issued).
Payments by Security Capital
The aggregate cash consideration to be paid by Security Capital to us in
connection with the partnership sale and asset sale, not including the
assumption of all of our liabilities by Security Capital, will be equal to the
aggregate consideration to be paid to our common shareholders and
optionholders. Security Capital may elect to pay a portion of this aggregate
consideration, equal to the product of the number of shares of Storage USA
common stock held by Security Capital and its affiliates multiplied by $42.50,
in the form of one or more promissory notes.
83
In addition to the consideration paid to holders of our common stock and
optionholders, in connection with the Transactions Security Capital:
. will pay the per unit transaction consideration to the operating
partnership's unitholders who do not elect or are not qualified to
continue as limited partners of the surviving partnership;
. will pay $15,859,000 to the operating partnership in connection with the
subsidiary sale (which amount the operating partnership is obligated under
the purchase agreement to apply to the partial repayment of its lines of
credit); and
. will provide the operating partnership with sufficient funds to repay all
remaining amounts outstanding under the operating partnership's and
Storage USA Franchise Corp.'s lines of credit,
and, in consideration for such payments, Security Capital will receive a number
of units in the operating partnership equal to the aggregate cash consideration
so paid divided by the per unit transaction consideration.
Payment Procedures
Prior to the date of the effective time of the merger, Security Capital will
select a paying agent reasonably satisfactory to us. Security Capital and
Storage USA will deposit in trust with the paying agent an amount in cash
(which, in the case of Storage USA, will be all of the cash consideration paid
by Security Capital in connection with the partnership sale and the asset sale)
sufficient to pay the aggregate consideration payable to our shareholders and
optionholders and to the operating partnership's unitholders (other than
Security Capital and any electing holders).
Promptly after the effective time of the merger, the surviving partnership
will cause to be mailed to each Storage USA shareholder, a transmittal letter
and instructions specifying the procedures to be followed for surrendering
certificates in exchange for their portion of the transaction consideration.
You should not send your certificates to us or anyone else until you receive
these instructions. If any stock certificate has been lost, stolen or
destroyed, upon delivery of an affidavit of that fact by the person claiming
such event and, if required by the surviving partnership, the posting of a
bond, the paying agent will issue in exchange for the lost, stolen or destroyed
certificate you portion of the transaction consideration.
When you surrender to the paying agent your stock certificate(s) with a duly
completed and signed transmittal letter, you will be entitled to receive your
portion of the transaction consideration in exchange for each share formerly
evidenced by such certificate(s), and the certificate(s) will be cancelled.
Any portion of the funds provided by Security Capital and Storage USA to the
paying agent for payment of the transaction consideration that remains
unclaimed by Storage USA shareholders after the third month following the
effective time of the merger will be returned to Security Capital at its
request. After that time, shareholders may request payment for their shares
from Security Capital only as general creditors of Security Capital. None of
Security Capital, Storage USA, the surviving partnership, Storage USA Trust,
the paying agent or any other person will be liable to any of our former
shareholders or any unitholders of the operating partnership for any
transaction consideration delivered to a public official pursuant to any
abandoned property, escheat or similar laws. Any amount of the transaction
consideration remaining unclaimed three years after the effective time of the
merger will become, to the extent permitted by applicable law, the property of
Security Capital free and clear of all claims or interests of any other person.
After the effective time of the merger, there will be no further
registration of transfers of shares of our common stock on our stock transfer
books, and if, after such time, any stock certificates are presented to the
surviving partnership or the paying agent for any reason, they will be
cancelled and exchanged as described above.
84
Appraisal Rights
No appraisal or dissenters rights are available under Tennessee law to our
shareholders (or to the operating partnership's unitholders) in connection with
the Transactions. No provision has been made for any of our individual
shareholders unaffiliated with Security Capital to obtain counsel or appraisal
services at our expense, or to grant unaffiliated shareholders access to the
corporate files of Storage USA or Security Capital, but the special committee
acting on behalf of shareholders unaffiliated with Security Capital and at the
expense of Storage USA did obtain access to corporate files and independent
legal and financial advice, including a fairness opinion. See "Special
Factors--Litigation in Connection with the Transactions" for a description of
the actions that were brought by alleged Storage USA shareholders in connection
with the Transactions and the effect that the proposed settlement of such
actions will have on claims that Storage USA shareholders may have with respect
to the Transactions and related matters.
Representations and Warranties
Representations and Warranties of Storage USA and Its Affiliates. In the
purchase agreement, we, Storage USA Trust and the operating partnership make
customary representations and warranties, jointly and severally, concerning our
respective businesses and assets, subject to exceptions disclosed to Security
Capital at or prior to the time of the signing of the purchase agreement or in
reports filed by us with the SEC between January 1, 2001 and December 5, 2001
and to customary qualifications for materiality. These representations and
warranties include, among others:
. that the sellers and their subsidiaries are duly organized, validly
existing and in good standing under the laws of their respective states of
incorporation and have all requisite power and authority to own, operate,
lease and encumber their properties and carry on their respective
businesses;
. that the sellers have all requisite organizational power to enter into the
purchase agreement, perform their respective obligations under the
purchase agreement, and consummate the Transactions, and that such actions
have been duly and validly authorized by all necessary action on the part
of the sellers;
. that neither the execution and delivery of the purchase agreement nor the
performance of the Transactions will conflict with or breach the
organizational documents, employee benefit plans, agreements or similar
obligations of the sellers or their subsidiaries, or any laws or
regulations, or require any consent from or registration with any
governmental entity;
. that all SEC filings (including this proxy statement, other than with
respect to information supplied by Security Capital) made by Storage USA
or the operating partnership since January 1, 1999, did not or will not
contain any untrue statement of a material fact or omit to state a
material fact;
. that the sellers and their subsidiaries are not in violation of any laws
or regulations and that there are no suits or actions filed or, to the
sellers' knowledge, threatened against the sellers or their subsidiaries;
. that since September 30, 2001, Storage USA and its subsidiaries have
conducted their respective businesses in the ordinary course, and there
has not been any change that has been or would reasonably be expected to
have a "material adverse effect" (as defined under "--Conditions to
Closing") on Storage USA and its subsidiaries taken as a whole;
. that Storage USA has operated and intends to continue to operate in a
manner required to be taxed as a REIT for the years 2000 and 2001, and
intends to be taxed as a REIT through the end of the tax year in which the
closing of the Transactions occurs; and
. customary representations and warranties with respect to Storage USA's and
its subsidiaries' material agreements, corporate records, properties
(owned or leased), environmental matters, employees and employee benefit
plans, labor matters, affiliate transactions, insurance policies,
Tennessee takeover law, brokers and financial advisors and intellectual
property.
Representations and Warranties of Security Capital. The purchase agreement
also contains customary representations and warranties of Security Capital,
subject to qualifications for materiality, including:
. that Security Capital is a corporation duly incorporated, validly existing
and in good standing under the laws of Maryland;
. that the execution and delivery of the purchase agreement and the
performance of the Transactions have been duly authorized by all necessary
corporate action on the part of Security Capital;
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. that neither the execution and delivery of the purchase agreement nor the
performance of the Transactions will conflict with or breach the
organizational documents of Security Capital, any statute or regulation,
agreements or similar obligations, or require any consent from or filing
with any governmental entity;
. that Security Capital owns, directly or through one or more of its
affiliates as of the date of the purchase agreement, 11,765,654 shares of
our common stock; and
. that Security Capital has provided Storage USA a true and complete copy of
the Revolver Commitment Letter, dated November 28, 2001, with Wells Fargo
Bank, and, assuming the availability of the $115 million of funds pursuant
to Security Capital's financing, and subject to the terms and conditions
of such financing, that Security Capital will have sufficient funds to
consummate the Transactions.
The representations and warranties of the parties to the purchase agreement
will not survive the closing of the Transactions.
Conduct of Business Prior to the Transactions
We have agreed that, prior to the consummation of the Transactions, except
as otherwise provided in the purchase agreement or consented to in writing by
Security Capital, we and our subsidiaries will:
. operate our respective businesses in the ordinary course of business
consistent with past practice; and
. use commercially reasonable efforts to preserve our respective business
organizations and assets, keep available the services of our respective
present officers and employees and preserve our respective existing
business relationships.
We have also agreed that, except as otherwise provided in the purchase
agreement, we will not, and will not permit any of our subsidiaries to, without
the prior written consent of Security Capital:
. change the number of shares of authorized or issued capital stock (except
in connection with the redemption of operating partnership units in the
ordinary course of business) or issue or grant any option, warrant or
right with respect to such stock (unless expressly required by the terms
of a preexisting employee benefit plan or employee agreement);
. split, combine or reclassify any shares of capital stock or declare, set
aside or pay any dividends, except for normal quarterly dividends (not to
exceed $0.71 per share) paid on our common stock in the ordinary course of
business consistent with past practice and any corresponding distribution
on the limited partnership units of the operating partnership or as may be
required to preserve our status as a REIT for federal income tax purposes;
. issue, sell, grant, pledge or otherwise dispose of or encumber any shares
of capital stock of Storage USA or its subsidiaries, any other voting
securities as securities convertible into, or any right, warrants or
options to acquire, such shares (other than pursuant to the exercise of
stock options granted under our benefit plans outstanding on the date of
the purchase agreement);
. amend our organizational documents;
. acquire any business, entity or division of any entity other than self
storage facilities and related assets in the ordinary course of business
consistent with past practice;
. except for the sale of inventory and the sale or lease of self storage
facilities in the ordinary course of business, sell, lease or otherwise
dispose of any properties or other material assets;
. except as described under "--Solicitation of Proposals by Storage USA and
Alternative Acquisition Transactions," enter into an agreement with
respect to any merger, liquidation or business combination or any
acquisition of all or substantially all of our or our subsidiaries' assets
or securities;
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. incur any indebtedness for borrowed money in excess of $50,000
individually and $150,000 in the aggregate, or repay any existing
indebtedness except as required by the terms of existing agreements;
. issue, sell or amend any debt securities of ours or our subsidiaries or
guarantee any debt securities of another person or enter into any
agreement to maintain any financial statement condition of another person;
. make any investment in any person other than Storage USA or its
subsidiaries or except as required by the terms of existing joint venture
partnerships;
. make capital expenditures or other expenditures in excess of $150,000 in
the aggregate (over budgeted amounts), with respect to any property, plant
or equipment for Storage USA or its subsidiaries;
. make any changes in financial accounting methods or practices except as
required by a change in GAAP;
. knowingly modify or terminate in any adverse manner any agreement to which
we or our subsidiaries is a party involving payments to or from us in
excess of $100,000 in any twelve month period;
. enter into any agreement requiring us or our subsidiaries to make payments
in excess of $100,000 in any twelve month period;
. except as required by law or agreements or plans existing on the date of
the purchase agreement:
. adopt, terminate or amend any employment, severance or similar agreement
or plan for the benefit of any current or former director, officer,
employee or consultant, or any collective bargaining agreement,
. increase the compensation or fringe benefits of, or pay any bonus to,
any director, officer, employee or consultant,
. amend or accelerate the payment, right to payment or vesting of any
compensation or benefits,
. pay any material benefits not provided for as of the date of the
purchase agreement under our benefit plans,
. grant any awards under any bonus, incentive, performance or other plan,
including the grant of stock options, stock appreciation rights, stock
based or stock related awards, performance units or restricted stock, or
. take any action to fund or secure the payment of compensation or
benefits under any plan;
. make or rescind any material tax election, settle or compromise any
material tax liability or make any material amendment to any tax return;
. initiate, compromise, or settle any litigation or arbitration proceeding
relating to the purchase agreement or the Transactions or material to
Storage USA and its subsidiaries, taken as a whole;
. open or close any facility or office material to Storage USA and its
subsidiaries, taken as a whole;
. adopt or implement any shareholder rights plan or similar arrangement; or
. authorize or agree to take any of the foregoing actions or any action
which would materially impair or prevent the satisfaction of any condition
to the consummation of the Transactions.
Notwithstanding the foregoing, Storage USA and its subsidiaries may make all
expenditures and take all actions called for by its 2002 budget.
Solicitation of Proposals by Storage USA and Alternative Acquisition
Transactions
Permitted Period and Take-Along Rights
Solicitation of Proposals. The purchase agreement permitted Storage USA,
during the 45-day period following December 5, 2001, the date of the purchase
agreement, to solicit an extraordinary transaction with a third party. This
"permitted period" expired on January 19, 2002. During the permitted period,
none of the
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limitations described below on solicitation, negotiation or furnishing of
information with respect to acquisition proposals applied, other than the
notice requirement described under "--Solicitation of Proposals by Storage USA
and Alternative Acquisition Transactions--Notices to Security Capital."
Superior Transaction Agreements. During the permitted period, we were also
permitted to terminate the purchase agreement and enter into an agreement with
respect to a superior transaction with a third party if we had complied with
the notice requirements described in this section and concurrently with such
termination we had paid a termination fee to Security Capital and, if requested
by such third party, Security Capital had executed a support agreement.
Take-Along Rights. If during the permitted period Storage USA had
terminated the purchase agreement to enter into an agreement providing for a
superior transaction, Security Capital had agreed that, for a period of four
months after such termination, and subject to extension for specified
regulatory delays or delays resulting from breaches of the purchase agreement
by Security Capital or from any other actions of Security Capital or its
affiliates (we refer to this period as the "take-along period"), Security
Capital would have voted all Storage USA shares owned by it and its affiliates
in favor of the superior transaction and sold all such shares to the buyer in
the superior transaction for cash and otherwise on terms no less favorable than
those offered to other Storage USA shareholders. The purchase agreement
conditioned Security Capital's support obligation on Storage USA being in
compliance with its obligations to notify Security Capital of the superior
transaction and to pay a termination fee concurrently with the termination of
the purchase agreement (provided that, if requested by the third party buyer,
Security Capital had executed a support agreement). While, as a result of the
expiration of the permitted period, the obligation of Security Capital to
support a superior transaction no longer applies (see "Special
Factors--Background of the Transactions"), Security Capital continues to be
subject to the obligation, set forth in the purchase agreement, not to sell or
otherwise dispose of the shares of our common stock owned by it, except to its
affiliates, until the termination of the purchase agreement.
No-Solicitation Period
Solicitation of Proposals. The purchase agreement provides that, during the
period from January 20, 2002 until the termination of the purchase agreement
(which we refer to as the "no-solicitation period"), Storage USA will not, nor
will it cause, authorize or permit any of its subsidiaries or affiliates or its
or their representatives to:
. solicit, initiate, encourage or take any other action to facilitate any
inquiries or the making of any proposal or offer that constitutes, relates
to or could reasonably be expected to lead to, any "acquisition proposal"
(as defined under "--Solicitation of Proposals by Storage USA and
Alternative Acquisition Transactions--Definitions");
. enter into, continue or otherwise participate in any discussions or
negotiations regarding any proposal or offer that constitutes, or could
reasonably be expected to lead to, any acquisition proposal; or
. furnish to any person any information with respect to, assist and
participate in any effort or attempt by, or otherwise cooperate with any
person with respect to any proposal or offer that constitutes, or could
reasonably be expected to lead to, any acquisition proposal.
Unsolicited Proposals. However, in response to an acquisition proposal that
did not result from a breach of these no-solicitation obligations, and subject
to compliance with the notice requirements described under "--Solicitation of
Proposals by Storage USA and Alternative Acquisition Transactions--Notices to
Security Capital" below, Storage USA may:
. pursuant to a customary confidentiality agreement containing customary
standstill provisions, furnish information concerning itself to any person
making an acquisition proposal that the special committee determines in
good faith (after consultation with outside counsel and its financial
advisor) is a "superior
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proposal" (as defined under "--Solicitation of Proposals by Storage USA
and Alternative Acquisition Transactions--Definitions"); and
. engage in discussions or negotiations with such person regarding any such
superior proposal.
The purchase agreement provides that any violation of the no-solicitation
obligations described above by any of our affiliates, subsidiaries or
representatives, whether or not such person is purporting to act on our behalf
will be deemed to be a breach by Storage USA of its no-solicitation obligations.
Change in Recommendation. The purchase agreement also provides that during
the no-solicitation period our board of directors and the special committee may
not:
. withdraw or publicly propose to withdraw, or modify or publicly propose to
modify in a manner adverse to Security Capital, their approval or
recommendation of the purchase agreement or the Transactions;
. enter into any agreement relating to an alternative acquisition proposal
(other than the confidentiality agreements referred to above); or
. adopt, approve or recommend any acquisition proposal (or publicly propose
to do so).
However, our board and the special committee may: (1) so withdraw, modify or
publicly propose to withdraw or modify their approval or recommendation if the
board of directors or the special committee determines in good faith (after
consultation with Storage USA's or the special committee's outside counsel and
the financial advisor for the special committee) that an acquisition proposal
constitutes a superior proposal as to which Storage USA intends to enter into a
binding written agreement; and (2) adopt, approve or recommend such superior
proposal (or propose to do so) if Storage USA has terminated the purchase
agreement in connection with entering into an agreement with respect to a
superior transaction, has otherwise complied with the no-solicitation and
notice requirements described in this section in all material respects, and,
concurrently with such termination, pays a termination fee to Security Capital
(as described under "--Termination of the Purchase Agreement and Termination
Fee"). Security Capital is not required to vote in favor of a superior
transaction agreement entered into during the no-solicitation period (see
"--Solicitation of Proposals by Storage USA and Alternative Acquisition
Transactions--Permitted Period and Take-Along Rights").
Permitted Disclosure. We may at any time take and disclose to our
shareholders a position with respect to a tender offer or make other disclosure
to our shareholders or in any other regulatory filing if, in the good faith
judgment of our board of directors or the special committee, based on the
advice of outside legal counsel, failure to so disclose would be inconsistent
with their or Storage USA's obligations under applicable law.
Notices to Security Capital
The purchase agreement requires us to promptly advise Security Capital of:
. our receipt of any acquisition proposal, or any material negotiation or
discussion concerning the material economic terms and material conditions
of such acquisition proposal;
. all material changes to the economic terms of any such acquisition
proposal, negotiation or discussion; or
. the identity of any entity that has requested or been granted access to
the data room maintained by Storage USA.
However, if Storage USA, acting in good faith, immaterially or inadvertently
fails to comply with its notice obligations, such failure will not be
considered a breach of these obligations if, at least three business days prior
to entering into an agreement with respect to an acquisition proposal, Storage
USA provides Security Capital with the then current material business terms of
such acquisition proposal.
Cessation of Ongoing Discussions
During the no-solicitation period, we are required:
. to, and to cause our subsidiaries and our respective affiliates and
representatives to, cease immediately all discussions and negotiations
commenced during the permitted period regarding any proposal that
constitutes, or could reasonably be expected to lead to, an acquisition
proposal; and
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. to use commercially reasonable efforts to have all copies of all nonpublic
information distributed to persons who have executed a confidentiality
agreement in connection with an acquisition proposal, destroyed or
returned to us as soon as possible.
Definitions
Acquisition Proposal. An "acquisition proposal" is any proposal, offer or
inquiry by any person or group (other than Security Capital or its affiliates)
for or with respect to:
. a merger, consolidation, dissolution, sale of substantial assets, tender
offer, recapitalization, share exchange or other business combination or
similar transaction or series of transactions involving Storage USA and
its subsidiaries, taken as a whole;
. a transaction in which Storage USA or any of its subsidiaries issues or
would issue, or such person or group acquires or would acquire, over 15%
of the equity securities of Storage USA or such subsidiary; or
. a transaction in which such person or group acquires or would acquire in
any manner, directly or indirectly, over 15% of our consolidated total
assets.
Superior Proposal. A "superior proposal" is any unsolicited, bona fide
written proposal made by a third party to effect a "superior transaction."
Superior Transaction. A "superior transaction" is an acquisition or
cancellation of all of our common equity securities in connection with a tender
or exchange offer, a merger, a consolidation, a sale of all or substantially
all of our assets or similar transaction:
. on terms which the special committee determines in good faith to be more
favorable from a financial point of view to the holders of our common
stock than the Transactions (based on the advice of a nationally
recognized independent financial advisor), taking into account all the
terms and conditions of the superior transaction (including its financial
terms and likelihood of being completed) and the purchase agreement
(including any written proposal by Security Capital to amend the terms of
the purchase agreement);
. in which all holders of our common stock and all holders of operating
partnership units would have the right to receive consideration, in the
form of cash and/or securities that will be publicly traded and listed on
the NYSE, AMEX or NASDAQ after consummation of the superior transaction,
in a per share amount, determined at the time the superior transaction is
entered into, greater than $42.50;
. in which the operating partnership's limited partners (other than Storage
USA) have the right, at their sole discretion, to remain as limited
partners of the operating partnership or a successor limited partnership
on terms comparable to those contemplated by the purchase agreement or
otherwise to continue their equity interest and tax deferred status;
. which does not prohibit Security Capital from being able to propose any
amendments to the terms of the purchase agreement to make them more
favorable from a financial point of view to the holders of our common
stock than the superior transaction;
. in which the consideration to be received by Security Capital for all its
shares of our common stock is payable, and is paid, prior to or
simultaneously with the payment of the consideration to other holders of
our common stock, entirely in cash; and
. that is reasonably capable of being completed on the terms proposed,
taking into account all financial, regulatory, legal and other aspect of
the transaction, within the same period as the take-along period (as
described under "--Solicitation of Proposals by Storage USA and
Alternative Acquisition Transactions--Permitted Period and Take-Along
Rights"), and with a likelihood of successful consummation not less
favorable than those applicable to the Transactions.
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Strategic Alliance Agreement
We are parties to a Strategic Alliance Agreement with Security Capital
which, among other things, places restrictions on our ability to incur
indebtedness, own real property, and terminate our eligibility for treatment as
a REIT for federal income tax purposes. The Strategic Alliance Agreement also
contains "standstill" restrictions which, among other things, limit Security
Capital's ability to purchase additional shares of our common stock or sell or
otherwise dispose of the shares of our common stock it already owns. These
"standstill" restrictions may be terminated by certain "early termination
events," including our authorization of the solicitation of proposals with
respect to an extraordinary transaction. These restrictions are described under
"Special Factors--Past Transactions and Relationships." In connection with
negotiating and entering into the purchase agreement, the special committee
granted to Security Capital waivers from the "standstill" restrictions
contained in the Strategic Alliance Agreement for the limited purpose of
allowing Security Capital to make a proposal to acquire Storage USA, if it so
desired (see "Special Factors--Background of the Transactions").
The purchase agreement provides that the Strategic Alliance Agreement will
continue to be in effect, and that the execution, delivery and performance (but
not consummation) of the purchase agreement or of an agreement providing for a
superior transaction will not constitute an "early termination event," which
would cause many of the restrictions described above (including Security
Capital's "standstill" obligation) to expire, under the Strategic Alliance
Agreement (see description of early termination events under "Special
Factors--Past Transactions and Relationships"). Further, the exercise of any
rights in the purchase agreement, in accordance with and subject to its terms,
and the consummation of any of the Transactions contemplated by the purchase
agreement will not constitute a violation or attempted violation of any
provision of the Strategic Alliance Agreement or Storage USA's charter or
bylaws.
However, the purchase agreement expressly provides that:
. upon the effective time of the merger or consummation of a superior
transaction, the Strategic Alliance Agreement will be terminated and cease
to have any force or effect; and
. nothing in the Strategic Alliance Agreement or the purchase agreement will
limit the right of Security Capital to make an offer, proposal or inquiry
with respect to an improvement or modification in favor of Storage USA or
its shareholders in the terms of the Transactions, or to make what would
be a superior proposal with respect to any superior transaction entered
into by Storage USA following termination of the purchase agreement.
Taking of Necessary Action; SEC Filings
Each party to the purchase agreement has agreed to use its commercially
reasonable best efforts promptly to take all actions necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the Transactions, including all actions and things necessary to cause
all conditions precedent in the purchase agreement to be satisfied.
We have agreed to, in cooperation with Security Capital, prepare and file
with the SEC this proxy statement and a statement on Schedule 13E-3 as required
under the federal securities laws, to respond to any SEC comments with respect
to those filings, and to cause this proxy statement to be mailed to our
shareholders at the earliest practicable time. We and Security Capital have
also agreed to, and to cause our respective subsidiaries to, prepare and make
any other required regulatory filings. We have also agreed to use commercially
reasonable best efforts to duly call and hold, as promptly as practicable but
not later than 45 days after this proxy statement and the Schedule 13E-3
statement have been cleared by the SEC, a meeting of our shareholders for the
purpose of considering and voting on the Transactions.
Security Capital has agreed to, in cooperation with us, prepare and mail to
the holders of operating partnership units, as promptly as practicable but not
later than the mailing of this proxy statement to our shareholders, an
information statement containing all information necessary or relevant to
enable such unitholders to make an election with respect to their continuation
as limited partners of the surviving partnership.
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Security Capital also has agreed to use commercially reasonable efforts to,
if necessary, obtain the funds under the commitment letter it received from
Wells Fargo Bank in connection with entering into the Transactions and the
purchase agreement.
Employee Matters
Security Capital has agreed to comply with all employment and change in
control agreements that were disclosed to it at the time of entering into the
purchase agreement. We, in turn, have agreed that neither our board of
directors nor any of our officers will take any action that would cause any
amount to become due or payable or to be paid under any of those agreements as
a result of the execution of the purchase agreement or consummation of any of
the Transactions (see "Special Factors--Interests of Storage USA's Executive
Officers and Directors in the Transactions").
We have agreed to use commercially reasonable best efforts to take all
action necessary or appropriate, including obtaining consents from holders of
options to purchase shares of our common stock as may be required under
existing plans or agreements, such that immediately prior to the consummation
of the Transactions, all such options will be fully vested, terminated and
cashed out as described under "--Consideration to Securityholders."
We have also agreed to use our commercially reasonable best efforts to take
all action necessary or appropriate such that, immediately prior to
consummation of the Transactions, each restricted stock award granted by us
will become immediately and fully payable or distributable, the restrictions on
such award will lapse and any performance targets will be deemed achieved in
full.
Indemnification; Directors and Officers Insurance
Indemnification. Security Capital and the surviving partnership have
agreed, jointly and severally, to the fullest extent permitted by Tennessee law
to indemnify, hold harmless and provide advancement of expenses for a period of
six years from the closing of the Transactions, to each of our and our
subsidiaries' present and former directors, trustees and officers, from,
against and with respect to any costs or expenses, including attorneys' fees,
judgments, fines, penalties, losses, claims, damages, liabilities, or amounts
paid in settlement incurred in connection with a covered claim. A covered claim
includes any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by such persons in their capacity
as such, which acts or omissions existed or occurred at or prior to the
effective time of the merger, including any acts or omissions related to the
purchase agreement or the Transactions, whether asserted or claimed prior to,
at or after the effective time of the merger. This indemnity applies to the
maximum extent that Storage USA would then be obligated to indemnify, hold
harmless and advance expenses under its charter or bylaws if the same were then
in effect.
The purchase agreement provides that, after consummation of the
Transactions, Security Capital will control the defense of any action to which
the indemnification obligations described above apply, with counsel selected by
Security Capital and reasonably acceptable to the indemnified party; provided,
however, that such party may participate in such defense with counsel selected
by it and reasonably acceptable to Security Capital, at its expense or (in the
event of a conflict of interest or if additional material defenses are
available to such party) at the expense of Security Capital (but only for one
counsel, plus local counsel, for all indemnified parties in any single action).
Security Capital and the surviving partnership also have agreed, jointly and
severally, to fulfill and honor our obligations under the indemnification
agreements between us and our directors and Messrs. Jernigan, Marr,
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McConomy and Yale and Kevin Kern, Vice President and Associate General Counsel,
and Lee Harkavy, Vice President, Capital Markets and Franchise Lending.
Directors and Officers Insurance. Security Capital has agreed that, for a
period of six years after the closing of the Transactions, it or one of its
affiliates will maintain in effect (to the extent available in the market) a
directors' and officers' liability insurance policy covering those persons who
are currently covered by our directors' and officers' liability insurance
policy, with coverage in amount and scope at least as favorable to such persons
as our existing coverage, with respect to acts or failures to act occurring
prior to the effective time of the merger.
Proper provisions will be made, in the event that Security Capital or the
surviving partnership, or any of their respective successors or assigns,
consolidate with or merge into any other person without being the continuing or
surviving person in the consolidation or merger, or transfer all or
substantially all of its properties and assets, so that the continuing or
surviving person or transferee assumes all indemnification and insurance
obligations described above.
The rights to indemnification and directors and officers insurance described
under this section are for the benefit of, and enforceable by, each of the
indemnified parties and their respective heirs and representatives.
Shareholder Litigation
Until the earlier of the termination of the purchase agreement or the
closing of the Transactions, we have agreed to afford Security Capital the
opportunity to participate, at its expense and with separate counsel, in the
defense or settlement of any shareholder litigation against us or our board of
directors relating to the purchase agreement or any of the Transactions, which
includes the actions described under "Special Factors--Litigation in Connection
with the Transactions." We may settle any such litigation, provided we obtain
Security Capital's prior written consent, which Security Capital may not
unreasonably withhold or delay.
Conditions to Closing
Obligations of Security Capital. The obligations of Security Capital to
effect the Transactions are subject to the satisfaction or waiver of the
following conditions:
. the representations and warranties of the sellers were true and correct as
of the date of the purchase agreement and are true and correct as of the
date of consummation of the Transactions (unless they speak as of a
specific date and time), other than for failures to be true and correct as
would not, individually or in the aggregate, reasonably be expected to
result in a "material adverse effect" on Storage USA and its subsidiaries
taken as a whole (and without regard to materiality or material adverse
effect qualifications contained in such representations and warranties);
. the sellers have performed, in all material respects, the covenants and
agreements required to be performed by them on or before the closing of
the Transactions (and without regard to materiality qualifications
contained in such covenants or agreements);
. no condition to lending or funding has been invoked by Wells Fargo Bank
and be continuing after any applicable cooling off or similar period,
under or in connection with the $115 million financing commitment obtained
by Security Capital in connection with the Transactions, based upon or
related to a material disruption of, or material adverse change in,
financial, banking or capital market conditions, with the effect that all
or part of such financing is not available to Security Capital;
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. any waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act has expired or been terminated, and no action (other than
actions that have been withdrawn or terminated) shall have been instituted
by the U.S. Department of Justice or the Federal Trade Commission
challenging the consummation of the Transactions;
. other than the filing of the merger certificate, all authorizations,
consents, and approvals of, or filings with, any governmental authority in
connection with the Transactions, the failure of which to file, obtain or
occur would, individually or in the aggregate, reasonably be expected to
result in a material adverse effect on Storage USA, have been filed, been
obtained or occurred;
. the requisite approval of the Transactions by Storage USA's shareholders
has been obtained;
. there is no effective order, decree or injunction of any government
authority of competent jurisdiction which enjoins or prohibits
consummation of any of the Transactions, or no pending action brought by
any such authority which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on Storage USA
and its subsidiaries taken as a whole;
. Storage USA has not terminated its election to be taxed as a REIT, and is
in compliance with all applicable laws and regulations necessary to permit
it to be taxed as a REIT, and has not taken any action or failed to take
any action which would reasonably be expected to result in the loss of its
status as a REIT;
. all action necessary or appropriate to issue operating partnership units
to Security Capital in the Transactions and to admit Security Capital as
the general partner and a limited partner of the operating partnership and
of SUSA Holdings L.P., shall have been taken;
. the Transactions contemplated by the stock purchase agreement between Dean
Jernigan and Security Capital providing for the sale by Mr. Jernigan to
Security Capital of all shares of capital stock owned by him in SUSA
Management, Inc. have been consummated; and
. the sellers have made all of their closing deliveries.
Obligations of Sellers. The obligations of the sellers to effect the
Transactions are subject to the satisfaction or waiver of the following
conditions:
. the representations and warranties of Security Capital were true and
correct as of the date of the purchase agreement and are true and correct
as of the date of consummation of the Transactions (unless they speak as
of a specified date and time), other than for failures to be true and
correct as would not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect on the ability of Security
Capital to consummate the Transactions (and without regard to materiality
or material adverse effect qualifications contained in such
representations and warranties);
. Security Capital has performed, in all material respects, all covenants
and agreements required to be performed on or before the closing (and
without regard to materiality qualifications contained in such covenants
or agreements);
. any waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act has expired or been terminated, and no action (other than
actions that have been withdrawn or terminated) shall have been instituted
by the U.S. Department of Justice or the Federal Trade Commission
challenging the consummation of the Transactions;
. other than the filing of the merger certificate, all authorizations,
consents, approvals or filings with any governmental authority in
connection with the Transactions, the failure of which to file, obtain or
occur
94
would, individually or in the aggregate, reasonably be expected to result
in a material adverse effect on the ability of Security Capital to
consummate the Transactions, have been filed, been obtained or occurred;
. the requisite approval of the Transactions by Storage USA's shareholders
has been obtained;
. there is no effective order, decree or injunction of any government
authority of competent jurisdiction which enjoins or prohibits
consummation of the Transactions; and
. Security Capital has made all of its closing deliveries.
Material Adverse Effect. A "material adverse effect" is any change or event
or effect that is or would reasonably be expected to be materially adverse to
the business, assets, financial condition or results of operations of Storage
USA and its subsidiaries taken as a whole.
However, the following events are not deemed to constitute, and are not
taken into account in determining whether there has been or will be, a material
adverse effect:
. any change in the market price or trading volume of Storage USA's common
stock;
. any change or event or effect caused by any action taken by Security
Capital or any of its affiliates or representatives;
. any change or event or effect caused by any action brought by a Storage
USA shareholder or a holder of operating partnership units against Storage
USA or any of its directors or officers or the operating partnership
relating to the Strategic Alliance Agreement, the purchase agreement or
the Transactions;
. any change or event or effect arising out of or relating generally to the
U.S. economy; or
. any change or event or effect relating generally to the industry in which
Storage USA and its subsidiaries operate; and any change or event or
effect arising out of the purchase agreement, compliance with Storage
USA's covenants in the purchase agreement, or the announcement or pendency
of the Transactions (including any cancellations of or delays in customer
orders, any reduction in revenues, any disruption in supplier,
distributor, partner or similar relationships or any loss of employees).
Termination of the Purchase Agreement and Termination Fee
Termination. The purchase agreement may be terminated at any time by mutual
written consent of Storage USA and Security Capital. In addition, the purchase
agreement may be terminated at any time, by written notice of the terminating
party to the other party, as follows:
. by either party, if the Transactions have not been consummated by June 5,
2002;
. by either party, if a governmental authority of competent jurisdiction has
taken any nonappealable final action having the effect of permanently
restraining, enjoining or otherwise prohibiting any of the Transactions,
but only if the terminating party's material failure to fulfill its
obligation under the purchase agreement has not been the principal cause
of, or resulted in, such action;
. by either party, if the requisite vote of our shareholders in favor of the
Transactions has not been obtained;
. by Security Capital if, after the permitted period for the solicitation of
alternative acquisition proposals (which period expired on January 19,
2002), our board of directors and the special committee have publicly
withdrawn or modified in a manner adverse to Security Capital their
recommendation of any of the Transactions or have failed to reconfirm
their recommendation of any of the Transactions after Security Capital so
requested in writing;
. by Storage USA, if, prior to the special meeting, we have entered into a
superior transaction, provided that we:
. have complied with our no-solicitation and notice obligations in all
material respects, and
95
. concurrently with such termination, pay Security Capital the termination
fee required by the purchase agreement; or
. by either party, if the other party has breached or failed to perform any
representation, warranty, covenant or agreement in the purchase agreement,
and the breach or failure to perform (1) would cause the conditions to the
Transactions for the benefit of the terminating party not to be satisfied
and (2) has not been cured within 30 days following receipt by the
non-terminating party of written notice of the breach from the terminating
party.
In the event of termination, the purchase agreement, with the exception of a
limited number of provisions relating to the parties' obligations with respect
to the take-along period, public announcements, fees and expenses and
miscellaneous provisions, will become void and there will be no liability on
the part of any party to the purchase agreement. However, termination will not
relieve any party from liability for any willful breach of the purchase
agreement.
Termination Fee. We have agreed to pay Security Capital a termination fee
of $22.5 million if the purchase agreement is terminated:
. by Security Capital if, after the permitted period (which period expired
on January 19, 2002) our board of directors and the special committee have
publicly withdrawn or modified in a manner adverse to Security Capital
their recommendation of any of the Transactions or have failed to
reconfirm their recommendation of any of the Transactions after Security
Capital so requests in writing; or
. by Storage USA, if, prior to the special meeting, we have entered into a
superior transaction.
The termination fee is payable within one business day of Security Capital's
termination of the purchase agreement or, in the event of termination by
Storage USA, concurrently with such termination.
Expenses
Except as described above with respect to the payment of the termination
fee, the parties have agreed that each will pay all fees and expenses incurred
by it in connection with the purchase agreement and the Transactions,
regardless of whether the Transactions are consummated, except (1) the filing
fee of Security Capital's pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act, if any such report is required
and (2) fees and expenses (other than accountants' and attorneys' fees)
incurred with respect to the printing, filing and mailing of this proxy
statement, the information statement to be delivered to holders of operating
partnership units and the transaction statement on Schedule 13E-3, which will
be shared equally by Security Capital and us.
We estimate that the fees and expenses in connection with the Transactions,
consisting primarily of financial advisory fees, SEC filing fees and attorney
and accountant fees will total approximately $12,768,542. This estimate
consists of the following estimated fees and expenses:
Description Amount
- ----------- -----------
Financial advisory fees..... $ 7,500,000
Legal fees and expenses..... $ 4,300,000
Accounting fees and expenses $ 250,000
SEC filing fees............. $ 68,542
Printing and mailing costs.. $ 400,000
Miscellaneous expenses...... $ 250,000
Total.................. $12,768,542
96
Amendment and Assignment
The purchase agreement may not be modified or amended except by a writing
signed by the party against whom enforcement of the modification or amendment
is sought. After approval of the Transactions is obtained from our
shareholders, no amendment may be made for which shareholder approval is
required by law without such further approval.
Neither the purchase agreement nor any of the rights, interests or
obligations under it may be assigned or delegated by any of the parties without
the prior written consent of the other parties. Security Capital may, however,
substitute one or more of its wholly owned subsidiaries for itself without such
consent, but will remain jointly and severally liable with the subsidiary
assignee for all of its obligations under the purchase agreement.
97
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes material U.S. federal income tax
considerations of the Transactions generally relevant to holders of our common
stock, assuming that the Transactions are consummated as contemplated by the
purchase agreement and this proxy statement. This discussion is based upon
interpretations of the Internal Revenue Code of 1986, as amended, which we
refer to as the "Code," Treasury regulations promulgated under the Code,
judicial decisions and administrative rulings as of the date of this proxy
statement, all of which are subject to change or differing interpretations,
including changes and interpretations with retroactive effect. The discussion
below only addresses material U.S. federal income tax consequences and does not
address any state, local or foreign tax consequences of the Transactions. The
tax treatment of a Storage USA shareholder may vary depending upon that
shareholder's particular situation. Also, shareholders subject to special
treatment, including dealers in securities, tax-exempt entities, U.S.
expatriates, non-U.S. shareholders, thrifts, insurance companies, persons that
hold our common stock as part of a "straddle," a "hedge," a "constructive sale
transaction" or a "conversion transaction," persons that have a "functional
currency" other than the U.S. dollar, and investors in pass-through entities,
may be subject to special rules not discussed below. This discussion also does
not address the U.S. federal income tax consequences of the Transactions to
holders of our common stock that do not hold that stock as a capital asset. A
U.S. shareholder is a U.S. citizen or resident as defined within the Code, a
domestic corporation or partnership, an estate the income of which is
includable in its gross income for U.S. federal income tax purposes without
regard to its source, or a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust, and one or more U.S. persons
have the authority to control all the substantial decisions of the trust. A
non-U.S. shareholder is any shareholder that is not a U.S. shareholder.
The rules governing U.S. federal income taxation of the Transactions for
non-U.S. shareholders are complex and no attempt is made to provide more than a
brief summary of those rules.
This U.S. federal income tax discussion may not address all tax
considerations that may be significant to you. You are urged to consult your
tax advisor as to the particular tax consequences of the Transactions to you,
including the applicability and effect of any state, local or foreign laws and
changes in applicable tax laws.
Consequences to U.S. Shareholders
For U.S. shareholders, the Transactions will be treated as a taxable sale of
our common stock in exchange for their portion of the transaction consideration
(i.e., $42.50 per share, with the adjustments described in this proxy
statement). As a result, each U.S. shareholder will recognize capital gain or
loss with respect to its Storage USA stock, measured by the difference between
the tax basis in the Storage USA stock exchanged and the amount of cash
received for that stock. The gain or loss on that disposition will constitute
long-term capital gain or loss if that stock has been held for more than one
year as of the effective time of the Transactions. However, a shareholder who
has held our common stock for six months or less at the effective time of the
Transactions, taking into account the holding period rules of Sections
246(c)(3) and (4) of the Code, and who recognizes a loss with respect to that
stock will be treated as recognizing long-term capital loss to the extent of
any capital gain dividends received from Storage USA, or his share of any
designated retained capital gains, with respect to that stock.
In the case of shareholders who hold multiple blocks of our common stock
(i.e., common stock acquired separately at different times and/or prices), gain
or loss must be calculated and accounted for separately for each block of our
common stock.
Consequences to Non-U.S. Shareholders
The federal income tax consequences of the Transactions for non-U.S.
shareholders will depend in large part on the application of certain provisions
of the Foreign Investment in Real Property Tax Act of 1980, or
98
FIRPTA, which are inconsistent in their treatment of sales of our common stock
and distributions by us on such stock and unclear in certain respects. In
particular, the consequences to non-U.S. shareholders will depend on whether
their receipt of the transaction consideration is taxed under the provisions of
FIRPTA governing sales of REIT shares, consistent with the treatment of the
merger as a sale of shares for purposes of determining the tax consequences to
U.S. shareholders, or whether their receipt of the transaction consideration is
taxed under the provisions of FIRPTA governing distributions from REITs. The
provisions governing distributions from REITs could apply because, for federal
income tax purposes, the Transactions will be treated as a sale of assets
followed by a liquidating distribution from us to our shareholders of the
proceeds from the asset sale. Current law is unclear as to which provisions
should apply, and both sets of provisions are discussed below. In general, the
provisions governing the taxation of distributions by REITs are less favorable
to non-U.S. shareholders, and non-U.S. shareholders should consult with their
tax advisors regarding the possible application of those provisions.
Assuming that the receipt of the transaction consideration by non-U.S.
shareholders is treated as a sale or exchange of their common stock for
purposes of FIRPTA, a non-U.S. shareholder should not be subject to U.S.
federal income taxation on any gain or loss from the Transactions unless it
recognizes a gain with respect to its shares of our common stock (computed in
the same manner as for U.S. shareholders) and (a) the gain is effectively
connected with a U.S. trade or business of the non-U.S. shareholder, (b) that
shareholder is an individual who has been present in the U.S. for 183 days or
more during its taxable year that includes the Transactions and certain other
conditions are satisfied, or (c) that shareholder's common stock constitutes a
"United States real property interest" within the meaning of FIRPTA. If a
non-U.S. shareholder's common stock constitutes a "United States real property
interest" within the meaning of FIRPTA or if the gain from the Transactions is
effectively connected with a U.S. trade or business of the non-U.S.
shareholder, that shareholder will be subject to U.S. federal income tax
generally at regular capital gains rates with respect to its gain. In addition,
the non-U.S. shareholder may be subject to applicable alternative minimum tax,
a special alternative minimum tax in the case of nonresident alien individuals
and the possible application of the 30% branch profits tax in the case of
non-U.S. corporations. If the non-U.S. shareholder is an individual who has
been present in the U.S. for 183 days or more during the taxable year that
includes the Transactions and certain other conditions are satisfied, that
shareholder will be subject to a 30% tax on its capital gains. An applicable
income tax treaty may modify certain of these consequences for a non-U.S.
shareholder eligible for treaty benefits, and non-U.S. shareholders should
consult with their tax advisors regarding the possible applications of such a
treaty.
A non-U.S. shareholder's common stock will constitute a United States real
property interest unless (a) we are a "domestically-controlled REIT" at the
effective time of the Transactions or (b) the non-U.S. shareholder never held
more than 5% of the total fair market value of our common stock at any time
during the shorter of the time that shareholder held our common stock or during
the five-year period ending on the effective time of the Transactions. We will
be a domestically-controlled REIT at the effective time of the Transactions if
non-U.S. shareholders held less than 50% of the value of our common stock at
all times during the five-year period ending with the effective time of the
Transactions. Based on the record ownership of our common stock and on certain
transfer restrictions in our corporate charter intended to preserve our status
as a domestically-controlled REIT, we believe that we are a
domestically-controlled REIT as of the date hereof, but no assurances can be
given that the actual ownership of our common stock has been or will be
sufficient for us to qualify as a domestically-controlled REIT at the effective
time of the Transactions.
The tax treatment of non-U.S. shareholders described above assumes that the
receipt of their portion of the transaction consideration will be treated as a
sale of their shares of our common stock for purposes of FIRPTA. As noted
above, non-U.S shareholders' receipt of transaction consideration could be
taxed under special provisions of FIRPTA governing distributions from REITs.
Those provisions provide that distributions from REITs are treated as gain that
is effectively connected with a U.S. trade or business, to the extent that the
distributions are attributable to gain from the sale of United States real
property interests by the REIT. If those provisions apply, non-U.S.
shareholders would be subject to tax at regular capital gain rates on their
share of the transaction consideration attributable to our gain on United
States real property interests sold to Security Capital in the Transactions and
also could be subject to alternative minimum tax and, in the case of non-U.S.
corporations, the 30% branch profits tax.
99
Irrespective of whether a non-U.S. shareholder's federal income tax
liability is determined under the provisions of FIRPTA relating to sales of
shares or the provisions relating to distributions from REITs, any portion of
the transaction consideration paid to a non-U.S. shareholder will be subject to
U.S. income tax withholding at the rate of 10% of the transaction consideration
received by the non-U.S. shareholder if the non-U.S. shareholder's common stock
constitutes a United States real property interest. Because of the difficulties
of proving that a particular non-U.S. shareholder's common stock does not
constitute a United States real property interest, non-U.S. shareholders should
anticipate that 10% of their portion of the transaction consideration may be
withheld and paid over to the IRS. A non-U.S. shareholder may be entitled to a
refund or credit against the shareholder's U.S. tax liability with respect to
the amount withheld, provided that the required information is furnished to the
IRS on a timely basis. Non-U.S. shareholders should consult their own tax
advisors regarding withholding tax considerations.
Consequences to Security Capital
The redemption will be treated as a taxable transaction to Security Capital
for federal income tax purposes. Security Capital will recognize gain or loss
measured by the difference between (1) the amount of cash and the value of any
notes received in the redemption and (2) its adjusted tax basis in the shares
redeemed. The gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the shares redeemed were held by Security Capital for
more than one year at the time of the redemption.
The partnership sale will provide Security Capital with a "step up" in basis
with respect to the interests in the operating partnership that it purchases.
Backup Withholding
Unless you comply with certain reporting and/or certification procedures or
are an exempt recipient under applicable provisions of the Code and Treasury
regulations promulgated under the Code, you may be subject to a 30% backup
withholding tax with respect to any cash payments you receive pursuant to the
Transactions. You should consult your own tax advisors to ensure compliance
with these procedures.
Backup withholding generally will not apply to payments made to certain
exempt recipients such as a corporation or financial institution or to a
shareholder who furnishes a correct taxpayer identification number or provides
a certificate of foreign status and provides certain other required
information. If backup withholding applies, the amount withheld is not an
additional tax, but is credited against that shareholder's U.S. federal income
tax liability.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Storage USA, Inc. as of December
31, 2000 and 1999 and for each of the three years in the period ended December
31, 2000 incorporated by reference in this proxy statement to the Annual Report
on Form 10-K for the year ended December 31, 2000, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing in our Annual Report on Form 10-K for the year ended December 31,
2000.
On May 24, 2001, at the recommendation of our management and the Audit
Committee, our Board of Directors engaged the accounting firm of Arthur
Andersen LLP as independent auditors for the fiscal year ending December 31,
2001. Arthur Andersen replaced the firm of PricewaterhouseCoopers, LLP, which
was dismissed by our Board of Directors on May 24, 2001, also on the
recommendation of our management and the Audit Committee.
100
PROPOSALS BY OUR SHAREHOLDERS
If we complete the Transactions, we will cease to exist. If we do not
complete the Transactions when currently anticipated, we intend to hold our
next annual meeting in May 2002 or shortly thereafter. Any qualified
shareholder who wishes to make a proposal to be acted upon at the Annual
Meeting of Shareholders in 2002 or to have a proposal or a nomination for
director be included in the proxy statement for such meeting must have done so
by following the procedures prescribed in Rule 14a-8 of the Securities Exchange
Act of 1934 and must have submitted such proposal by November 29, 2001 to John
W. McConomy, Executive Vice President, General Counsel and Secretary of Storage
USA, at 175 Toyota Plaza, Suite 700, Memphis, Tennessee 38103. The chairman of
the meeting may refuse to acknowledge the introduction of any shareholder
proposal not made in compliance with the foregoing procedures.
101
WHERE YOU CAN FIND MORE INFORMATION
We and the operating partnership are subject to the information filing
requirements of the Securities Exchange Act of 1934 and, in accordance with
that Act, are obligated to file with the SEC periodic reports, proxy statements
and other information relating to our business, financial condition and other
matters. These reports, proxy statements and other information may be inspected
at the SEC's office at the public reference facilities of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549. Copies of these materials can be obtained,
upon payment of the SEC's customary charges, by writing to the SEC's principal
office at 450 Fifth Street, NW, Room 1024, Washington, D.C. 20549. The SEC also
maintains a website at http://www.sec.gov that contains reports, proxy
statements and other information. The information is also available at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Lehman Brothers' opinion is attached to this proxy statement as Appendix C.
Lehman Brothers' opinion is also available for inspection and copying by our
shareholders (or a representative so designated in writing) at our principal
offices at 175 Toyota Plaza, Suite 700, Memphis, Tennessee 38103 during regular
business hours and will be transmitted upon written request delivered to the
attention of John W. McConomy, at the address listed under "Proposals by our
Shareholders" on page 101, by such a shareholder or representative, at the
expense of the requesting shareholder.
You should rely only on the information contained in this document to vote
your shares of common stock at the special meeting. We have not authorized
anyone to provide you with information that is different from what is contained
in this document. This document is dated [ ], 2002. You should not
assume that the information contained in this document is accurate as of any
date other than that date, and the mailing of this document to shareholders
does not create any implication to the contrary. This document does not
constitute a solicitation of a proxy in any jurisdiction where, or to or from
any person to whom, it is unlawful to make such solicitation in that
jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information by referring
you to another document filed separately with the SEC. We are incorporating by
reference into this proxy statement each document we file with the SEC under
the Exchange Act after the date of this proxy statement and prior to the
special meeting. All such documents will be incorporated by reference into this
proxy statement and will be a part of the proxy statement from the date of
filing of such documents.
We also are incorporating by reference into this proxy statement the
documents listed below which have been filed with the SEC under the Exchange
Act:
. our Annual Report on Form 10-K filed on March 23, 2001 for the fiscal year
ended December 31, 2000, as amended on March 26, 2001;
. our Quarterly Report on Form 10-Q filed on November 14, 2001 for the
fiscal quarter ended September 30, 2001;
. our Quarterly Report on Form 10-Q filed on August 14, 2001 for the fiscal
quarter ended June 30, 2001;
. our Quarterly Report on Form 10-Q filed on May 15, 2001 for the fiscal
quarter ended March 31, 2001;
. our Current Reports on Form 8-K filed February 1, 2002, January 22, 2002,
January 18, 2002, December 6, 2001, November 23, 2001, November 8, 2001,
November 5, 2001, November 2, 2001, November 1, 2001, October 23, 2001,
October 9, 2001, September 19, 2001, September 10, 2001, May 31, 2001, and
February 7, 2001; and
. our Definitive Proxy Statement on Schedule 14A, filed on March 31, 2001.
102
Documents incorporated by reference are available from us without charge,
excluding all exhibits (unless we have specifically incorporated by reference
an exhibit into this proxy statement). You may obtain documents incorporated by
reference by requesting them in writing or by telephone as follows:
Storage USA, Inc.
175 Toyota Plaza
Suite 700
Memphis, Tennessee 38103
Attention: John W. McConomy
(901) 252-2000
If you would like to request documents from us, please do so immediately in
order to ensure timely receipt before the special meeting.
103
APPENDIX A
- --------------------------------------------------------------------------------
PURCHASE AND SALE AGREEMENT
by and among
STORAGE USA, INC.
STORAGE USA TRUST
SUSA PARTNERSHIP, L.P.
and
SECURITY CAPITAL GROUP INCORPORATED
dated as of December 5, 2001
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS..................................... A-2
SECTION 1.1 "Acquisition Proposal".................... A-2
SECTION 1.2 "Action".................................. A-2
SECTION 1.3 "ADA"..................................... A-2
SECTION 1.4 "Additional Buyer Units".................. A-2
SECTION 1.5 "Affiliate"............................... A-2
SECTION 1.6 "Agreement"............................... A-2
SECTION 1.7 "Alternative Acquisition Agreement"....... A-2
SECTION 1.8 "Assignment and Assumption"............... A-2
SECTION 1.9 "Business Day"............................ A-2
SECTION 1.10 "Buyer"................................... A-2
SECTION 1.11 "Buyer Amount"............................ A-2
SECTION 1.12 "Buyer Filings"........................... A-2
SECTION 1.13 "Buyer Financing"......................... A-2
SECTION 1.14 "Capital Expenditure Budget and Schedule". A-2
SECTION 1.15 "Capitalized Lease Obligation"............ A-2
SECTION 1.16 "CERCLA".................................. A-2
SECTION 1.17 "Certificate"............................. A-2
SECTION 1.18 "Claim"................................... A-2
SECTION 1.19 "Closing"................................. A-2
SECTION 1.20 "Closing Date"............................ A-3
SECTION 1.21 "Code".................................... A-3
SECTION 1.22 "Company"................................. A-3
SECTION 1.23 "Company Board"........................... A-3
SECTION 1.24 "Company Bylaws".......................... A-3
SECTION 1.25 "Company Charter"......................... A-3
SECTION 1.26 "Company Common Stock".................... A-3
SECTION 1.27 "Company Environmental Reports"........... A-3
SECTION 1.28 "Company Expenditure Budget and Schedule " A-3
SECTION 1.29 "Company Leases".......................... A-3
SECTION 1.30 "Company Options"......................... A-3
SECTION 1.31 "Company Plans"........................... A-3
SECTION 1.32 "Company Properties"...................... A-3
SECTION 1.33 "Company Reports"......................... A-3
SECTION 1.34 "Company Stock"........................... A-3
SECTION 1.35 "Controlled Group Liability".............. A-3
SECTION 1.36 "Credit Lines"............................ A-3
SECTION 1.37 "Deferred Units".......................... A-3
SECTION 1.38 "Development Budget and Schedule"......... A-4
SECTION 1.39 "Development Properties".................. A-4
SECTION 1.40 "Effective Time".......................... A-4
SECTION 1.41 "Electing Holder"......................... A-4
SECTION 1.42 "Election"................................ A-4
SECTION 1.43 "Election Deadline"....................... A-4
SECTION 1.44 "Election Form"........................... A-4
SECTION 1.45 "Employee"................................ A-4
SECTION 1.46 "Employee Arrangements"................... A-4
SECTION 1.47 "Environmental Claim"..................... A-4
SECTION 1.48 "Environmental Laws"...................... A-4
A-i
Page
----
SECTION 1.49 "Environmental Permits"............. A-4
SECTION 1.50 "ERISA"............................. A-4
SECTION 1.51 "ERISA Affiliates".................. A-4
SECTION 1.52 "Exchange Act"...................... A-4
SECTION 1.53 "Financial Advisor"................. A-4
SECTION 1.54 "FIRPTA Certificate"................ A-4
SECTION 1.55 "GAAP".............................. A-4
SECTION 1.56 "Government Authority".............. A-4
SECTION 1.57 "Holdings".......................... A-4
SECTION 1.58 "Holdings Interest"................. A-4
SECTION 1.59 "HSR Act"........................... A-4
SECTION 1.60 "Indemnifiable Action".............. A-5
SECTION 1.61 "Indemnified Parties"............... A-5
SECTION 1.62 "Indenture"......................... A-5
SECTION 1.63 "Information Statement"............. A-5
SECTION 1.64 "Insurance Policies"................ A-5
SECTION 1.65 "Intellectual Property"............. A-5
SECTION 1.66 "Investments"....................... A-5
SECTION 1.67 "IRS"............................... A-5
SECTION 1.68 "Liabilities"....................... A-5
SECTION 1.69 "Liens"............................. A-5
SECTION 1.70 "Loan Repayment Amount"............. A-5
SECTION 1.71 "Material Adverse Effect"........... A-5
SECTION 1.72 "Materials of Environmental Concern" A-6
SECTION 1.73 "Merger"............................ A-6
SECTION 1.74 "Merger Certificate"................ A-6
SECTION 1.75 "Merger Consideration".............. A-6
SECTION 1.76 "Mortgage Notes".................... A-6
SECTION 1.77 "No-Solicitation Period"............ A-6
SECTION 1.78 "No-Solicitation Start Date"........ A-6
SECTION 1.79 "Notes"............................. A-6
SECTION 1.80 "Other Assets"...................... A-6
SECTION 1.81 "Other Filings"..................... A-6
SECTION 1.82 "Outside Date"...................... A-6
SECTION 1.83 "Partnership Interests"............. A-6
SECTION 1.84 "Partnerships"...................... A-6
SECTION 1.85 "Paying Agent"...................... A-6
SECTION 1.86 "Pension Plans"..................... A-6
SECTION 1.87 "Permitted Dividends"............... A-6
SECTION 1.88 "Permitted Liens"................... A-6
SECTION 1.89 "Permitted Period".................. A-7
SECTION 1.90 "person"............................ A-7
SECTION 1.91 "Pre-Closing Amount"................ A-7
SECTION 1.92 "Preferred Units"................... A-7
SECTION 1.93 "Projects".......................... A-7
SECTION 1.94 "Property Joint Venture"............ A-7
SECTION 1.95 "Property Restrictions"............. A-7
SECTION 1.96 "Proxy Statement"................... A-7
SECTION 1.97 "Purchase".......................... A-7
SECTION 1.99 "Purchase Consideration"............ A-7
A-ii
Page
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SECTION 1.100 "Purchase Price"......................................... A-7
SECTION 1.101 "Purchase Price Allocation".............................. A-7
SECTION 1.101 "Purchased Assets"....................................... A-7
SECTION 1.102 "Purchased Shares"....................................... A-7
SECTION 1.103 "Purchased Subsidiaries"................................. A-7
SECTION 1.104 "Redemption"............................................. A-7
SECTION 1.105 "Regulatory Filings"..................................... A-7
SECTION 1.106 "REIT"................................................... A-8
SECTION 1.107 "Release"................................................ A-8
SECTION 1.108 "Rent Summary"........................................... A-8
SECTION 1.109 "Representatives"........................................ A-8
SECTION 1.110 "Schedule 13E-3"......................................... A-8
SECTION 1.111. "SEC".................................................... A-8
SECTION 1.112 "SEC Filings"............................................ A-8
SECTION 1.113 "Securities Act"......................................... A-8
SECTION 1.114 "Securities Laws"........................................ A-8
SECTION 1.115 "Sellers"................................................ A-8
SECTION 1.116 "Share Consideration".................................... A-8
SECTION 1.117 "Special Committee"...................................... A-8
SECTION 1.118 "Strategic Alliance Agreement"........................... A-8
SECTION 1.119 "Subsidiaries"........................................... A-8
SECTION 1.120 "Superior Proposal"...................................... A-8
SECTION 1.121 "Superior Transaction"................................... A-8
SECTION 1.122 "Support Agreement"...................................... A-8
SECTION 1.123 "Surviving Partnership".................................. A-9
SECTION 1.124 "SUSA"................................................... A-9
SECTION 1.125 "SUSA Agreement"......................................... A-9
SECTION 1.126 "SUSA Debt".............................................. A-9
SECTION 1.127 "SUSA Interest".......................................... A-9
SECTION 1.128 "SUSA Management Purchase Agreement"..................... A-9
SECTION 1.129 "SUSA Subsidiaries Amount"............................... A-9
SECTION 1.130 "SUSA Units"............................................. A-9
SECTION 1.131 "Take-Along Period"...................................... A-9
SECTION 1.132 "Tax" or "Taxes"......................................... A-9
SECTION 1.133 "Tax Protection Agreements".............................. A-10
SECTION 1.134 "Tax Return"............................................. A-10
SECTION 1.135 "Tenancy Leases"......................................... A-10
SECTION 1.136 "TBCA"................................................... A-10
SECTION 1.137 "TRULPA"................................................. A-10
SECTION 1.138 "Transferred Liabilities"................................ A-10
SECTION 1.139 "Trust".................................................. A-10
SECTION 1.140 "Unit Consideration"..................................... A-10
SECTION 1.141 "Welfare Plans".......................................... A-10
ARTICLE 2 THE TRANSACTIONS................................................ A-10
SECTION 2.1 Stock and Asset Purchase; Transferred Liabilities........ A-10
SECTION 2.2 Purchase Consideration; Redemption....................... A-11
SECTION 2.3 Effective Time of the Merger............................. A-11
SECTION 2.4 Closing.................................................. A-12
SECTION 2.5 Pre-Closing Amount; Deliveries and Proceedings at Closing A-12
A-iii
Page
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SECTION 2.6 The Merger; Effects of the Merger..................................... A-12
SECTION 2.7 Conversion of Capital Stock; Conversion and Issuance of SUSA Units.... A-12
SECTION 2.8 Options; Restricted Stock............................................. A-16
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... A-16
SECTION 3.1 Organization and Qualification; Subsidiaries.......................... A-16
SECTION 3.2 Authority Relative to Agreements; Board Approval...................... A-17
SECTION 3.3 Capital Stock and Units............................................... A-18
SECTION 3.4 No Conflicts; No Defaults; Required Filings and Consents.............. A-19
SECTION 3.5 SEC and Other Documents; Financial Statements; Undisclosed Liabilities A-19
SECTION 3.6 Litigation; Compliance With Law....................................... A-20
SECTION 3.7 Absence of Certain Changes or Events.................................. A-20
SECTION 3.8 Tax Matters; REIT and Partnership Status.............................. A-21
SECTION 3.9 Compliance with Agreements; Material Agreements....................... A-22
SECTION 3.10 Financial Records; Organizational Documents; Corporate Records........ A-24
SECTION 3.11 Properties............................................................ A-25
SECTION 3.12 Environmental Matters................................................. A-28
SECTION 3.13 Employees and Employee Benefits....................................... A-30
SECTION 3.14 Labor Matters......................................................... A-31
SECTION 3.15 Affiliate Transactions................................................ A-32
SECTION 3.16 Insurance............................................................. A-32
SECTION 3.17 Proxy Statement; Schedule 13E-3; Information Statement................ A-32
SECTION 3.18 Tennessee Takeover Law................................................ A-32
SECTION 3.19 Vote Required......................................................... A-32
SECTION 3.20 Brokers or Finders; Opinion of Financial Advisor...................... A-33
SECTION 3.21 Intellectual Property................................................. A-33
SECTION 3.22 SUSA and Holdings Agreement........................................... A-34
SECTION 3.23 Knowledge Defined..................................................... A-34
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYERS................................ A-34
SECTION 4.1 Organization.......................................................... A-34
SECTION 4.2 Due Authorization..................................................... A-34
SECTION 4.3 Conflicting Agreements and Other Matters.............................. A-34
SECTION 4.4 Ownership of Shares................................................... A-35
SECTION 4.5 Proxy Statement; Schedule 13E-3; Information Statement................ A-35
SECTION 4.6 Buyer Financing....................................................... A-35
ARTICLE 5 COVENANTS RELATING TO CLOSINGS.............................................. A-35
SECTION 5.1 Taking of Necessary Action............................................ A-35
SECTION 5.2 Take-Along Right...................................................... A-37
SECTION 5.3 Strategic Alliance Agreement; Series A Preferred Stock................ A-37
SECTION 5.4 Public Announcements.................................................. A-38
SECTION 5.5 Conduct of the Business............................................... A-38
SECTION 5.6 No Solicitation....................................................... A-40
SECTION 5.7 Information and Access................................................ A-43
SECTION 5.8 Notification of Certain Matters....................................... A-44
SECTION 5.9 Employee Matters...................................................... A-44
SECTION 5.10 D&O Insurance; Indemnification........................................ A-44
SECTION 5.11 REIT Status........................................................... A-45
SECTION 5.12 Shareholder Litigation................................................ A-46
SECTION 5.13 Purchase Price Allocation............................................. A-46
SECTION 5.14 Sale of Shares by the Buyer........................................... A-46
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Page
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ARTICLE 6 CONDITIONS TO CLOSINGS............................. A-46
SECTION 6.1 Conditions to Obligations of the Buyer....... A-46
SECTION 6.2 Conditions to Obligations of the Sellers..... A-48
ARTICLE 7 TERMINATION........................................ A-48
SECTION 7.1 Termination.................................. A-48
SECTION 7.2 Effect of Termination........................ A-49
SECTION 7.3 Fees and Expenses............................ A-50
ARTICLE 8 MISCELLANEOUS...................................... A-50
SECTION 8.1 Nonsurvival of Representations and Warranties A-50
SECTION 8.2 Governing Law................................ A-50
SECTION 8.3 Entire Agreement............................. A-50
SECTION 8.4 Notices...................................... A-50
SECTION 8.5 Successors and Assigns....................... A-51
SECTION 8.6 Amendments and Waivers....................... A-52
SECTION 8.7 Interpretation; Absence of Presumption....... A-52
SECTION 8.8 Severability................................. A-52
SECTION 8.9 Further Assurances........................... A-52
SECTION 8.10 Remedies..................................... A-52
SECTION 8.11 Submission to Jurisdiction................... A-53
SECTION 8.12 Waiver of Jury Trial......................... A-53
SECTION 8.13 Counterparts and Signature................... A-53
SECTION 8.14 Post-Closing Tax Matters..................... A-53
A-v
SCHEDULES
SCHEDULE 1.15 Capitalized Lease Obligations
SCHEDULE 1.37 Deferred Units
SCHEDULE 1.76 Mortgage Notes
SCHEDULE 1.88 Permitted Liens
SCHEDULE 1.94 Property Joint Venture
SCHEDULE 1.136 Transferred Liabilities
SCHEDULE 2.1(a) Purchased Shares
SCHEDULE 2.8 Company Plan Approvals
SCHEDULE 3.1(f) Subsidiaries
SCHEDULE 3.1(g) Company Rights
SCHEDULE 3.1(h) Investments
SCHEDULE 3.3(a) Capital Stock
SCHEDULE 3.3(b) SUSA Units and Unit Rights
SCHEDULE 3.3(c) Holdings' Units of Limited Partnership and Rights Thereon
SCHEDULE 3.4 Consents, Approvals, Etc.; Regulatory Filings
SCHEDULE 3.5(c) Material Liabilities
SCHEDULE 3.6(a) Pending Litigation; Governmental Orders, Injunctions or Decrees
SCHEDULE 3.7 Absence of Certain Changes or Events
SCHEDULE 3.8(a) Tax Matters
SCHEDULE 3.8(h) Capital Accounts, Etc.
SCHEDULE 3.8(l) Tax Protection Agreements
SCHEDULE 3.8(n) Maintenance of Debt Provision
SCHEDULE 3.9(c) Indebtedness; Commitments; Bank Accounts
SCHEDULE 3.9(d) Joint Venture and Partnership Agreements
SCHEDULE 3.9(e) Material Real Property and Franchise Agreements
SCHEDULE 3.9(f) Other Material (Including Non-Compete) Agreements
SCHEDULE 3.9(g) Conflict and Affiliate Policies and Agreements; Waivers
SCHEDULE 3.10(b) Corporate Records
SCHEDULE 3.11(a) Company Properties
SCHEDULE 3.11(b) Properties Violations/Engineering Reports
SCHEDULE 3.11(f) Company Leases
SCHEDULE 3.11(g) Letters of Intent or Similar Understandings
SCHEDULE 3.11(h) Rights of First Refusal
SCHEDULE 3.11(i) Non-Compliance and Capital Expenditure Budget and Schedule
SCHEDULE 3.11(j) Developed, Undeveloped, or Rehabilitated Land of Company Property
SCHEDULE 3.11(l) Tenancy Leases
SCHEDULE 3.12(a) Environmental Permits
SCHEDULE 3.12(e) Material Environmental Concerns
SCHEDULE 3.12(f) Company Environmental Reports
SCHEDULE 3.13(a) Employment Agreements and Employee Arrangements
SCHEDULE 3.13(b) Company Plans
SCHEDULE 3.13(k) Accelerated Vesting, Etc.
SCHEDULE 3.13(n) Employees
SCHEDULE 3.14 Collective Bargaining; Labor Union Agreements
SCHEDULE 3.16 History of Insurance Coverages
SCHEDULE 3.21(b) Issued Patents; Registered Trademarks; Material License Agreements
SCHEDULE 3.22(a) Partnership Formalities; Limited Partner Agreements
A-vi
SCHEDULE 5.5 Conduct of Business
SCHEDULE 5.6(g) Determination of Agreed Value
SCHEDULE 5.10(d) Indemnification Agreements
EXHIBITS
--------
Exhibit A Form of Assignment and Assumption
Exhibit B Form of Agreement of Limited Partnership
Exhibit C Form of Support Agreement
A-vii
This PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of December 5,
2001, is made by and among Storage USA, Inc., a Tennessee corporation (the
"Company"), Storage USA Trust, a Maryland real estate investment trust and a
wholly owned subsidiary of the Company (the "Trust"), SUSA Partnership, L.P., a
Tennessee limited partnership of which the Company is the sole general partner
("SUSA" and, together with the Company and the Trust, the "Sellers"), and
Security Capital Group Incorporated, a Maryland corporation (the "Buyer").
RECITALS:
WHEREAS, the Company owns all of the general partnership interest and a
0.8876% limited partnership interest, and the Trust owns an 87.8741% limited
partnership interest, in SUSA (all such partnership interests, collectively,
the "SUSA Interest"), and the Company owns all of the general partnership
interest and a 1% limited partnership interest, and SUSA owns a 99% limited
partnership interest, in SUSA Holdings LP, a Tennessee limited partnership of
which the Company is the sole general partner ("Holdings") (all such
partnership interests, other than those owned by SUSA, collectively, the
"Holdings Interest" and, together with the SUSA Interest, the "Partnership
Interests");
WHEREAS, SUSA owns, or on or prior to the Closing (as defined herein) will
own, all of the issued and outstanding shares of common stock of each of the
Purchased Subsidiaries (as defined herein) (the "Purchased Shares");
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, the Buyer desires to purchase (or cause one or more of its
Subsidiaries (as defined herein) to purchase) (i) any and all assets of the
Company, (ii) the Partnership Interests from the Company, the Trust and SUSA,
and (iii) the Purchased Shares from SUSA, and the Sellers, respectively, desire
to sell all such assets to the Buyer (or such Subsidiaries), and the Buyer
desires to assume (or cause such Subsidiaries to assume), and the Company
desires to transfer, any and all liabilities, direct, indirect, absolute,
contingent or otherwise, of the Company (collectively, the "Purchase");
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, following the Purchase, the Buyer and the Sellers desire that the
Company merge with and into SUSA (the "Merger"), with the effects set forth
herein and in the Revised Uniform Limited Partnership Act of the State of
Tennessee ("TRULPA");
WHEREAS, the Board of Directors of the Buyer has approved this Agreement and
the transactions contemplated hereby, and the Company Board and the Special
Committee (as defined herein) have each determined that this Agreement and the
transactions contemplated herein are in the best interests of the Company's
shareholders, and have approved this Agreement and the transactions
contemplated hereby;
WHEREAS, the parties adopt this Agreement as, and intend for the
transactions (including the Merger) described herein to constitute, a plan of
liquidation for federal income tax purposes;
WHEREAS, the Company, in its capacity as the sole general partner of SUSA
and Holdings and otherwise, has taken all actions necessary to authorize the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
A-1
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
SECTION 1.1 "Acquisition Proposal" shall have the meaning set forth in
Section 5.6(g).
SECTION 1.2 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Government Authority.
SECTION 1.3 "ADA" shall have the meaning set forth in Section 3.11(e).
SECTION 1.4 "Additional Buyer Units" shall have the meaning set forth in
Section 2.7(a)(iii).
SECTION 1.5 "Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 promulgated under the Exchange Act, and as in effect on the date hereof;
provided, however, that for purposes of this Agreement, the Buyer shall not be
deemed an Affiliate of the Company.
SECTION 1.6 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
SECTION 1.7 "Alternative Acquisition Agreement" shall have the meaning set
forth in Section 5.6(b)(ii).
SECTION 1.8 "Assignment and Assumption" shall have the meaning set forth in
Section 2.5(b)(i).
SECTION 1.9 "Business Day" shall mean any day other than a Saturday, a
Sunday or a bank holiday in New York, N.Y.
SECTION 1.10 "Buyer" shall have the meaning set forth in the first paragraph
hereof.
SECTION 1.11 "Buyer Amount" shall have the meaning set forth in Section
2.2(a).
SECTION 1.12 "Buyer Filings" shall have the meaning set forth in Section
5.1(b).
SECTION 1.13 "Buyer Financing" shall have the meaning set forth in Section
4.6.
SECTION 1.14 "Capital Expenditure Budget and Schedule" shall have the
meaning set forth in Section 3.11(i).
SECTION 1.15 "Capitalized Lease Obligation" shall mean any obligation of
SUSA to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real and/or personal property, which obligation is
required to be (and is) classified and accounted for as a capital lease on
SUSA's balance sheet in accordance with GAAP. Each Capitalized Lease Obligation
is listed on Schedule 1.15.
SECTION 1.16 "CERCLA" shall have the meaning set forth in Section 3.12(e).
SECTION 1.17 "Certificate" shall have the meaning set forth in Section
2.7(a)(i).
SECTION 1.18 "Claim" shall have the meaning set forth in Section 3.12(g)(i).
SECTION 1.19 "Closing" shall have the meaning set forth in Section 2.4.
A-2
SECTION 1.20 "Closing Date" shall have the meaning set forth in Section 2.4.
SECTION 1.21 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder. All section references to the Code (or Treasury
Regulations) shall include all similar provisions under applicable state, local
or foreign law.
SECTION 1.22 "Company" shall have the meaning set forth in the first
paragraph hereof.
SECTION 1.23 "Company Board" shall mean the Board of Directors of the
Company.
SECTION 1.24 "Company Bylaws" shall mean the Amended and Restated Bylaws of
the Company, as in effect on the date hereof.
SECTION 1.25 "Company Charter" shall mean the Charter of the Company, as in
effect on the date hereof.
SECTION 1.26 "Company Common Stock" shall mean the common stock, par value
$0.01 per share, of the Company.
SECTION 1.27 "Company Environmental Reports" shall have the meaning set
forth in Section 3.12(f).
SECTION 1.28 "Company Expenditure Budget and Schedule" shall have the
meaning set forth in Section 3.11(i).
SECTION 1.29 "Company Leases" shall have the meaning set forth in Section
3.11(f).
SECTION 1.30 "Company Options" shall have the meaning set forth in Section
2.8(a).
SECTION 1.31 "Company Plans" shall have the meaning set forth in Section
3.13(h).
SECTION 1.32 "Company Properties" shall have the meaning set forth in
Section 3.11(a).
SECTION 1.33 "Company Reports" shall have the meaning set forth in Section
3.5(a).
SECTION 1.34 "Company Stock" shall mean, collectively, the Company Common
Stock and any other shares of capital stock of the Company.
SECTION 1.35 "Controlled Group Liability" shall have the meaning set forth
in Section 3.13(h).
SECTION 1.36 "Credit Lines" shall mean (a) the Third Amended and Restated
Unsecured Revolving Credit Agreement, dated as of September 17, 2001, among
SUSA, as Borrower, the Company, as General Partner, Guarantor and REIT, the
Trust, as Trust and Guarantor, the Lenders described therein, and Bank One, NA,
as Administrative Agent for the Lenders, (b) the Second Amended and Restated
Loan Agreement, dated as of October 16, 2001, among SUSA, as Borrower, the
Company, as General Partner, Guarantor and REIT, the Trust, as Trust and
Guarantor and First Tennessee Bank, N.A., as Lender, and (c) the Unsecured
Revolving Credit Agreement, dated as of December 19, 2000, among Storage USA
Franchise Corp., as Borrower, SUSA, as General Partner and Guarantor, the
Company, as Guarantor and REIT, the Trust, as Trust and Guarantor, and First
Union National Bank, as Lender and Administrative Agent.
SECTION 1.37 "Deferred Units" shall mean any SUSA Units which SUSA has,
prior to the date hereof, agreed to issue at future dates, in partial
consideration for the purchase of properties, as set forth on Schedule 1.37.
A-3
SECTION 1.38 "Development Budget and Schedule" shall have the meaning set
forth in Section 3.11(j).
SECTION 1.39 "Development Properties" shall have the meaning set forth in
Section 3.11(j).
SECTION 1.40 "Effective Time" shall have the meaning set forth in Section
2.3.
SECTION 1.41 "Electing Holder" shall have the meaning set forth in Section
2.7(a)(ii).
SECTION 1.42 "Election" shall have the meaning set forth in Section
2.7(a)(ii).
SECTION 1.43 "Election Deadline" shall have the meaning set forth in
Section 2.7(a)(ii).
SECTION 1.44 "Election Form" shall have the meaning set forth in Section
2.7(a)(ii).
SECTION 1.45 "Employee" shall have the meaning set forth in Section 3.13(h).
SECTION 1.46 "Employee Arrangements" shall have the meaning set forth in
Section 3.13.
SECTION 1.47 "Environmental Claim" shall have the meaning set forth in
Section 3.12(g)(ii).
SECTION 1.48 "Environmental Laws" shall have the meaning set forth in
Section 3.12(g)(iii).
SECTION 1.49 "Environmental Permits" shall have the meaning set forth in
Section 3.12(a).
SECTION 1.50 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor thereto.
SECTION 1.51 "ERISA Affiliates" shall mean, with respect to any entity,
trade or business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or that
is a member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
SECTION 1.52 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
SECTION 1.53 "Financial Advisor" shall have the meaning set forth in
Section 3.20(a).
SECTION 1.54 "FIRPTA Certificate" shall mean a certificate in form and
substance reasonably satisfactory to the Buyer duly executed and acknowledged
certifying facts that would exempt from any withholding requirement under
Section 1445 of the Code any payments to the Sellers for any United States real
property interests being transferred pursuant to this Agreement.
SECTION 1.55 "GAAP" shall have the meaning set forth in Section 3.5(b).
SECTION 1.56 "Government Authority" shall mean any government or state (or
any subdivision thereof) of or in the United States, or any agency, authority,
bureau, commission, department or similar body or instrumentality thereof, or
any governmental court or tribunal.
SECTION 1.57 "Holdings" shall have the meaning set forth in the Recitals
hereto.
SECTION 1.58 "Holdings Interest" shall have the meaning set forth in the
Recitals hereto.
SECTION 1.59 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
A-4
SECTION 1.60 "Indemnifiable Action" shall have the meaning set forth in
Section 5.10(a).
SECTION 1.61 "Indemnified Parties" shall have the meaning set forth in
Section 5.10(a).
SECTION 1.62 "Indenture" shall have the meaning set forth in Section 1.125
(SUSA Debt).
SECTION 1.63 "Information Statement" shall have the meaning set forth in
Section 5.1(d).
SECTION 1.64 "Insurance Policies" shall have the meaning set forth in
Section 3.16.
SECTION 1.65 "Intellectual Property" shall have the meaning set forth in
Section 3.21(a).
SECTION 1.66 "Investments" shall mean all equity interests of the Company
or its Subsidiaries, as the case may be, in any non-publicly traded entity
(other than a Subsidiary).
SECTION 1.67 "IRS" shall mean the Internal Revenue Service.
SECTION 1.68 "Liabilities" shall mean, as to any person, all debts, adverse
claims, liabilities and obligations, direct, indirect, absolute or contingent
of such person, whether accrued, vested or otherwise, whether in contract,
tort, strict liability or otherwise and whether or not actually reflected, or
required by GAAP to be reflected, in such person's or entity's balance sheets
or other books and records, including (a) obligations arising from
non-compliance with any law, rule or regulation of any Government Authority or
imposed by any court or any arbitrator of any kind, (b) all indebtedness or
liability of such person for borrowed money, or for the purchase price of
property or services (including trade obligations), (c) all obligations of such
person as lessee under leases, capital or other, (d) liabilities of such person
in respect of plans covered by Title IV of ERISA, or otherwise arising in
respect of Company Plans for Employees or their respective families or
beneficiaries, (e) reimbursement obligations of such person in respect of
letters of credit, (f) all obligations of such person arising under acceptance
facilities, (g) all liabilities of other persons or entities, directly or
indirectly, guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business) or discounted with recourse by such person or with
respect to which the person in question is otherwise directly or indirectly
liable, (h) all obligations secured by any Lien on property of such person,
whether or not the obligations have been assumed, and (i) all other items which
have been, or in accordance with GAAP would be, included in determining total
liabilities on the liability side of the balance sheet.
SECTION 1.69 "Liens" shall mean all liens, mortgages, deeds of trust, deeds
to secure debt, security interests, pledges, claims, charges, easements and
other encumbrances of any nature whatsoever.
SECTION 1.70 "Loan Repayment Amount" shall mean an amount in cash, equal to
(a) the amount of any borrowings outstanding under the Credit Lines minus (b)
the SUSA Subsidiaries Amount, and to be used by SUSA for the repayment at the
Closing of any borrowings outstanding under the Credit Lines, in accordance
with Section 2.5(b)(ii).
SECTION 1.71 "Material Adverse Effect" shall mean any change or event or
effect that is or would reasonably be expected to be materially adverse to the
business, assets, financial condition or results of operations of the Company
and its Subsidiaries taken as a whole; it being understood that none of the
following shall be deemed to constitute, and none of the following shall be
taken into account in determining whether there has been or will be, a Material
Adverse Effect: (a) any change in the market price or trading volume of the
Company Common Stock after the date hereof, (b) any change or event or effect
caused by any action taken by Buyer or any of its Affiliates or
Representatives, (c) any change or event or effect caused by any Action
previously or hereafter brought by a shareholder of the Company or a holder of
SUSA Units against the Company, SUSA or any director or officer of the Company
relating to the Strategic Alliance Agreement or this
A-5
Agreement or the transactions contemplated hereby, (d) any change or event or
effect arising out of or relating generally to the U.S. economy, (e) any change
or event or effect relating generally to the industry in which the Company and
its Subsidiaries operate, and (f) any change or event or effect arising out of
this Agreement, compliance with the Company's covenants in this Agreement, the
announcement or pendency of the transactions contemplated by this Agreement
(including any cancellations of or delays in customer orders, any reduction in
revenues, any disruption in supplier, distributor, partner or similar
relationships or any loss of employees).
SECTION 1.72 "Materials of Environmental Concern" shall have the meaning set
forth in Section 3.12(g)(iv).
SECTION 1.73 "Merger" shall have the meaning set forth in the Recitals
hereto.
SECTION 1.74 "Merger Certificate" shall have the meaning set forth in
Section 2.3.
SECTION 1.75 "Merger Consideration" shall mean the Share Consideration and
the Unit Consideration.
SECTION 1.76 "Mortgage Notes" shall mean the notes of the Company and/or one
or more of its Subsidiaries that are secured by one or more Company Properties,
all of which are listed on Schedule 1.76.
SECTION 1.77 "No-Solicitation Period" shall have the meaning set forth in
Section 5.6(a).
SECTION 1.78 "No-Solicitation Start Date" shall have the meaning set forth
in Section 5.6(a).
SECTION 1.79 "Notes" shall have the meaning set forth in Section 2.2.
SECTION 1.80 "Other Assets" shall have the meaning set forth in Section
2.1(c).
SECTION 1.81 "Other Filings" shall have the meaning set forth in Section
5.1(b).
SECTION 1.82 "Outside Date" shall have the meaning set forth in Section
7.1(b).
SECTION 1.83 "Partnership Interests" shall have the meaning set forth in the
Recitals hereto.
SECTION 1.84 "Partnerships" shall have the meaning set forth in Section
3.8(h).
SECTION 1.85 "Paying Agent" shall have the meaning set forth in Section
2.7(b)(i).
SECTION 1.86 "Pension Plans" shall have the meaning set forth in Section
3.13(h).
SECTION 1.87 "Permitted Dividends" shall mean (a) normal quarterly dividends
(not to exceed $0.71 per share), declared and paid on the Company Common Stock
in the ordinary course of business consistent with past practice, and (b) any
corresponding distribution on SUSA Units as required under and in accordance
with the provisions of the SUSA Agreement.
SECTION 1.88 "Permitted Liens" shall mean (i) Liens for taxes or other
assessments or charges of Governmental Authorities that are not yet delinquent
or that are being contested in good faith by appropriate proceedings, in each
case, with respect to which adequate reserves or other appropriate provisions
are being maintained by the Company or its Subsidiaries to the extent required
by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen and other Liens (including Liens imposed under ERISA or any
Environmental Law or in connection with any Environmental Claim) imposed by law
and created in the ordinary course of business for amounts not yet overdue or
which are being contested in good faith by appropriate proceedings, in each
case, with respect to which adequate reserves or other appropriate provisions
are being maintained by the Company or its Subsidiaries, whether or not
required by GAAP, (iii) the Company Leases,
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(iv) easements, rights-of-way, covenants and restrictions which are customary
and typical for properties similar to the Company Properties and which do not
(x) interfere materially with the ordinary conduct of the business of the
Company and its Subsidiaries as a whole or (y) detract materially from the
value or usefulness of the Company Properties taken as a whole, (v) the Liens
which were granted by the Company or any of its Subsidiaries to lenders
pursuant to credit agreements in existence on the date hereof which are
described on Schedule 3.9(c), (vi) Liens and Property Restrictions described on
Schedule 1.88, and (vii) such imperfections of title and encumbrances, if any,
as are not material to the Company and its Subsidiaries, taken as a whole.
SECTION 1.89 "Permitted Period" shall have the meaning set forth in Section
5.6(f).
SECTION 1.90 "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or Government Authority.
SECTION 1.91 "Pre-Closing Amount" shall mean, with respect to any share of
Company Common Stock or SUSA Unit, as applicable, an amount equal to the
product of (a) the Permitted Dividend relating to the quarterly period in which
the Closing occurs payable on such share or unit multiplied by (b) a fraction
the denominator of which is the number of calendar days included in such
quarterly period and the numerator of which is the number of days included in
the period from (and including) the first day of such quarterly period to (and
including) the Closing.
SECTION 1.92 "Preferred Units" means SUSA's 8 7/8% Series A Cumulative
Redeemable Preferred Units of Partnership Interest, as established by the
fourth amendment to the SUSA Agreement.
SECTION 1.93 "Projects" shall have the meaning set forth in Section 3.11(j).
SECTION 1.94 "Property Joint Venture" shall mean each of the joint venture
partnerships listed on Schedule 1.94 which holds a fee or leasehold interest in
one or more Company Properties, as indicated on said Schedule.
SECTION 1.95 "Property Restrictions" shall have the meaning set forth in
Section 3.11(a).
SECTION 1.96 "Proxy Statement" shall have the meaning set forth in Section
5.1(b).
SECTION 1.97 "Purchase" shall have the meaning set forth in the Recitals
hereto.
SECTION 1.98 "Purchase Consideration" shall have the meaning set forth in
Section 2.2.
SECTION 1.99 "Purchase Price" shall mean the sum of the Purchase
Consideration and the Transferred Liabilities.
SECTION 1.100 "Purchase Price Allocation" shall have the meaning set forth
in Section 5.13.
SECTION 1.101 "Purchased Assets" shall have the meaning set forth in Section
2.1(c).
SECTION 1.102 "Purchased Shares" shall have the meaning set forth in the
Recitals hereto.
SECTION 1.103 "Purchased Subsidiaries" shall mean Storage USA Franchise Corp
and SUSA Management, Inc.
SECTION 1.104 "Redemption" shall have the meaning set forth in Section
2.2(b).
SECTION 1.105 "Regulatory Filings" shall have the meaning set forth in
Section 3.4(e).
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SECTION 1.106 "REIT" shall have the meaning set forth in Section 3.8(b).
SECTION 1.107 "Release" shall have the meaning set forth in Section
3.12(g)(v).
SECTION 1.108 "Rent Summary" shall have the meaning set forth in Section
3.11(f).
SECTION 1.109 "Representatives" mean, with respect to any person, such
person's directors, officers, employees, investment bankers, attorneys,
accountants or other advisors or representatives.
SECTION 1.110 "Schedule 13E-3" shall have the meaning set forth in Section
5.1(b).
SECTION 1.111 "SEC" shall mean the United States Securities and Exchange
Commission.
SECTION 1.112 "SEC Filings" shall have the meaning set forth in Section
5.1(b).
SECTION 1.113 "Securities Act" shall mean the Securities Act of 1933, as
amended.
SECTION 1.114 "Securities Laws" shall have the meaning set forth in Section
3.5(a).
SECTION 1.115 "Sellers" shall have the meaning set forth in the first
paragraph hereof.
SECTION 1.116 "Share Consideration" shall mean $42 in cash, without
interest, per share of Company Common Stock, subject to (a) increase by the per
share amount of any Pre-Closing Amount payable on the Company Common Stock and
(b) reduction by the per share amount of any dividend or distribution in excess
of Permitted Dividends paid by the Company on the Company Common Stock after
the date hereof.
SECTION 1.117 "Special Committee" shall mean the special committee of the
Company Board appointed by the Company Board in connection with the
consideration and negotiation of certain matters relating to the Buyer and
certain related matters.
SECTION 1.118 "Strategic Alliance Agreement" shall mean the Strategic
Alliance Agreement, dated as of March 19, 1996, by and among the Company, SUSA,
the Trust, Security Capital U.S. Realty, a Luxembourg corporation ("USRealty"),
and Security Capital Holdings S.A., a Luxembourg corporation and a wholly owned
subsidiary of USRealty ("SC Holdings"), to which the Buyer (both as to itself
and as successor to all the rights of USRealty and SC Holdings under the
Strategic Alliance Agreement) became party as a result of the transactions
between Security Capital, USRealty and SC Holdings and the consent provided by
the Company pursuant to that certain letter agreement dated July 7, 2000
between the Company and the Buyer, as the same has been or may be amended,
modified or waived from time to time.
SECTION 1.119 "Subsidiaries" shall mean with respect to any person, any
corporation, partnership, joint venture, limited liability company, business
trust or other entity, of which such person, directly or indirectly, owns or
controls at least 50% of the securities or other interests entitled to vote in
the election of directors or others performing similar functions with respect
to such corporation or other organization, or which such person otherwise
controls. Without limiting the generality of the foregoing, the Company's
Subsidiaries shall include (a) the Trust, (b) SUSA, and (c) each of the
Purchased Subsidiaries and any entity that is a direct or indirect Subsidiary
of the Trust or SUSA.
SECTION 1.120 "Superior Proposal" shall have the meaning set forth in
Section 5.6(g).
SECTION 1.121 "Superior Transaction" shall have the meaning set forth in
Section 5.6(g).
SECTION 1.122 "Support Agreement" shall have the meaning set forth in
Section 5.2.
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SECTION 1.123 "Surviving Partnership" shall have the meaning set forth in
Section 2.6.
SECTION 1.124 "SUSA" shall have the meaning set forth in the first paragraph
hereof.
SECTION 1.125 "SUSA Agreement" shall mean the Second Amended and Restated
Agreement of Limited Partnership of SUSA Partnership, L.P., dated as of
September 21, 1994, as amended as of March 19, 1996, June 14, 1996, August 14,
1996 and November 12, 1998.
SECTION 1.126 "SUSA Debt" shall mean (a) the 7.125% Notes due 2003, 8.20%
Notes due 2017, 6.95% Notes due 2006, 7.45% Debentures due 2018, 7.00% Notes
due 2007 and 7.50% Debentures due 2027, in each case, issued under the
indenture, dated as of November 1, 1996, between SUSA, as issuer, and The First
National Bank of Chicago, as trustee (the "Indenture"), (b) the Preferred
Units, (c) the Credit Lines, (d) the Deferred Units, (e) the Mortgage Notes,
and (f) the Capitalized Lease Obligations.
SECTION 1.127 "SUSA Interest" shall have the meaning set forth in the
Recitals hereto.
SECTION 1.128 "SUSA Management Purchase Agreement" shall have the meaning
set forth in Section 6.1(j).
SECTION 1.129 "SUSA Subsidiaries Amount" shall mean $15,859,000.
SECTION 1.130 "SUSA Units" shall mean any class of limited partnership units
representing shares of partnership interests in SUSA, but shall not include the
Preferred Units.
SECTION 1.131 "Take-Along Period" shall mean the period commencing on the
date of termination of this Agreement pursuant to and in accordance with
Section 7.1(f) (in connection with an agreement providing for a Superior
Transaction and entered into during the Permitted Period) to and including the
date that is four months from such date of termination of this Agreement;
provided, however, that (a) if the meeting of the Company's shareholders
referred to in Section 5.2 (including any adjournment or postponement thereof)
is delayed because of a breach (including any omission by the Buyer or any of
its Affiliates to take, when required, any action as to which they are
contractually obligated hereunder) by the Buyer of this Agreement or any other
action of the Buyer or any of its Affiliates, then the Take-Along Period shall
be extended by the number of days of such delay, or (b) in the event that the
Company has not been able to duly convene and hold the special meeting of its
shareholders referred to in Section 5.2 on or prior to the date that is four
months from such date of termination of this Agreement (x) because the
requisite proxy or other related or required materials have not been cleared by
the SEC sufficiently in advance of such date, provided that such proxy or other
related or required materials were filed with the SEC in preliminary form
within 45 days following such date of termination of this Agreement, and that
the Company and the person with whom the Company has agreed to enter into a
Superior Transaction have used their reasonable efforts to clear such proxy or
other related or required materials with the SEC as promptly as practicable, or
(y) because of another regulatory obstacle to the convening and holding of such
shareholder meeting or the closing of the Superior Transaction, despite the
Company's reasonable efforts to overcome such obstacle, then, in each such case
referred to in the foregoing clauses (x) and (y), the Take-Along Period shall
be extended until the earlier of (i) two Business Days following the date of
such shareholder meeting or (ii) the date that is six months after such date of
termination of this Agreement.
SECTION 1.132 "Tax" or "Taxes" shall mean any federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not, and shall include any amounts payable
pursuant to any tax sharing agreement or with respect to which any relevant
entity is liable as a successor, pursuant to contract or otherwise.
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SECTION 1.133 "Tax Protection Agreements" shall mean any agreement pursuant
to which (a) any Liability to holders of SUSA Units relating to Taxes may
arise, whether or not as a result of the consummation of the transactions
contemplated by this Agreement; (b) in connection with the deferral of income
Taxes of a holder of SUSA Units, the Company, SUSA or their respective
Subsidiaries or the Partnerships have agreed to (i) maintain a minimum level of
debt or continue a particular debt, (ii) retain or not dispose of assets for a
period of time that has not since expired, (iii) make or refrain from making
Tax elections, (iv) operate (or refrain from operating) in a particular manner,
and/or (v) only dispose of assets in a particular manner; and/or (c) limited
partners of a Partnership have guaranteed debt of such Partnership or any other
Partnership or agreed to indemnify another person for a Liability of or that
relates to a Partnership.
SECTION 1.134 "Tax Return" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
SECTION 1.135 "Tenancy Leases" shall have the meaning set forth in Section
3.11(l).
SECTION 1.136 "TBCA" shall mean the Tennessee Business Corporation Act.
SECTION 1.137 "TRULPA" shall have the meaning set forth in the Recitals
hereto.
SECTION 1.138 "Transferred Liabilities" shall mean all of the Liabilities of
the Company, as set forth or described on Schedule 1.136.
SECTION 1.139 "Trust" shall have the meaning set forth in the first
paragraph hereof.
SECTION 1.140 "Unit Consideration" shall mean $42 in cash, without interest,
per SUSA Unit, subject to (a) increase by the per SUSA Unit amount of any
Pre-Closing Amount payable on the SUSA Units and (b) reduction by the per SUSA
Unit amount of any distribution in excess of Permitted Dividends paid by SUSA
on the SUSA Units after the date hereof to comply with the requirements of
Section 5.11.
SECTION 1.141 "Welfare Plans" shall have the meaning set forth in Section
3.13(h).
ARTICLE 2
THE TRANSACTIONS
SECTION 2.1 Stock and Asset Purchase; Transferred Liabilities. On the terms
and subject to the conditions hereinafter set forth and on the basis of and in
reliance upon the representations, warranties, obligations and agreements set
forth herein, at the Closing:
(a) the Company shall, and shall cause SUSA to, grant, sell, convey, assign,
transfer and deliver to the Buyer, and the Buyer shall purchase, acquire and
accept from the Company, free and clear of all Liens, all of SUSA's right,
title and interest in and to all of the Purchased Shares, constituting all of
the issued and outstanding shares of capital stock of the Purchased
Subsidiaries, as set forth on Schedule 2.1(a), in exchange for the SUSA
Subsidiaries Amount. The transfer of the Purchased Shares from SUSA to the
Buyer shall be in a form acceptable for transfer on the books of the Purchased
Subsidiaries. Unless the context otherwise requires, references in this Article
2 to the Buyer shall be deemed references to the Buyer and the Subsidiary or
Subsidiaries the Buyer may substitute for itself pursuant to Section 8.5;
(b) immediately after the purchase and sale of the Purchased Shares, the
Company and the Trust shall (and the Company shall cause the Trust to) grant,
sell, convey, assign, transfer and deliver to the Buyer, and
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the Buyer shall purchase, acquire and accept from the Company and the Trust,
all of the their respective right, title and interest in and to each of the
Partnership Interests (all limited partnership interests first, followed by the
general partnership interests), in each case, free and clear of all Liens. The
transfer of the SUSA Interest and the Holdings Interest from the Company and
the Trust to the Buyer shall be in a form acceptable for transfer on the books
of SUSA and Holdings, respectively;
(c) immediately after the purchase and sale of the Purchased Shares and
concurrently with the purchase and sale of the Partnership Interests pursuant
to Section 2.1(b), the Company shall grant, sell, convey, assign, transfer and
deliver to the Buyer, and the Buyer shall purchase, acquire and accept from the
Company, free and clear of all Liens (other than Permitted Liens), all of the
Company's right, title and interest in, to and under, all of the assets,
properties and rights of every nature, kind and description, tangible and
intangible (including goodwill), whether real, personal or mixed, whether
accrued, contingent or otherwise, wherever located and whether now existing or
hereafter acquired (other than the Partnership Interests and the Purchase
Consideration) of the Company, and as the same shall exist on the Closing Date,
whether or not any of such assets, properties or rights have any value for
accounting purposes or are carried or reflected on or specifically referred to
in the Company's books or financial statements (collectively, the "Other
Assets" and, together with the Partnership Interests, the "Purchased Assets");
it being understood and agreed that "Other Assets" shall also include all of
the issued and outstanding shares of capital stock of the Trust, Huron
Acquisitions, Inc. and SUSA Finance Corp.; and
(d) the Company shall grant, sell, convey, assign, transfer and deliver to
the Buyer, and the Buyer shall accept, assume and agree to pay, perform or
otherwise discharge, in accordance with the respective terms and subject to the
respective conditions thereof, all of the Transferred Liabilities; it being
understood and agreed that Liabilities relating to the SUSA Debt shall not
constitute Transferred Liabilities and shall continue to be Liabilities of the
Surviving Partnership after the Closing, unless otherwise satisfied and paid by
SUSA as contemplated hereby.
SECTION 2.2 Purchase Consideration; Redemption. (a) The aggregate purchase
price to be paid by the Buyer to the Sellers for the Purchased Assets, which
shall be in addition to the assumption of the Transferred Liabilities pursuant
to Section 2.1(d), shall be equal to the sum of (a) the aggregate Share
Consideration payable pursuant to Section 2.7 and (b) the aggregate
consideration payable with respect to Company Options pursuant to Section 2.8
(the "Purchase Consideration"); provided, however, that the Buyer may, in its
sole discretion, elect to pay a portion of the Purchase Consideration (up to an
amount equal, in the aggregate, to the product of the number of shares of
Company Common Stock held by the Buyer and its Affiliates multiplied by $42
(the "Buyer Amount")) in the form of one or more promissory notes (which shall
have terms acceptable to the Buyer in its sole discretion) entitling the holder
thereof (subject to compliance with the provisions of this Agreement) to the
payment of the amount set forth thereon (the "Notes"). The Purchase
Consideration (other than the amount, if any, represented by the Notes) shall
be payable at the Closing by wire transfer of immediately available funds to
such accounts as the Sellers shall designate at least two Business Days prior
to the Closing Date.
(b) Immediately after the Purchase and prior to the Merger, the Company
shall purchase from the Buyer and its Affiliates, and the Buyer shall sell and
shall cause its Affiliates to sell, all shares of Company Common Stock owned at
such time by the Buyer and its Affiliates, in accordance with Section 48-16-302
of the TBCA, for an amount equal to the Buyer Amount, in cash and/or, to the
extent any portion of the Buyer Amount was paid in the form of Notes, such
Notes (the "Redemption"), and all such shares so acquired shall become
authorized but unissued shares of the Company in accordance with such Section.
SECTION 2.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, prior to the Closing, the Buyer shall prepare, and on the Closing
Date the Buyer shall cause to be filed with the Secretary of State of the State
of Tennessee, a certificate of merger (the "Merger Certificate") in such form
as is required by, and executed by the Surviving Partnership in accordance
with, Section 61-2-211 of the TRULPA, and the Buyer, the Company and the
Surviving Partnership shall make all other filings or recordings required under
the TRULPA and the TBCA. The Merger shall become effective upon the filing of
the Merger Certificate with the
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Secretary of State of the State of Tennessee or at such later date and time as
is agreed to by the Buyer and the Company prior to such filing and is set forth
in the Merger Certificate (the "Effective Time").
SECTION 2.4 Closing. Unless this Agreement shall have been earlier
terminated in accordance with the terms hereof, the closing of the Purchase,
the Redemption and the Merger (the "Closing") shall take place (a) at the New
York, New York offices of Wachtell, Lipton, Rosen & Katz, at 10:00 a.m. local
time, on a date mutually agreed upon by the Buyer and the Company but not later
than two Business Days after the Business Day on which the conditions precedent
set forth in Article 6 have been satisfied or waived (other than the conditions
precedent that are not capable of being satisfied until the Closing, but
subject to the satisfaction or waiver of those conditions), or (b) at such
other place, date or time as may be mutually agreed upon in writing by the
Buyer and the Company. The date of the Closing is referred to herein as the
"Closing Date."
SECTION 2.5 Pre-Closing Amounts; Deliveries and Proceedings at Closing. (a)
All Pre-Closing Amounts shall be paid as set forth in Section 2.7.
(b) At the Closing and subject to the terms and conditions contained herein:
(i) Deliveries by Sellers. The appropriate Seller(s) shall (A) deliver
or cause to be delivered to the Buyer (w) one or more stock certificates,
together with stock powers executed in blank, representing all of the issued
and outstanding Purchased Shares, (x) an instrument or instruments for the
assignment and assumption of the Purchased Assets and the Transferred
Liabilities in the form attached hereto as Exhibit A, duly executed by the
Company and the Trust (the "Assignment and Assumption"), (y) the Additional
Buyer Units, and (z) a FIRPTA Certificate from each Seller and (B) use the
Loan Repayment Amount and the SUSA Subsidiaries Amount to repay all
borrowings outstanding under the Credit Lines;
(ii) Deliveries by the Buyer. The Buyer shall deliver or cause to be
delivered (A) to the appropriate Seller(s) (w) the Purchase Consideration,
as set forth in Section 2.2, (x) the SUSA Subsidiaries Amount, (y) the Loan
Repayment Amount, and (z) the Assignment and Assumption, duly executed by
the Buyer, and (B) to the Paying Agent, in accordance with Section
2.7(b)(i), an amount of cash equal to the aggregate Unit Consideration
payable pursuant to Sections 2.7(a)(iii) and 2.7(b); and
(iii) Other Deliveries. The Sellers shall also execute, acknowledge and
deliver to the Buyer bills of sale, endorsements, assignments and other
instruments of sale, conveyance, transfer and assignment as the Buyer may
reasonably request in order to effect the sale, transfer, assignment,
conveyance and delivery of the Purchased Shares and the Purchased Assets to
the Buyer or otherwise carry out the provisions of this Agreement. Each
instrument of transfer referred to in this Section 2.5 that is not attached
as an Exhibit to this Agreement shall be in customary form and shall be
reasonably satisfactory in form and substance to the Buyer.
(iv) Officers. The officers of the Surviving Partnership shall be such
officers as the Buyer shall designate on or prior to the Closing.
SECTION 2.6 The Merger; Effects of the Merger. Upon the terms and subject
to the conditions of this Agreement, at the Effective Time (a) the separate
existence of the Company shall cease and the Company shall be merged with and
into SUSA (SUSA following the Merger is sometimes referred to herein as the
"Surviving Partnership"), (b) the SUSA Agreement, as amended as set forth in
Exhibit B, shall be the agreement of limited partnership of the Surviving
Partnership, until further amended in accordance with the TRULPA and (c) the
Merger shall have the effects set forth herein and in the TRULPA and the TBCA.
The provisions of Sections 2.6 and 2.7 shall constitute a Plan of Merger under
the TRULPA and the TBCA.
SECTION 2.7 Conversion of Capital Stock; Conversion and Issuance of SUSA
Units. (a) At the Effective Time, by virtue of the Merger and without any
action on the part of the Buyer, SUSA, the Company or any of the holders of any
of the outstanding securities of the Company, SUSA or any of their respective
Affiliates:
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(i) each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares held by the Company as
treasury stock or owned by any of the Company's wholly owned Subsidiaries,
which shares shall be cancelled without any payment being made pursuant to
this Agreement with respect thereto) shall be automatically converted into
the right to receive the Share Consideration upon surrender of the
certificate representing such share (each a "Certificate") in the manner
provided in Section 2.7(b). As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically
be cancelled and shall cease to exist, and each holder of a Certificate or
Certificates shall cease to have any rights with respect thereto, except the
right to receive the Share Consideration pursuant to this Section 2.7(a). In
the event of any reclassification, stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into Company Common Stock), reorganization, recapitalization or other like
change with respect to Company Common Stock permitted hereunder, occurring
(or for which a record date is established) after the date hereof and prior
to the Effective Time, the Share Consideration shall be proportionately
adjusted to reflect fully such event;
(ii) each SUSA Unit issued and outstanding immediately prior to the
Effective Time (other than those held by the Buyer of any of its direct or
indirect Subsidiaries or by an Electing Holder) shall be cancelled and shall
be converted automatically into the right to receive the Unit Consideration,
payable to the holder of such SUSA Unit; provided, however, that each such
holder may, at such holder's sole discretion, elect (each an "Election") to
(x) continue as a limited partner of the Surviving Partnership, in
accordance with the terms of the SUSA Agreement, as amended as set forth in
Exhibit B hereto (and also to be annexed to the Information Statement),
until further amended in accordance with the TRULPA, in which case, such
holder shall not be entitled to receive the Unit Consideration and Section
2.7(a)(iii) shall apply or (y) make an Election with respect to some but not
all of such holder's SUSA Units (with the effects set forth in the foregoing
clause (x) with respect to, but only with respect to, the SUSA Units covered
by such Election), in which case, such holder shall be entitled to receive
Unit Consideration with respect to, but only with respect to, the SUSA Units
with respect to which an Election has not been made, in accordance with
Section 2.7(a)(iii); provided, further, that any holder of SUSA Units who
(x) is entitled to receive an amount of Unit Consideration equal to $250,000
or less, in the aggregate, (y) is not an "accredited investor" (as such term
is defined in Rule 501(a) under the Securities Act) or (z) would not be
eligible, in the Buyer's reasonable judgment (after being advised by outside
counsel), based on the Buyer's (and such counsel's) review of such holder's
responses to a questionnaire sent to the holders of SUSA Units (which
questionnaire shall be in form and substance reasonably acceptable to the
Buyer and the Company) and such other customary matters as are reasonably
taken into account by the Buyer and its counsel, to continue as a limited
partner of the Surviving Partnership in accordance with this Agreement
without registration of such holder's SUSA Units under the Securities Laws
or state securities or blue sky laws, shall, in each of cases (x), (y) and
(z), have no right to make an Election hereunder. Elections shall be made in
a form designated by the Buyer for that purpose, which form shall be
reasonably acceptable to the Company (an "Election Form"). The Election Form
shall (x) state that, by making an Election, a holder of SUSA Units shall be
deemed to (A) have consented to the amendment of the SUSA Agreement, as
amended as set forth in Exhibit C, and (B) have unconditionally and
irrevocably waived any and all rights such holder may have against the
Sellers or the Buyer or any of their respective Subsidiaries, Affiliates or
Representatives under the SUSA Agreement or, in connection with and with
respect to the Purchase, the Redemption, the Merger, the repayment of the
Credit Lines and the other transactions contemplated by this Agreement,
under the Tax Protection Agreements, (y) when completed, specify the number
of SUSA Units, if less than all, with respect to which an Election is made
(failing which, the holder thereof shall be deemed to have made an Election
with respect to all of such holder's SUSA Units), and (z) provide any other
information or certification relating to Taxes that is reasonably required
in connection with the transactions contemplated hereby. The Election Form
shall offer each holder of SUSA Units who has made an Election, and who is a
party to a Tax Protection Agreement obligating such holder to indemnify the
general partner of SUSA with respect to any SUSA Debt, the opportunity to
enter into an amendment to such Tax Protection Agreement that permits such
holder to continue such indemnity, after the transactions contemplated by
this Agreement (including
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repayment of the Credit Lines), with respect to the same amount of SUSA Debt
to which the indemnity applied before such sale. In order to be effective,
an Election Form must be duly completed, signed and submitted to the Buyer,
and must be received by the Buyer by the date (the "Election Deadline")
specified in the Election Form or in the letter of transmittal referred to
in Section 2.7(b)(i). Any holder of SUSA Units who has the right to make,
and has made, an Election pursuant to this Section 2.7(a)(ii) (each an
"Electing Holder") may at any time prior to the Election Deadline revoke
such Election by written notice to the Buyer received by the Buyer prior to
the Election Deadline. Any Electing Holder who does not submit a properly
completed Election Form which is received by the Buyer prior to the Election
Deadline, or who has duly revoked such Election, shall be deemed not to have
made an Election and shall be entitled to receive the Unit Consideration.
The Buyer shall, in its sole discretion, determine whether an Election Form
has been properly completed, signed and submitted or revoked and to
disregard immaterial defects in such form. Such decision shall be conclusive
and binding. If any Electing Holder shall submit a defective Election Form,
upon discovery of such defect, the Buyer shall use commercially reasonable
efforts to notify such holder and to permit such holder to (prior to the
Election Deadline) cure such defect. Any defective Election not cured prior
to the Election Deadline shall be deemed to be of no force and effect and
the holder of SUSA Units making such purported Election shall be deemed not
to have made an Election and shall be entitled to receive the Unit
Consideration;
(iii) each general or limited partnership interest of SUSA owned by the
Buyer or its direct or indirect Subsidiaries immediately prior to the
Effective Time, and each SUSA Unit issued and outstanding immediately prior
to the Effective Time with respect to which the holder thereof has the right
to make, and has duly made, an Election in accordance with Section
2.7(a)(ii), shall remain a general or limited partnership interest, as
applicable, of the Surviving Partnership and no payment shall be made
pursuant to this Agreement with respect thereto. In addition, Buyer shall
contribute cash to SUSA (directly or indirectly through depositing the same
with the Paying Agent in accordance with Section 2.7(b)) in an amount not to
exceed $128,197,920 as needed to pay the Unit Consideration to non-Electing
Holders, and SUSA Units shall be issued to the Buyer in an amount equal to
the sum of (i) the number of non-Electing Holders' SUSA Units cancelled
pursuant to Section 2.7(a)(ii) (which SUSA Units shall be treated as having
been sold to the Buyer by the non-Electing Holders for federal income tax
purposes) and (ii) a number of SUSA Units equal to the quotient of (x) the
Loan Repayment Amount divided by (y) the Unit Consideration (the "Additional
Buyer Units"); and
(iv) each SUSA Unit held in the treasury of SUSA immediately prior to the
Effective Time, if any, shall remain issued and held in treasury after the
Merger and no payment shall be made with respect thereto, and all such SUSA
Units shall thereafter constitute limited partnership interests in the
Surviving Partnership.
(b) (i) Prior to the Effective Time, the Buyer shall designate an agent
reasonably satisfactory to the Company (the "Paying Agent") for the holders
of Company Common Stock and SUSA Units (other than any Electing Holders) to
receive the Merger Consideration to which they shall become entitled
pursuant to Section 2.7(a), and, at the Closing, the Company shall deposit,
or cause to be deposited, in trust with the Paying Agent the Purchase
Consideration, and the Buyer shall deposit, or cause to be deposited, in
trust with the Paying Agent an amount in cash as is necessary to pay (after
using the Purchase Consideration for such purpose) the Merger Consideration
to which the holders of shares of Company Common Stock and SUSA Units (other
than Electing Holders), as the case may be, are entitled to receive in
exchange for their Certificates and SUSA Units, as the case may be, pursuant
to Section 2.7(a). Promptly after the Effective Time, the Surviving
Partnership shall cause to be mailed to each person who was, at the
Effective Time, a holder of record of Certificates or SUSA Units, and who,
in each case, is entitled to receive the Merger Consideration pursuant to
Section 2.7(a), a form of letter of transmittal (which shall (x) specify
that delivery shall be effected, and risk of loss and title to any
Certificates shall pass only upon proper delivery of such Certificates to
the Paying Agent, (y) in the case of holders of SUSA Units, include a Form
of Election and (z) otherwise be in such form and have such other provisions
as the Buyer may reasonably specify) and
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instructions for use in effecting the surrender of any Certificates pursuant
to such letter of transmittal. Upon surrender to the Paying Agent of a
Certificate (if applicable), together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions,
the holder of such Certificate or a holder of SUSA Units (other than an
Electing Holder) shall be entitled to receive in exchange therefor the Share
Consideration for each share of Company Common Stock formerly evidenced by
such Certificate or the Unit Consideration for each such SUSA Unit, as the
case may be, and such Certificate shall then be canceled. Until such time,
each share of Company Common Stock or SUSA Unit (with respect to which an
Election has not been made by the holder thereof) outstanding after the
Effective Time, shall be deemed for all purposes to evidence only the right
to receive the Merger Consideration. No interest shall accrue or be paid on
the Share Consideration or Unit Consideration payable upon the surrender of
any Certificate (if applicable) and a duly completed and validly executed
letter of transmittal for the benefit of the holder thereof.
(ii) If payment of the Merger Consideration is to be made to a person
other than the person in whose name any surrendered Certificate (if
applicable) is registered and/or who is submitting the letter of
transmittal, it shall be a condition of payment that any Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and otherwise that the person requesting such payment shall have
paid all transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of such
Certificate or holder of SUSA Units to which the letter of transmittal
relates, as the case may be, or shall have established to the satisfaction
of the Surviving Partnership that such taxes either have been paid or are
not applicable.
(iii) At any time following the third month after the Effective Time, the
Buyer or the Surviving Partnership, as applicable, shall be entitled to
require the Paying Agent to deliver to it any funds which had been made
available to the Paying Agent and not disbursed to holders of shares of
Company Common Stock or SUSA Units (including all interest and other income
received by the Paying Agent in respect of all funds made available to it),
and thereafter such holders shall be entitled to look to the Buyer (subject
to abandoned property, escheat and other similar laws) only as general
creditors thereof with respect to any Merger Consideration that may be
payable upon due surrender of any Certificates (if applicable) held by them
and a duly completed and validly executed letter of transmittal.
Notwithstanding the foregoing, none of the Buyer, the Surviving Partnership,
the Company, the Trust and the Paying Agent or any other person shall be
liable to any holder of shares of Company Common Stock or SUSA Units for any
Merger Consideration delivered in respect of such shares or SUSA Units, as
the case may be, to a public official pursuant to any abandoned property,
escheat or other similar law.
(iv) Any amounts remaining unclaimed by such holders three years after
the Effective Time (or such earlier date immediately prior to such time when
the amounts would otherwise escheat to or become property of any Government
Authority) shall become, to the extent permitted by applicable law, the
property of Buyer free and clear of any claims or interest of any person
previously entitled thereto.
(v) After the close of business on the day of the Effective Time or the
Effective Time, whichever is earlier, there shall be no further registration
of transfers of shares of Company Common Stock on the stock transfer books
of the Company or of SUSA Units on the records of SUSA for the SUSA Units.
From and after the Effective Time, the holders of shares of Company Common
Stock or SUSA Units outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares or SUSA Units,
respectively, except as otherwise provided herein or by applicable law, and,
if after the Effective Time, any Certificates are presented to the Surviving
Partnership or the Paying Agent for any reason, they shall be cancelled and
exchanged as provided in this Section 2.7.
(vi) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the
Surviving Partnership, the posting by such person of a bond in such
reasonable amount as the Surviving Partnership
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may direct as indemnity against any claim that may be made against it with
respect to such Certificate the Paying Agent shall issue in exchange for
such lost, stolen or destroyed Certificate the Share Consideration.
(vii) Each of the Buyer and the Surviving Partnership shall be entitled
to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock
or SUSA Units, as the case may be, such amounts as it reasonably determines
that it is required to deduct and withhold with respect to the making of
such payment under the Code, or any other applicable provision of law. To
the extent that amounts are so withheld by the Buyer or the Surviving
Partnership, as the case may be, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock or SUSA Units, as the case may be, in respect
of which such deduction and withholding was made by the Buyer or the
Surviving Partnership, as the case may be.
SECTION 2.8 Options; Restricted Stock.
(a) Prior to the Closing, the Sellers shall use commercially reasonable
best efforts to take such action as may be necessary or appropriate, including
obtaining consents from holders of options to purchase shares of Company Common
Stock granted pursuant to the Company Plans listed on Schedule 2.8 ("Company
Options"), to the extent required by the applicable Company Plan or option
award agreement, such that immediately prior to the Closing, all Company
Options shall be fully vested and the Company Options shall terminate and be
cashed out pursuant to the following sentence. At or immediately prior to the
Effective Time, in exchange for the cancellation of each Company Option, each
holder of a Company Option shall be paid by the Company in full satisfaction of
such Company Option a cash payment in an amount in respect thereof equal to the
product of (i) the excess, if any, of the Share Consideration over the exercise
price per share of Company Stock subject to such Company Option and (ii) the
number of shares of Company Common Stock subject to the Company Option, less
any income or employment tax withholding required under the Code or any
provision of state or local law and less the amount of any unpaid loan from the
Company to the holder of the Company Option to the extent the shares of Company
Common Stock subject to such Company Option were pledged as a security interest
for the payment of such loan.
(b) Prior to the Closing, the Sellers shall use their commercially
reasonable best efforts to take such action as may be necessary or appropriate
such that, immediately prior to the Closing, each restricted stock award
granted by the Company shall become immediately and fully payable or
distributable and the restrictions thereon shall lapse and any performance
targets shall be deemed achieved in full.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as disclosed in the Company Reports filed after January 1, 2001
and publicly available prior to the date of this Agreement, or (ii) as set
forth on the disclosure schedules (with specific reference to the particular
section or subsection of this Agreement to which the information set forth in
the relevant disclosure schedule relates; provided, however, that an item
included on a disclosure schedule with respect to any section or subsection of
this Article 3 shall be deemed to relate to each other section or subsection of
this Article 3 but only to the extent that such relationship is reasonably
inferable) delivered by the Sellers to the Buyer prior to execution hereof, the
Sellers hereby represent and warrant, jointly and severally, to the Buyer as
follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. (a) The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Tennessee. The Company has all requisite corporate
power and authority to own, operate, lease and encumber its properties and
carry on its business as now conducted, to enter into this Agreement and
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
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(b) The Trust is a Maryland real estate investment trust duly organized,
validly existing and in good standing under the laws of the State of Maryland.
The Trust has all requisite organizational power and authority to own, operate,
lease and encumber its properties and carry on its business as now conducted,
to enter into this Agreement and perform its obligations hereunder and to
consummate the transactions contemplated hereby.
(c) SUSA is a limited partnership duly organized and validly existing under
the laws of the State of Tennessee. SUSA has all requisite partnership power
and authority to own, operate, lease and encumber its properties and carry on
its business as now conducted, to enter into this Agreement and perform its
obligations hereunder and to consummate the transactions contemplated hereby.
(d) Each Subsidiary of the Company (other than the Trust and SUSA) is a
corporation, partnership or limited liability company duly organized, validly
existing and in good standing, as applicable, under the laws of the
jurisdiction of its incorporation or organization, and has all requisite
organizational power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
(e) Each of the Company and its Subsidiaries is duly qualified to do
business, licensed and in good standing, as applicable, in each jurisdiction in
which the ownership of its property or the conduct of its business requires
such qualification or license, except for any failures to be so qualified,
licensed or in good standing as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(f) Schedule 3.1(f) sets forth the name of each Subsidiary of the Sellers
(whether owned, directly or indirectly, through one or more intermediaries).
All of the outstanding shares of capital stock of, or other equity interest in,
each such Subsidiary (including the Purchased Shares) are duly authorized,
validly issued, fully paid and nonassessable, and are owned, directly or
indirectly, by the Company, the Trust or SUSA, as applicable, free and clear of
all Liens. The following information for each Subsidiary is set forth on
Schedule 3.1(f), if applicable: (i) its name and jurisdiction of incorporation
or organization, (ii) the type of and percentage interest held by each Seller
in the Subsidiary and the names of and percentage interest held by the other
interest holders, if any, in the Subsidiary, and the partnership agreement or
other organizational documents of the Subsidiary, and (iii) any loans from any
Seller to, or priority payments due to any Seller from, the Subsidiary, and the
rate of return thereon. Except for interests in Subsidiaries of the Company and
for the Investments, neither the Company nor any of its Subsidiaries owns
directly or indirectly any interest or investment (whether equity or debt) in
any person (other than investments in short-term investment securities). The
SUSA Interest and the SUSA Units are not evidenced by any certificate or
document other than the SUSA Agreement. Except for shares of SUSA Management,
Inc. subject to the SUSA Management Purchase Agreement, SUSA owns all of the
outstanding capital stock of each of the Purchased Subsidiaries.
(g) There are no existing options, warrants, calls, subscriptions,
convertible securities or other rights, agreements or commitments which
obligate the Company, the Trust, SUSA or any other Subsidiary of the Company to
issue, transfer or sell or to repurchase, redeem or otherwise acquire any
shares of capital stock or equity interests in the Trust or SUSA and, except as
would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect, such other Subsidiary.
(h) The Company or its Subsidiaries, as the case may be, own all right,
title and interest in the Investments, free and clear of all Liens other than
Permitted Liens. There are no existing options, warrants, calls, subscriptions,
convertible securities or other rights, agreements or commitments which
obligate the Company or its Subsidiaries, as the case may be, to transfer,
sell, decrease or increase the amount of, or otherwise dispose of any
Investment. No event, fact or circumstance exists that has impaired or would
reasonably be expected to impair the value of any Investment, except, in each
case, for events, facts and circumstances that would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
Each Investment is listed on Schedule 3.1(h).
SECTION 3.2 Authority Relative to Agreements; Board Approval. (a) The
execution and delivery of this Agreement, the performance of the obligations
hereunder and the consummation of the transactions contemplated
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hereby have been duly and validly authorized by all necessary action
(corporate, trust or partnership, as applicable) on the part of each of the
Sellers, subject only to approval by the Company's shareholders as contemplated
by this Agreement. This Agreement has been duly executed and delivered by each
of the Sellers and constitutes the valid and legally binding obligation of such
Seller enforceable against such Seller in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity.
(b) Each of the Company Board and the Special Committee, at a meeting duly
called and held, by the unanimous vote of all members of the Special Committee,
(i) determined that the transactions contemplated hereby, including the
Purchase, the Redemption and the Merger, are advisable and in the best
interests of the Company and its shareholders, and approved this Agreement and
the transactions contemplated hereby, including the Purchase, the Redemption
and the Merger, (ii) directed that this Agreement, the Purchase and the Merger
and the other transactions contemplated hereby be submitted to the shareholders
of the Company for their approval and resolved to recommend that the
shareholders of the Company vote in favor of this Agreement and the approval of
the Purchase, the Merger and the other transactions contemplated hereby and
(iii) if and to the extent necessary, adopted a resolution having the effect of
causing the parties hereto not to be subject to any state takeover law that
might otherwise apply to any of the transactions contemplated by this
Agreement. The Company, in its capacity as the sole general partner of SUSA and
Holdings and otherwise, has taken (and caused its Subsidiaries to take) all
action necessary or appropriate under the SUSA Agreement and Holdings'
agreement of limited partnership or otherwise to authorize the Purchase, the
Redemption, the Merger, the issuance of the Additional Buyer Units and the
other transactions contemplated by this Agreement.
SECTION 3.3 Capital Stock and Units. (a) The authorized capital stock of
the Company as of November 30, 2001 consists of 150,000,000 shares of Company
Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per
share. As of November 30, 2001, there are 28,103,721 shares of Company Common
Stock issued and outstanding, and no shares of preferred stock issued or
outstanding. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. The Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities the holders of which have the
right to vote) with the shareholders of the Company on any matter. As of
November 30, 2001, other than (i) for 2,873,760 SUSA Units which may be
redeemed by the holders thereof for Company Common Stock or the cash equivalent
thereof (at the option of the Company) pursuant to the provisions of the SUSA
Agreement, or (ii) 2,160,790 shares of Company Common Stock subject to grant or
issuance under Company Options and pursuant to the Prudential Profit Sharing
and 401(k) Plan, there are no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company to issue, transfer or sell or repurchase, redeem or
otherwise acquire any shares of capital stock or other equity interests of the
Company.
(b) As of November 30, 2001, 30,261,231 SUSA Units are validly issued and
outstanding, fully paid and nonassessable, 27,387,471 of which are owned
directly or indirectly by the Company or its Subsidiaries as set forth on
Schedule 3.3(b). There is only one class of SUSA Units, and, except for the
Preferred Units (650,000 of which are issued and outstanding as of November 30,
2001), there is no other form of limited partnership interest in SUSA issued or
outstanding. SUSA has not issued or granted securities convertible into
interests in SUSA, and is not a party to any outstanding commitments of any
kind relating to, or any presently effective agreements or understandings with
respect to, interests in SUSA, whether issued or unissued. The Company is the
sole general partner of SUSA. The Conversion Factor (as defined in the SUSA
Agreement) is 1.0.
(c) As of November 30, 2001, all of the limited partnership interests of
Holdings are validly issued and outstanding, fully paid and nonassessable, and
are owned directly or indirectly by the Company or its Subsidiaries, as set
forth on Schedule 3.3(c). There is only one class of Holdings' units of limited
partnership, and there is no other form of limited partnership interest in
Holdings issued or outstanding. Holdings has not
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issued or granted securities convertible into interests in Holdings, and is not
a party to any outstanding commitments of any kind relating to, or any
presently effective agreements or understandings with respect to, interests in
Holdings, whether issued or unissued. The Company is the sole general partner
of Holdings.
SECTION 3.4 No Conflicts; No Defaults; Required Filings and
Consents. Neither the execution and delivery by any of the Sellers hereof nor
the consummation by such Seller of the transactions contemplated hereby,
including the Purchase, the Redemption and the Merger, will:
(a) conflict with or result in a breach of any provisions of the Company
Charter, the Company Bylaws, the SUSA Agreement or the organizational documents
of the Trust, Holdings or any other Subsidiary of the Company or any of the
Partnerships;
(b) result in a breach or violation of, a default under, or the triggering
of any payment or other obligations pursuant to, or accelerate vesting under,
any Company Plan or any grant or award made under any of the foregoing, except
as specifically contemplated by this Agreement or as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect;
(c) violate or conflict with any statute, regulation, judgment, order,
writ, decree or injunction applicable to the Company or any of its
Subsidiaries, except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect;
(d) violate or conflict with or result in a breach of any provision of, or
constitute a default (or any event which, with notice or lapse of time or both,
would constitute a default) or a change of control (or equivalent thereof)
under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement (including any of the agreements set forth
on Schedule 3.9(d)) or other instrument, commitment or obligation to which the
Company or such Subsidiary is a party, or by which the Company or such
Subsidiary or any of its properties is bound or affected (including the SUSA
Debt or the SUSA Agreement), except for any of the foregoing matters which
would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect; or
(e) require any consent, approval or authorization of, or declaration,
filing, notice to or registration with, any Government Authority, other than
any filings required under the Securities Act, the Exchange Act, the HSR Act,
state securities or blue sky laws or specified on Schedule 3.4 (collectively,
the "Regulatory Filings"), and any filings required to be made with the
Secretary of State of Tennessee or any national securities exchange on which
the Company Common Stock is listed, except as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
SECTION 3.5 SEC and Other Documents; Financial Statements; Undisclosed
Liabilities. (a) Each registration statement, report, proxy statement or
information statement and all exhibits thereto prepared by the Company or SUSA
or relating to their respective properties, since January 1, 1999, each in the
form (including exhibits and any amendments thereto) filed or to be filed by
the Company or SUSA, as applicable, with the SEC (collectively, the "Company
Reports") is or will be available on the SEC's Electronic Data Gathering
Analysis and Retrieval (EDGAR) System, to the extent such Company Report is
required to be filed through such system. The Company Reports were or will be
filed with the SEC in a timely manner and constitute or will constitute all
forms, reports and documents required to be filed by the Company or SUSA under
the Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder (the "Securities Laws"). As of their respective dates, the Company
Reports (i) complied or will comply as to form in all material respects with
the applicable requirements of the Securities Laws and (ii) did not or will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
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made therein, in the light of the circumstances under which they were made, not
misleading. There is no unresolved violation asserted by any Government
Authority with respect to any of the Company Reports. No Subsidiary of the
Company, other than SUSA, is subject to the reporting requirements of Section
13 or Section 15(d) of the Exchange Act.
(b) Each of the balance sheets included in or incorporated by reference
into the Company Reports (including the related notes and schedules) fairly
presented or will present the financial position of the entity or entities to
which it relates as of its date and each of the statements of operations,
shareholders' equity (deficit) and cash flows included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presented or will present the results of operations, retained earnings
or cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein, in each case in accordance with
United States generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein and except,
in the case of unaudited statements, for normal recurring year-end adjustments
which would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. The independent accountants who have
audited the financial statements included in or incorporated by reference into
the Company Reports have not delivered to the Company or the Company Board any
"management letters" with respect to such financial statements or related
matters of internal accounting control structures or procedures.
(c) Neither the Company nor any of its Subsidiaries has any Liabilities
that would, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
SECTION 3.6 Litigation; Compliance With Law. (a) There are no Actions
pending or, to the Sellers' knowledge, threatened against the Company or any of
its Subsidiaries that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, or that would question the
validity hereof or any action taken or to be taken in connection herewith.
There are no continuing orders, injunctions or decrees of any Government
Authority to which the Company or any of its Subsidiaries is a party or by
which any of its properties or assets are bound (which orders, injunctions or
decrees are listed on Schedule 3.6), except those orders, injunctions or
decrees which would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries is in violation of any
statute, rule, regulation, order, writ, decree or injunction of any Government
Authority or any body having jurisdiction over them or any of their respective
properties which, if enforced, would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. The provisions
of Chapter 23 (Dissenters' Rights) of Title 48 of the Tennessee Code Annotated
will not apply to the Purchase, the Redemption or the Merger, and no holders of
securities of any of the Sellers or their respective Subsidiaries (including
holders of shares of Company Common Stock or SUSA Units) shall have any
dissenters', appraisal, redemption, buy-out or other similar rights (other than
the right of holders of SUSA Units under the SUSA Agreement to receive the Unit
Consideration) in connection with the Purchase, the Redemption, the Merger, the
issuance of the Additional Buyer Units or any other transaction contemplated by
this Agreement.
SECTION 3.7 Absence of Certain Changes or Events. Since September 30, 2001,
the Company and each of its Subsidiaries has conducted its business only in the
ordinary course and has acquired real estate and entered into financing
arrangements in connection therewith only in the ordinary course of such
business, and there has not been (a) any change, circumstance or event that,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect, (b) any commitment, contractual obligation,
borrowing, capital expenditure or transaction entered into by the Company or
any of its Subsidiaries, other than any such transaction which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, (c) any change in the Company's or SUSA's accounting
principles, practices or methods which would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, or (d) any
declaration, setting aside or payment of any dividend or other distribution
with respect to the
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Company Common Stock or the SUSA Interest or any other action or event that
would have required the consent of the Buyer pursuant to Section 5.5.
SECTION 3.8 Tax Matters; REIT and Partnership Status. (a) The Company and
each of its Subsidiaries has timely filed with the appropriate taxing authority
all material Tax Returns required to be filed by it or has timely requested
extensions and any such request has been granted and has not expired. Each such
Tax Return is complete and accurate in all material respects. All material
Taxes owed by the Company or any of its Subsidiaries have been paid or accrued,
except for Taxes being contested in good faith and for which adequate reserves
have been taken. The Company and each of its Subsidiaries has properly accrued
all material Taxes for such periods subsequent to the periods covered by such
Tax Returns. None of the Company or any of its Subsidiaries has executed or
filed with the IRS or any other taxing authority any agreement now in effect
extending the period for assessment or collection of any Tax. None of the
Company or any of its Subsidiaries is a party to any pending action or
proceedings by any taxing authority for assessment or collection of any
material Tax, and no claim for assessment or collection of any material Tax has
been asserted against it. True and complete copies of all federal, state and
local income or franchise Tax Returns filed by the Company and each of its
Subsidiaries for 1998, 1999 and 2000 and all written communications with Taxing
authorities relating thereto have been delivered to the Buyer or made available
to representatives of the Buyer prior to the date hereof. No claim has been
made in writing or, to the Sellers' knowledge, otherwise by an authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There is
no dispute or claim concerning any material Tax liability of the Company or any
of its Subsidiaries, (i) claimed or raised by any taxing authority in writing
or (ii) as to which the Company or any of its Subsidiaries has knowledge. No
issues have been raised in writing in any examination by any taxing authority
with respect to the Company or any of its Subsidiaries which, by application of
similar principles, reasonably could be expected to result in a material
deficiency or increase in Tax for any other period not so examined. Schedule
3.8(a) lists all federal and state income Tax Returns filed with respect to the
Company or SUSA for taxable periods ended on or after December 31, 1996,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. All federal, state, local, and
foreign income Tax Returns filed with respect to the Company or any of its
Subsidiaries for taxable periods ended on or after December 31, 1996 have been
provided or made available to the Buyer.
(b) The Company (i) intends to be taxed as a real estate investment trust
within the meaning of Section 856 of the Code ("REIT") through the close of the
tax year in which the Closing occurs and has complied (and will comply) with
all applicable provisions of the Code relating to a REIT, through the close of
the tax year in which the Closing occurs, (ii) has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT for 2000 and
2001, and (iii) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and,
to the Sellers' knowledge, no such challenge is pending or threatened.
(c) Any amount or other entitlement that could be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated hereby by any Employee, officer, or director of the Company or
SUSA or any of their Affiliates who is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
Company Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
(d) The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any of its Subsidiaries under any Company Plan or other agreement,
program, arrangement or understanding currently in effect.
(e) The Company, for its taxable year ended December 31, 1994 was eligible
to and did validly elect to be taxed as a REIT for federal income tax purposes
and at all times thereafter continued such election and continued to be so
eligible to be taxed as a REIT for federal income tax purposes. Each Subsidiary
that is treated as an association taxed as a corporation for federal income tax
purposes and that is owned directly or indirectly by the
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Company is either a "qualified REIT subsidiary" within the meaning of Section
856(i)(2) of the Code or a "taxable REIT subsidiary" within the meaning of
Section 856(l)(1) of the Code.
(f) The Company and each of its Subsidiaries have withheld and paid all
material Taxes required to have been withheld and/or paid in connection with
amounts paid or owing to any employee, former employee, independent contractor,
creditor, stockholder, or other third party.
(g) The Company and each other entity transferring an interest in United
States real property in the Purchase hereunder is not a foreign person within
the meaning of Section 1445(b)(2) of the Code.
(h) SUSA, each Subsidiary of the Company organized as a partnership, each
Property Joint Venture and each other partnership or other "flowthrough" entity
in which the Company directly or indirectly owns any interest that files Tax
Returns as a partnership for federal income tax purposes (the "Partnerships")
is classified as a partnership for federal income tax purposes, and neither the
Partnerships, the Company nor any of the Subsidiaries of the Company has taken
a position inconsistent with such treatment with regard to any Tax. Schedule
3.8(h) sets forth the Company's interest in profits, losses and cash
distributions in each of the Partnerships as of the date hereof (or such other
dates specified on such Schedule). Storage USA Franchise Corp has not made any
contributions that would subject it to allocations under Section 704(c) of the
Code. Other than the Partnerships, the Company does not own, directly or
indirectly, any material interest in any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes. SUSA has the right to make or to require and, after the
Closing, will continue to have the right to make or to require each Partnership
to make, in the manner provided in Section 1.754-1(b) of the Treasury
Regulations, an election under Section 754 of the Code (and any corresponding
elections under state or local tax law) to adjust the basis of its property as
provided in Sections 734(b) and 743(b) of the Code.
(i) Neither the Company nor any of its Subsidiaries has (i) made any
election, and is not required, to treat any asset of any Subsidiary as owned by
another person for tax purposes (other than by reason of a Subsidiary being a
"qualified REIT subsidiary" or a "disregarded entity" for federal income tax
purposes and any comparable provision of state, local or foreign law) or (ii)
carried out or been engaged in any transaction or arrangement such that the law
provides that there may be substituted for the amount or value or the actual
consideration given or received (or to be given or received) by any Subsidiary
any different amount or value for Tax purposes (other than immaterial
differences).
(j) Other than as a result of the Tax Protection Agreements, neither the
Company nor any of its Subsidiaries has received or is subject to any written
ruling of a taxing authority related to Taxes or has entered into any written
and legally binding agreement with a taxing authority relating to Taxes.
(k) Other than the Tax Protection Agreements, neither the Company nor any of
its Subsidiaries (i) is a party to or is otherwise subject to any Tax
allocation or sharing agreement and (ii) has any liability for the Taxes of
another person under law, by contract or otherwise.
(l) A true, complete and correct copy of each Tax Protection Agreement has
been delivered to the Buyer, and each such agreement is listed on Schedule
3.8(l).
(m) The Trust is not subject to federal, state or local income Tax and will
not have any such Tax liability as a result of the transactions contemplated by
this Agreement.
(n) The repayment of any borrowings outstanding under the Credit Lines will
not result in a breach or violation of, a default under, or the triggering of
any payment or other obligations pursuant to, any Tax Protection Agreement.
SECTION 3.9 Compliance with Agreements; Material Agreements. (a) Neither
the Company nor any of its Subsidiaries is in default under or in violation of
any provision of the Company Charter, the Company Bylaws,
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the SUSA Agreement or other organizational document of such Subsidiary, except
for such defaults or violations which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(b) The Company and each of its Subsidiaries have filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file with any Government
Authority and all other material reports and statements required to be filed by
them, including any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, and have paid all fees or
assessments due and payable in connection therewith, except for such failures
to file or pay which would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. To the Sellers' knowledge,
there is no unresolved violation asserted by any Government Authority with
respect to any such report or statement relating to an examination of the
Company or any of its Subsidiaries which, if resolved in a manner unfavorable
to the Company or such Subsidiary, would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 3.9(c) sets forth a list of (i) all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness of the Company or any of its Subsidiaries in
an aggregate principal amount in excess of $100,000 is outstanding or may be
incurred (whether unsecured, or secured or collateralized by mortgages, deeds
of trust or other security interests in the Company Properties or any other
assets of the Company or any of its Subsidiaries, or otherwise), and the
respective principal amounts outstanding thereunder as of the date hereof
(which outstanding indebtedness, (x) if a Credit Line, may be prepaid by the
Company or such Subsidiary at any time without the consent or approval of, or
prior notice to, any other person, and without payment of any premium or
penalty, and (y) if a Mortgage Note, may be prepaid in full by the Company or
such Subsidiary at any time without the consent or approval of any other
person), (ii) each commitment, whether written or oral, entered into by the
Company or any of its Subsidiaries (including any guarantees of any third
party's debt or any obligations in respect of letters of credit issued for the
account of the Company or any of its Subsidiaries) which may result in total
payments or liability in excess of $100,000 and (iii) each bank account (and
the applicable outstanding balance as of September 30, 2001) of the Company or
any of its Subsidiaries with deposits in excess of $100,000. True and complete
copies of the documents relating clauses (i) and (ii) hereof have been
delivered or made available to Buyer prior to the date hereof. Neither the
Company nor any of its Subsidiaries is in default, and, to the Sellers'
knowledge, no event has occurred which, with the giving of notice or the lapse
of time or both, would constitute a default, under any of the documents
described in clause (i) or (ii) of this paragraph or in respect of any payment
obligations thereunder except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. There are no
outstanding guarantees that would cause SUSA or the Company not to be in
compliance with the limitations on incurrence of indebtedness under the
Indenture.
(d) All joint venture and partnership agreements to which the Company or any
of its Subsidiaries is a party as of the date hereof, as set forth on Schedule
3.9(d), are in full force and effect as against the Company or such Subsidiary
and, to the Sellers' knowledge, as against the other parties thereto, and none
of the Company or any of its Subsidiaries is in default, and, to the Sellers'
knowledge, no event has occurred which, with the giving of notice or the lapse
of time or both, would constitute a default, with respect to any obligations
thereunder, except as set forth on Schedule 3.9(d) or would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect. To the Sellers' knowledge, the other parties to such agreements are not
in breach of any of their respective obligations thereunder, except as set
forth on Schedule 3.9(d) or would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. To the Sellers'
knowledge, there is no condition with respect to the Company's Subsidiaries
(including with respect to the partnership agreements for the Company's
Subsidiaries that are partnerships) that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(e) Schedule 3.9(e) sets forth a complete and accurate list of (i) material
agreements entered into by the Company or any of its Subsidiaries as of the
date hereof relating to the development or construction of, additions
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or expansions to, or management or leasing services for self-storage facilities
or other real properties or (ii) all material agreements relating to the
franchise operations or franchised properties of the Company and its
Subsidiaries (including Storage USA Franchise Corp), in each case, which are
currently in effect and under which the Company or any of its Subsidiaries
currently has, or expects to incur, any material obligation. True and complete
copies of such agreements have been delivered or made available to the Buyer
prior to the date hereof.
(f) Except for (i) agreements made in the ordinary course of business
consistent with past practice with a maturity of less than one year or that are
terminable on 30 days or less notice, and (ii) agreements the breach or
non-fulfillment of which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, Schedule 3.9(f)
sets forth a complete and accurate list of all material agreements entered into
by the Company or any of its Subsidiaries as of the date hereof which are not
listed in any other Schedule hereto, which list shall also include
non-competition or other similar agreement in favor of a third party,
commitment, judgment, injunction or order to which the Company or any of its
Subsidiaries is a party or subject that has or could reasonably be expected to
have the effect of prohibiting or materially impairing the conduct of the
business by the Company and its Subsidiaries before or after the Closing. Each
agreement set forth on Schedule 3.9(f) is in full force and effect as against
the Company or such Subsidiary and, to the Sellers' knowledge, as against the
other parties thereto, no payments, if any, thereunder are delinquent, the
Company or such Subsidiary is not in default thereunder, and no notice of
default thereunder has been sent or received by the Company or any of its
Subsidiaries, except where the same would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect. To
the Sellers' knowledge, no event has occurred which, with notice or lapse of
time or both, would constitute a default by the Company or any of its
Subsidiaries under any agreement set forth on Schedule 3.9(f), except as would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. To the Sellers' knowledge, the other parties to such
agreements are not in breach of their respective obligations thereunder, except
as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. True and complete copies of each such
agreement have been delivered or made available to the Buyer prior to the date
hereof.
(g) Schedule 3.9(g) sets forth a complete and accurate list of all
agreements and policies of the Company in effect on the date hereof relating to
transactions with Affiliates and potential conflicts of interest. Each
agreement or policy set forth on Schedule 3.9(g) is in full force and effect,
and the Company, each of its Subsidiaries, and, to the Sellers' knowledge, the
other parties thereto are in compliance with such agreements and policies, or
such compliance has been waived by the Company Board or would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect. True and complete copies of each such agreement or policy have been
delivered or made available to the Buyer prior to the date hereof.
SECTION 3.10 Financial Records; Organizational Documents; Corporate
Records. (a) The books of account and other financial records of the Company,
each of its Subsidiaries and each of the Partnerships are in all respects true
and complete, have been maintained in accordance with good business practices,
and are and will be accurately reflected in all respects in the financial
statements included in the Company Reports, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(b) The Company has previously delivered or made available to the Buyer true
and complete copies of the Company Charter, the Company Bylaws, the SUSA
Agreement, and the charter, bylaws, organization documents, partnership
agreements and joint venture agreements of its Subsidiaries, and all amendments
thereto. All such documents are listed on Schedule 3.10(b).
(c) The minute books and other records of corporate or partnership (or
equivalent) proceedings of the Company and each of its Subsidiaries have been
made available to the Buyer, contain accurate records of all meetings and
accurately reflect all other corporate action of the shareholders and directors
and any committees of the Board of Directors of the Company and its
Subsidiaries which are corporations and all actions of the partners of SUSA and
its Subsidiaries which are partnerships, except for documentation of
discussions relating to or in
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connection with the transactions contemplated hereby or matters related hereto,
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
SECTION 3.11 Properties. (a) Schedule 3.11(a) sets forth as of the date
hereof a complete and accurate list and the addresses of all real property
owned or leased by the Company or any of its Subsidiaries or any Property Joint
Venture or otherwise used by the Company or any of its Subsidiaries or any
Property Joint Venture in the conduct of their business (other than Tenancy
Leases which are addressed in Section 3.11(l)) or operations (collectively, and
together with the land at each address referenced on Schedule 3.11(a) and all
buildings, structures and other improvements and fixtures located on or under
such land and all easements, rights and other appurtenances to such land, the
"Company Properties"). Each of the Company Properties is owned or leased by
SUSA, a Subsidiary of SUSA or a Property Joint Venture, as indicated on
Schedule 3.11(a), and the Company itself does not directly own or lease any
Company Property. To the Sellers' knowledge, SUSA or, in the case of Company
Properties owned by Subsidiaries of SUSA or Property Joint Ventures, such
Subsidiaries or Property Joint Ventures, own good and marketable fee simple or
leasehold title, as applicable, to each of the Company Properties, in each case
free and clear of any Liens, title defects, contractual restrictions or
covenants, laws, ordinances or regulations affecting use or occupancy
(including zoning regulations and building codes) or reservations of interests
in title (collectively, "Property Restrictions"), except for (i) Permitted
Liens and (ii) Property Restrictions imposed or promulgated by law or by any
Government Authority which are customary and typical for similar properties. To
the Sellers' knowledge, none of the matters described in clauses (i) and (ii)
of the immediately preceding sentence materially interferes with, impairs, or
is violated by, the existence of any building or other structure or improvement
which constitutes a part of, or the present use, occupancy or operation (or, if
applicable, development) of, the Company Properties taken as a whole, and such
matters do not, individually or in the aggregate, have a Material Adverse
Effect. American Land Title Association policies of title insurance (or marked
title insurance commitments having the same force and effect as title insurance
policies) have been issued insuring the fee simple or leasehold, as applicable,
title of SUSA, its Subsidiaries or the Property Joint Ventures, as applicable,
with respect to all of the Company Properties in amounts at least equal to the
original cost thereof, and, to the Sellers' knowledge, such policies are valid
and in full force and effect and no claim has been made under any such policy.
The Sellers have delivered or made available to the Buyer true and complete
copies of all such policies and of the most recent surveys of the Company
Properties indicated on Schedule 3.11(a), and true and complete copies of all
material exceptions referenced in such policies and the most recent title
reports for and surveys (to the extent not previously delivered or made
available to the Buyer) of each of the Company Properties available to the
Company or any of its Subsidiaries will be provided or made available by the
Sellers for inspection by the Buyer.
(b) Except for matters which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or to materially and
adversely affect the use or occupancy (or, if applicable, development) of the
Company Properties taken as a whole, the Sellers have no knowledge (i) that any
currently required certificate, permit or license (including building permits
and certificates of occupancy for tenant spaces) from any Government Authority
having jurisdiction over any Company Property, or any agreement, easement or
other right which is necessary to permit the lawful use, occupancy or operation
of the existing buildings, structures or other improvements which constitute a
part of any of the Company Properties or which are necessary to permit the
lawful use and operation of utility service to any Company Property or of any
existing driveways, roads or other means of egress and ingress to and from any
of the Company Properties, has not been obtained or is not in full force and
effect, or of any pending threat of modification or cancellation of any of
same, or (ii) of any violation by any Company Property of any federal, state or
municipal law, ordinance, order, regulation or requirement, including any
applicable zoning law or building code, as a result of the use or occupancy of
such Company Property or otherwise. Except as communicated to the Buyer in its
capacity as claims administrator with respect to insurance coverage for the
Company Properties, the Sellers have no knowledge of uninsured physical damage
to any Company Property in excess of $250,000 in the aggregate. To the Sellers'
knowledge, except for repairs identified in the Capital Expenditure Budget and
Schedule, each Company Property, (i) is in good operating condition and repair
and is structurally sound and free of defects, with no alterations or repairs
being required thereto under applicable law or insurance company requirements,
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and (ii) consists of sufficient land, parking areas, driveways and other
improvements and lawful means of access and utility service and capacity to
permit the use thereof in the manner and for the purposes to which it is
presently devoted (or, in the case of the Development Property, for the
development and operation thereon of the applicable Project), except, in each
such case, to the extent that failure to meet such standards would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or to materially and adversely affect the use or occupancy of
the Company Properties taken as a whole (or, in the case of the Development
Property, the development and operation thereon of the applicable Project).
True and complete copies of all engineering reports, inspection reports,
maintenance plans and other documents relating to the condition of any Company
Property prepared for the Company or otherwise in the Company's or any of its
Subsidiaries' possession have been delivered or made available to the Buyer
prior to the date hereof.
(c) The Sellers have no knowledge (i) that any condemnation, eminent domain
or rezoning proceedings are pending or threatened with respect to any of the
Company Properties, (ii) that any road widening or change of grade of any road
adjacent to any Company Property is underway or has been proposed, (iii) of any
proposed change in the assessed valuation of any Company Property other than
customarily scheduled revaluations, (iv) of any special assessment made or
threatened against any Company Property, or (v) that any of the Company
Properties is subject to any so-called "impact fee" or to any agreement with
any Government Authority to pay for sewer extension, oversizing utilities,
lighting or like expenses or charges for work or services by such Government
Authority, except, in the case of each of the foregoing, to the extent that
same would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect or to materially and adversely affect the use or
occupancy (or, if applicable, development) of the Company Properties taken as a
whole.
(d) To the Sellers' knowledge, each of the Company Properties is an
independent unit which does not rely on any facilities located on any property
not included in such Company Property to fulfill any municipal or governmental
requirement or for the furnishing to such Company Property of any essential
building systems or utilities, other than facilities the benefit of which
inures to the Company Properties pursuant to one or more valid easements. Each
of the Company Properties is served by public water and sanitary systems and
all other utilities, and, to the Sellers' knowledge, each of the Company
Properties has lawful access to public roads, in all cases sufficient for the
current use and occupancy of each Company Property (or, in the case of the
Development Property, for the development and operation thereon of the
applicable Project). To the Sellers' knowledge, all parcels of land included in
each Company Property that purport to be contiguous are contiguous and are not
separated by strips or gores. To the Sellers' knowledge, no portion of any
Company Property lies in any flood plain area (as defined by the U.S. Army
Corps of Engineers or otherwise) or includes any wetlands or vegetation or
species protected by any applicable laws. To the Sellers' knowledge, no
improvements constituting a part of any Company Property encroach on real
property not constituting a part of such Company Property. No representation
set forth in this subsection (d) shall be deemed to be untrue unless such
untruths are, individually or in the aggregate, reasonably expected to have a
Material Adverse Effect or to materially and adversely affect the use or
occupancy (or, if applicable, development) of the Company Properties taken as a
whole.
(e) The Company Properties comply with the requirements of the Americans
with Disabilities Act (the "ADA"), except for such failures to comply as would
not, in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(f) The Company has provided to the Buyer a complete and accurate rent
summary for each Company Property for the year ended December 31, 2000 and for
the month ended October 31, 2001 (the "Rent Summary"). The Rent Summary
accurately describes, as of the date thereof, for all Company Properties, in
the aggregate, (i) the total number of rentable square feet of self-storage
units at all Company Properties, (ii) the physical occupancy rate of the
self-storage units at all Company Properties on a rented square foot basis,
(iii) the average term under the leases of self-storage units or other space at
all Company Properties (all such leases for all Company Properties,
collectively, the "Company Leases"), (iv) the delinquency rate of tenants at
all Company Properties, (v) the average rent per rentable square foot at all
Company Properties. True and accurate
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variance reports for each of the Company Properties have been delivered or made
available to the Buyer prior to the date hereof.
(g) Schedule 3.11(g) sets forth a complete and accurate list of all binding
commitments, letters of intent or similar written agreements made or entered
into by the Company or any of its Subsidiaries as of the date hereof (x) to
sell, mortgage, pledge or hypothecate any Company Properties, which,
individually or in the aggregate, are material, or to otherwise enter into a
material transaction in respect of the ownership or financing of any Company
Properties, or (y) to purchase or acquire an option, right of first refusal or
similar right in respect of any real property or properties, which, in any such
case, has not yet been reduced to a written contract. True and complete copies
of each such commitment, letter of intent or other understanding have been
delivered or made available to the Buyer prior to the date hereof.
(h) Except as set forth in the Rent Summary, none of the Company or any of
its Subsidiaries has granted any outstanding options or has entered into any
outstanding contracts with others for the sale, mortgage, pledge,
hypothecation, assignment, sublease, lease or other transfer of all or any part
of any Company Properties (excluding, however, leases of self-storage
facilities and immaterial commercial and retail leases at the Company
Properties), and no person has any right or option to acquire, or right of
first refusal with respect to, the Company's or any of its Subsidiaries'
interest in any Company Properties or any part thereof. None of the Company or
any of its Subsidiaries has any outstanding options or rights of first refusal
or has entered into any outstanding contracts with others for the purchase of
any real property.
(i) Schedule 3.11(i) contains a complete and accurate description of any
non-compliance by any Company Properties, to the Sellers' knowledge, with any
law, ordinance, code, health and safety regulation or insurance requirement
(except for the ADA, which is addressed in this respect in Section 3.11(e)
above), other than such non-compliance as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Schedule
3.11(i) also sets forth the Company's or any of its Subsidiaries' or any
Property Joint Venture's capital expenditure budget and schedule for all
Company Properties taken as a whole (the "Capital Expenditure Budget and
Schedule"), which describes any material capital expenditures (other than
periodic maintenance and repairs to be made in the ordinary course of business)
which the Company or any of its Subsidiaries or any Property Joint Venture has
budgeted for each Company Property for the period running through December 31,
2001, and such other material capital expenditures as are necessary, to the
Sellers' knowledge, in order to bring such Company Property into compliance
with applicable laws, ordinances, codes, health and safety regulations and
insurance requirements (including in respect of fire sprinklers, compliance
with the ADA and asbestos containing material) or which the Company or such
Subsidiary otherwise plans or expects to make in order to cure or remedy any
construction, electrical, mechanical or other defects, to renovate,
rehabilitate or modernize such Company Property, or otherwise. To the Sellers'
knowledge, the costs and time schedules for 2001 set forth in the Capital
Expenditure Budget and Schedule are reasonable estimates and projections. There
are no outstanding or, to the Sellers' knowledge, threatened requirements by
any insurance company which has issued an insurance policy covering any Company
Properties, or by any board of fire underwriters or other body exercising
similar functions, requiring any repairs or alterations to be made to any
Company Properties that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. There are no expenditures
expected after December 31, 2001 which would cause any future year's aggregate
capital expenditures for the Company Properties to exceed in any material
respect the amounts set forth for 2001 in the Capital Expenditure Budget and
Schedule for such Company Property.
(j) Schedule 3.11(j) contains a list of each Company Property, other than
franchised properties, which consists of or includes undeveloped land or which
is in the process of being developed (collectively, the "Development
Properties") and a brief description of the development intended by the Company
or any of its Subsidiaries or any Property Joint Venture to be carried out or
completed thereon (collectively, the "Projects"), including the total estimated
cost of each Project, the stage of completion of each Project and the amount
expended to date on such Project (collectively, the "Development Budget and
Schedule"). To the Sellers' knowledge, there are no material impediments to or
constraints on the development or rehabilitation of any
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Project within the time frame and for the cost set forth in the Development
Budget and Schedule applicable thereto, and there have not been any material
overruns with respect to any Project the development of which has commenced.
(k) The Sellers have disclosed to the Buyer all adverse matters known to the
Sellers with respect to or in connection with the Company Properties (including
the Company Leases and the Tenancy Leases), which would, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(l) Schedule 3.11(l) sets forth a complete and accurate list of all leases
pursuant to which the Company or any of its Subsidiaries occupies commercial or
office space (collectively, the "Tenancy Leases"). Each of the Tenancy Leases
is valid, binding and in full force and effect as against the Subsidiary and,
to the Sellers' knowledge, as against the other party thereto. None of the
Tenancy Leases is subject to any pledge, Lien, sublease, assignment, license or
other agreement granting to any third party any interest therein or any right
to the use or occupancy of any premises leased thereunder, except for such
pledges, Liens, subleases, assignments, licenses or other agreements that would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. True and complete copies of the Tenancy Leases
(including all amendments, modifications and supplements thereto) have been
delivered or made available to the Buyer prior to the date hereof. To the
Sellers' knowledge, there is no pending or threatened proceeding which is
reasonably likely to interfere with the quiet enjoyment of the tenant under any
of the Tenancy Leases. Except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, no payments
under any Tenancy Lease are delinquent and no notice of default thereunder has
been sent or received by the Company or any of its Subsidiaries. There does not
exist under any of the Tenancy Leases any default, and, to the Sellers'
knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default, except as would not, individually or in the
aggregate, be reasonably expected to result in a Material Adverse Effect.
(m) The Company and each of its Subsidiaries have good and sufficient title
to all the personal properties and assets reflected in their books and records
as being owned by them (including those reflected in the balance sheets of the
Company and its Subsidiaries as of September 30, 2001, except as since sold or
otherwise disposed of in the ordinary course of business), free and clear of
all Liens, except for Permitted Liens or as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
SECTION 3.12 Environmental Matters. (a) To the Sellers' knowledge, each of
the Company and its Subsidiaries has obtained, and now maintains as currently
valid and effective, all permits required under Environmental Laws (the
"Environmental Permits") which are material to the operation of its businesses
and properties, taken as a whole, all of which are listed on Schedule 3.12(a).
To the Sellers' knowledge, except as disclosed in the Company Environmental
Reports, each of the Company and its Subsidiaries, and each Company Property is
in compliance with the Environmental Permits and all Environmental Laws, except
as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. To the Seller's knowledge, there are no
circumstances that are reasonably likely to prevent or interfere with such
compliance as the operation of the Company Properties is currently conducted.
(b) Each of the Company and its Subsidiaries has provided or made available
to the Buyer all material written communications (whether from a Government
Authority, citizens' group, employee or other person) in its possession or
control regarding (x) alleged or suspected noncompliance of any of the Company
Properties with any Environmental Laws or Environmental Permits or (y) alleged
or suspected Liability of the Company or any of its Subsidiaries under any
Environmental Law, except such noncompliance or Liability which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(c) There are no Liens on any of the Company Properties which arose pursuant
to or in connection with any Environmental Law or Environmental Claim and, to
the Sellers' knowledge, no government actions have been taken or are in process
which are reasonably likely to subject any Company Property to any such Liens.
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(d) Except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect or as otherwise disclosed in
the Company Environmental Reports, no Environmental Claim with respect to the
operations or the businesses of the Company or any of its Subsidiaries, or with
respect to the Company Properties, has been asserted or, to the Sellers'
knowledge, threatened, and, to the Sellers' knowledge, no circumstances exist
with respect to the Company or any of its Subsidiaries or the Company
Properties that would reasonably be expected to result in any Environmental
Claim being asserted, in any such case, against (i) the Company or any of its
Subsidiaries, or (ii) to the Sellers' knowledge, any person whose liability for
any Environmental Claims the Company or any of its Subsidiaries has assumed
pursuant to contract or by operation of law
(e) Except as set forth in the Company Environmental Reports, (i) none of
the Company and its Subsidiaries has been notified of potential responsibility
in connection with any site that has been placed on, or proposed to be placed
on, the National Priorities List or its state equivalents pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. (S) 9601 et seq., or analogous state laws, (ii) to the
Sellers' knowledge, none of the Company and its Subsidiaries has Released any
Materials of Environmental Concern at any Company Property or any other
location to an extent or in a manner which would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect, (iii)
to the Sellers' knowledge, no underground storage tanks, surface impoundments,
disposal areas, pits, ponds, lagoons, or open trenches is present at any
Company Property in a manner or condition that is reasonably likely to give
rise to an Environmental Claim which would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, (iv) to the
Sellers' knowledge, no transformers, capacitors or other equipment containing
fluid with more than 50 parts per million polychlorinated biphenyls are present
at any Company Properties in a manner or condition that is reasonably likely to
give rise to an Environmental Claim which would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect,
except for any such transformers, capacitors or other equipment owned by any
utility company, and (v) to the Sellers' knowledge, no asbestos or
asbestos-containing material is present at any Company Properties other than
floor tiles that do not contain any friable asbestos and no Employee or any
other person is now or has in the past been exposed to friable asbestos or
asbestos-containing material at any Company Properties, except, in the case of
each of the matters set forth in this clause (v), for such matters as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(f) Schedule 3.12(f) contains a list of each material environmental report
prepared by or for the Company or any of its Subsidiaries, in the possession of
any of them (provided that the Company has used, and has caused its
Subsidiaries to use, reasonable efforts to obtain such possession), with
respect to the environmental condition of any Company Properties, including
Phase I and Phase II environmental site assessments (collectively, the "Company
Environmental Reports"). True and complete copies of each Company Environmental
Report have been delivered or made available to the Buyer prior to the date
hereof. To the Sellers' knowledge, there are no facts or circumstances relating
to the environmental condition of any real property that is not a Company
Property that, individually or in the aggregate, are reasonably likely to
result in a Material Adverse Effect.
(g) For purposes hereof, the terms listed below shall have the following
meanings:
(i) "Claim" shall mean all Actions, causes of action, suits, judgments,
executions, claims and demands whatsoever, in law or equity.
(ii) "Environmental Claim" shall mean any Claim or written notice by any
person alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or fatalities, or
penalties) arising out of, based on or resulting from (A) the presence,
generation, transportation, treatment, use, storage, disposal or Release of
Materials of Environmental Concern or the threatened Release of Materials of
Environmental Concern at any location, or (B) activities or conditions
forming the basis of any violation, or alleged violation of, or liability or
alleged liability under, any Environmental Law.
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(iii) "Environmental Laws" shall mean federal, state, local, provincial,
municipal and foreign laws, ordinances, principles of common law, rules,
by-laws, orders, governmental policies, statutes, regulations, agreements
and treaties relating to the pollution or protection of the environment or
of flora or fauna or their habitat or of human health and safety, or to the
cleanup or restoration of the environment, including, but not limited to,
any laws relating to (A) generation, treatment, storage, disposal or
transportation of wastes, emissions or discharges or protection of the
environment from the same, (B) exposure of persons to, or Release or threat
of Release of, Materials of Environmental Concern, and (C) noise.
(iv) "Materials of Environmental Concern" shall mean all chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum or any
fraction thereof, petroleum products and hazardous substances (as defined in
Section 101(14) of CERCLA, 42 U.S.C. (S) 6601(14)), or solid or hazardous
wastes as defined and regulated under any Environmental Laws.
(v) "Release" shall have the meaning set forth in CERCLA.
SECTION 3.13 Employees and Employee Benefits. (a) Schedule 3.13(a) sets
forth a complete and accurate list of all employment, severance, consulting,
retention, termination and change-in-control agreements or arrangements in
effect with Employees of the Company or any of its Subsidiaries ("Employee
Arrangements"). Except for the Employees who are parties to the scheduled
employment agreements, all of the current Employees of the Company and each of
its Subsidiaries are employed on an at-will basis.
(b) Schedule 3.13(b) sets forth a complete and accurate list of all Company
Plans. With respect to each Company Plan, the Sellers have delivered or made
available to the Buyer true and complete copies of: (i) the plan documents and
related trust documents and amendments thereto, (ii) the most recent summary
plan descriptions, if any, and the most recent annual report, if any, and (iii)
the most recent actuarial valuation (to the extent applicable).
(c) With respect to each Company Plan, (i) the Company and each of its
Subsidiaries is in compliance in all material respects with the terms of each
Company Plan and with the requirements prescribed by all applicable statutes,
orders or governmental rules or regulations, (ii) the Company and each of its
Subsidiaries has contributed to each Pension Plan included in the Company Plans
not less than the amounts accrued for such plan for all plan periods for which
payment is due, and (iii) none of the Company or any of its Subsidiaries has
any funding commitment or other liabilities except as reserved for in the
financial statements in or incorporated by reference into the Company Reports,
and, in the case of clause (i) through (iii), except for such matters as would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. The Internal Revenue Service has issued a favorable
determination letter (or opinion letter, as the case may be) with respect to
each Company Plan that is intended to be a "qualified plan" within the meaning
of Section 401(a) of the Code, and, to the Sellers' knowledge, there are no
circumstances nor any events that reasonably could be expected to adversely
affect the qualified status of any such plan.
(d) None of the Company or any of its Subsidiaries has made any binding
commitment to establish any new Company Plan except as may be required by law,
to modify any Company Plan, or to increase benefits or compensation of
Employees of the Company or any of its Subsidiaries (except for normal
increases in compensation consistent with past practices), and to the Sellers'
knowledge, no intention to do so has been communicated to Employees of the
Company or any of its Subsidiaries.
(e) There are no pending or, to the Sellers' knowledge, anticipated claims
against or otherwise involving any of the Company Plans or any fiduciaries
thereof with respect to their duties to the Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Company Plan activities) has been brought against or with respect to any such
Company Plans.
(f) None of the Company, SUSA or any entity under "common control" with the
Company or SUSA within the meaning of Section 4001 of ERISA has contributed to,
or been required to contribute to, any "multiemployer plan" (as defined in
Section 3(37) and 4001(a)(3) of ERISA).
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(g) The Company and its Subsidiaries do not maintain or contribute to any
plan or arrangement that provides or has any liability to provide life
insurance, medical or other employee welfare benefits to any Employee upon his
retirement or termination of employment, except as required by the Employee
Arrangements or the Consolidated Omnibus Budget Reconciliation Act of 1985 or
equivalent state law and, to the Sellers' knowledge, the Company and its
Subsidiaries have never represented, promised or contracted (whether in oral or
written form) to any Employee that such benefits would be provided.
(h) For purposes hereof, "Company Plans" means each and all "employee
benefit plans" as defined in Section 3(3) of ERISA maintained within the last
five years or contributed to within the last five years by a Seller or in which
a Seller participates or participated and which provides benefits to Employees,
including (i) any such plans that are "employee welfare benefit plans" as
defined in Section 3(1) of ERISA, including retiree medical and life insurance
plans ("Welfare Plans"), and (ii) any such plans that constitute "employee
pension benefit plans" as defined in Section 3(2) of ERISA ("Pension Plans"),
as well as all other life and health insurance, hospitalization, savings,
equity, bonus, loan, deferred compensation, incentive compensation, holiday,
vacation, severance pay (including statutory severance), termination pay, sick
pay, sick leave, bereavement leave, maternity leave, military leave,
disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit, individual employment, consultancy or
severance agreements or arrangements and any other polices or practices of a
party hereto providing employee or executive compensation or benefits to
Employees. As used herein, the term "Employee" refers to any current employee,
former employee or retired employee of the Company or any of its Subsidiaries,
including any such employee on disability, layoff or leave status. "Controlled
Group Liability" means any and all liabilities under (i) Title IV of ERISA,
(ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, and (iv)
corresponding or similar provisions of foreign laws or regulations, other than
such liabilities that arise solely out of, or relate solely to, the Company
Plans.
(i) No Company Plan is or was subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code.
(j) To the Sellers' knowledge, there does not now exist, nor do any
circumstances exist that could result in, any Controlled Group Liability that
would be a liability of the Company following the Closing. Without limiting the
generality of the foregoing, to the Sellers' knowledge, neither the Company nor
any ERISA Affiliate has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA.
(k) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any
Employee of the Company, and the transactions contemplated by this Agreement
will not constitute constructive termination or "good reason" under any Company
Plan (it being understood and agreed, however, that the Company is making no
representation or warranty as to whether consummation of the transactions
contemplated hereby constitutes "good reason" under the Employee Arrangements).
(l) All personnel who manage or operate the Company Properties, or any of
them, are employed directly by SUSA or SUSA-TN LLC, and the Company itself does
not have any Employees. Neither SUSA Management, Inc. nor any of its current
Employees are involved in the management or operation of any Company Property.
(m) No Company Plan or related trust is maintained outside of the United
States or is subject to regulation under non-U.S. laws.
(n) Schedule 3.13(n) sets forth, for each Employee, such Employee's annual
salary (and annual bonus opportunity), department and location.
SECTION 3.14 Labor Matters. None of the Company and its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union
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organization. Except as would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect, there is no unfair labor
practice or labor arbitration proceeding pending or, to the Sellers' knowledge,
threatened against the Company or any of its Subsidiaries. To the Sellers'
knowledge, there are no organizational efforts with respect to the formation of
a collective bargaining unit presently being made or threatened involving
Employees of the Company or any of its Subsidiaries.
SECTION 3.15 Affiliate Transactions. There are no transactions, series of
related transactions, or currently proposed transactions or series of related
transactions, entered or to be entered into by the Company or any of its
Subsidiaries which are of the type required to be disclosed by the Company or
SUSA pursuant to Item 404 of Regulation S-K under the Securities Act that are
not so disclosed, other than with the Buyer or any of its Affiliates. True and
complete copies of all agreements or contracts relating to any such transaction
have been delivered or made available to the Buyer prior to the date hereof.
SECTION 3.16 Insurance. The Company maintains policies of insurance
covering the assets, business, properties and assets, Employees, officers and
directors of the Company and each of its Subsidiaries (collectively, the
"Insurance Policies"), which are of a type and in amounts reasonable for the
business conducted by the Company and its Subsidiaries. Except as previously
communicated in writing to the Buyer in its capacity as claims administrator
with respect to the Company's insurance coverage, there are no claims in excess
of $50,000 individually or $100,000 in the aggregate by the Company or any of
its Subsidiaries pending under any of the Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies. Except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, (i) each Insurance Policy is
in full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon have been paid in full, (ii) none of the Insurance
Policies shall terminate or lapse (or be affected in any other adverse manner)
by reason of the transactions contemplated by this Agreement, (iii) the Company
and each of its Subsidiaries have complied with the provisions of each
Insurance Policy under which it is the insured party, (iv) no insurer under any
Insurance Policy has canceled or generally disclaimed liability under any such
policy or indicated any intent to do so or not to renew any such policy and
(v) all claims under the Insurance Policies have been filed in a timely fashion.
SECTION 3.17 Proxy Statement; Schedule 13E-3; Information Statement. The
Proxy Statement and the Schedule 13E-3 and all of the information included or
incorporated by reference therein and all amendments and supplements thereto
(other than any information supplied or to be supplied by the Buyer for
inclusion or incorporation by reference therein) will not, as of the date such
Proxy Statement, Schedule 13E-3, amendments or supplements are filed with the
SEC or the Proxy Statement is mailed to the shareholders of the Company and as
of the time of any meeting of the shareholders of the Company in connection
with the transactions contemplated hereby, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
and the Schedule 13E-3 will at such times comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder. The Information Statement (other than any
information supplied or to be supplied by the Buyer for inclusion therein, and
other than information related to the Election, the terms and conditions of the
Agreement of Limited Partnership set forth in Exhibit B, the consequences of
the Election on an Electing Holder, including Tax consequences, and the
proposed business of the Surviving Partnership) will not, as of the date the
Information Statement is mailed to the holders of SUSA Units, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
SECTION 3.18 Tennessee Takeover Law. The terms of Chapter 103 of Title 48
of the Tennessee Code Annotated will not apply to the Buyer, the Purchase, the
Redemption, the Merger or any other transaction contemplated hereby.
SECTION 3.19 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock (including shares of
Company Common Stock held by the Buyer or Affiliates of the
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Buyer) entitled to vote hereon is the only vote of the holders of any class or
series of Company Stock or other securities of the Company necessary under the
TRULPA, the TBCA, the Company Charter, the Company Bylaws or any contract
binding the Company to approve this Agreement and the transactions contemplated
hereby, including the Purchase, the Redemption and the Merger. No approval,
consent or vote of the holders of SUSA Units or Preferred Units or holders of
securities of any Subsidiary of the Company is required to effect the
transactions contemplated by this Agreement, including the Purchase, the
Redemption and the Merger.
SECTION 3.20 Brokers or Finders; Opinion of Financial Advisor. (a) Except
for Lehman Brothers, Inc. (in its capacity as the Company's financial advisor,
the "Financial Advisor"), no agent, broker, investment banker or other firm or
person, including any of the foregoing that is an Affiliate of the Company, is
or will be entitled to any broker's or finder's fee or any other commission or
similar fee from the Company or any of its Subsidiaries or Affiliates in
connection with this Agreement or any of the transactions contemplated hereby,
for which the Buyer or any of its Affiliates will be responsible.
(b) The Financial Advisor has delivered to the Company an opinion dated the
date of this Agreement to the effect, as of such date, the Merger Consideration
is fair from a financial point of view to the holders of the Company Common
Stock and the holders of SUSA Units unaffiliated with the Company, a copy of
which opinion in the form in which it has been or will be delivered to the
Company has been delivered to the Buyer.
SECTION 3.21 Intellectual Property. (a) Other than with respect to software
programs that are commercially available on a general basis, the Company and
its Subsidiaries own, license or otherwise possess legally enforceable rights
to use all Intellectual Property used in or reasonably necessary to the conduct
of the business of the Company and its Subsidiaries, except where the failure
to own, license or have rights to use such Intellectual Property would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. For purposes of this Agreement, the term "Intellectual
Property" means (i) patents, trademarks, service marks, trade names, domain
names, copyrights, designs and trade secrets, (ii) any applications for and
registrations of such patents, trademarks, service marks, trade names, domain
names and copyrights and designs, and (iii) processes, formulae, methods,
schematics, technology, know-how, computer software programs and applications
(except for computer software programs and applications that are commercially
available on a general basis at a cost that does not exceed $100,000 in any one
case or $250,000 giving effect to multiple licenses to the same program).
(b) The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not result in the breach of, or create on
behalf of any third party the right to terminate or modify, any license,
sublicense or other agreement relating to any Intellectual Property or any
software programs that are commercially available on a general basis, including
software that is used in the manufacture of, incorporated in, or forms a part
of any product or service sold by or expected to be sold by the Company or any
of its Subsidiaries, except for such breaches and rights to terminate or modify
as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. Schedule 3.21(b) sets forth a complete and
accurate list of the Company's issued patents, registered trademarks, material
software license agreements and all other material license agreements.
(c) Except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, (i) all patents and
registrations and applications for registered trademarks, service marks and
copyrights which are held by the Company or any of its Subsidiaries are valid
and subsisting and (ii) the Company and its Subsidiaries have taken reasonable
measures to protect the proprietary nature of the Sellers' Intellectual
Property. To the Sellers' knowledge, no other person or entity is infringing,
violating or misappropriating any of the Sellers' Intellectual Property, except
for infringements, violations or misappropriations which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
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(d) None of the (i) products sold by the Company or any of its Subsidiaries
or (ii) business or activities conducted by the Company or any of its
Subsidiaries infringes, violates or constitutes a misappropriation of, or
infringed, violated or constituted a misappropriation of, any Intellectual
Property of any third party (including any software programs and applications
that are commercially available), except for infringements, violations or
misappropriations which would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries has received any written (or has any knowledge of any)
complaint, claim or notice alleging any such infringement, violation or
misappropriation. For purposes of this Section 3.21(d), the word "patents" in
the definition of Intellectual Property shall be deemed a reference to United
States patents issued on or before the date of this Agreement.
SECTION 3.22 SUSA and Holdings Agreements. (a) Schedule 3.22(a) sets forth
all action that is required to be taken under the SUSA Agreement and Holdings'
agreement of limited partnership in order to admit the Buyer as the general
partner and a limited partner, as applicable, of SUSA and Holdings, in
connection with the Purchase, and under the SUSA Agreement to issue the
Additional Buyer Units.
(b) Other than the SUSA Agreement and the Tax Protection Agreements, there
are no (written or oral) agreements currently in effect between the Company and
any holder of SUSA Units (other than the Company), including agreements
pursuant to which the Company has agreed to guarantee the obligations of such
holder or consented to any disposition of any of such holder's SUSA Units.
SECTION 3.23 Knowledge Defined. As used herein, the phrase "to the Sellers'
knowledge" (or words of similar import) shall mean the actual knowledge, after
reasonable inquiry, of any of Dean Jernigan, Christopher Marr, Karl Haas, John
McConomy, Richard Stern, Bruce Taub, Mark Yale or Ed Ansbro; provided, however,
that for purposes of Sections 3.11(b), 3.11(d) and 3.11(i), the phrase "to the
Sellers' knowledge" (or words of similar import) shall mean the actual
knowledge of such individuals as well as the actual knowledge of the Company's
ten Regional Managers and three Division Vice Presidents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
SECTION 4.1 Organization. The Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Maryland.
The Buyer has all requisite corporate power and authority to own, operate,
lease and encumber its properties and carry on its business as now conducted,
to enter into this Agreement and perform its obligations hereunder and to
consummate the transactions contemplated hereby.
SECTION 4.2 Due Authorization. The execution and delivery of this
Agreement, the performance of the obligations hereunder and the consummation of
the transactions contemplated hereby, by the Buyer, have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement has been duly executed and delivered by the Buyer and constitutes the
valid and legally binding obligation of the Buyer enforceable against the Buyer
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights or general
principles of equity.
SECTION 4.3 Conflicting Agreements and Other Matters. Neither the execution
and delivery by the Buyer hereof nor the consummation by the Buyer of the
transactions contemplated hereby will conflict with, result in a breach or
violation of the terms, conditions or provisions of, constitute a default (or
an event which, with notice or lapse of time or both, would become a default)
under, give to others any right of termination, amendment, acceleration or
cancellation of, result in the creation of any Lien upon any of the properties
or assets of the Buyer pursuant to, or require any consent, approval or other
action by or any notice to or filing with any Government
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Authority under, the organizational documents of the Buyer or any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, order, judgment, decree, statute, law, rule or
regulation by which the Buyer is bound, except for filings required under the
Securities Laws or the HSR Act or as would not, individually or in the
aggregate, reasonably be expected to result in a material adverse effect on the
ability of the Buyer to consummate the transactions contemplated hereby.
SECTION 4.4 Ownership of Shares. The Buyer owns as of the date hereof,
either directly or through one or more of its Affiliates, 11,765,654 shares of
Company Common Stock.
SECTION 4.5 Proxy Statement; Schedule 13E-3; Information Statement. None of
the information supplied or to be supplied by or on behalf of the Buyer for
inclusion or incorporation by reference in the Proxy Statement or the Schedule
13E-3 or any amendment or supplements thereto will, as of the date the Proxy
Statement, the Schedule 13E-3 or any such amendment or supplement is filed with
the SEC or the Proxy Statement is mailed to the shareholders of the Company and
as of the time of any meeting of the shareholders of the Company in connection
with the transactions contemplated hereby, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. None of the
information supplied by or on behalf of the Buyer for inclusion in the
Information Statement (including for these purposes, whether or not so
supplied, all information related to the Election, the terms and conditions of
the Agreement of Limited Partnership set forth in Exhibit B, the consequences
of the Election on an Electing Holder, including Tax consequences, and the
proposed business of the Surviving Partnership) will, as of the date the
Information Statement is mailed to the holders of SUSA Units, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
SECTION 4.6 Buyer Financing. Without prejudice to the fact that this
Agreement does not provide for any financing condition or contingency (but
subject to the condition set forth in Section 6.1(c) and to the other terms and
conditions hereof), the Buyer has provided to the Company a true and complete
copy of the Buyer's Revolver Commitment Letter, dated November 28, 2001,
providing for a commitment by Wells Fargo Bank, N.A. of up to $60 million of
the Revolver Financing above the Target Hold level of $55 million, as set forth
in and subject to the terms and conditions of such Letter (the "Buyer
Financing"). Taking into account and assuming the availability of the $115
million of funds pursuant to the Buyer Financing, and subject to the terms and
conditions thereof and hereof, at the Closing the Buyer will have sufficient
funds to consummate the transactions contemplated by this Agreement, including
to make all payments (including in respect of fees and expenses) required to be
made in connection with this Agreement. The Buyer currently expects that, to
the extent necessary, all of the funds will be available pursuant to the Buyer
Financing at the Closing.
ARTICLE 5
COVENANTS RELATING TO CLOSINGS
SECTION 5.1 Taking of Necessary Action. (a) Each party hereto agrees to use
its commercially reasonable best efforts promptly to take or cause to be taken
all actions and promptly to do or cause to be done all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, subject to the terms
and conditions hereof, including all actions and things necessary to cause all
conditions precedent set forth in Article 6 to be satisfied.
(b) As promptly as practicable after the date hereof, the Company, in
cooperation with the Buyer, shall prepare and shall file with the SEC (i) a
proxy statement (the "Proxy Statement") by which the Company's shareholders
will be asked to approve the transactions contemplated hereby, including the
Purchase and the Merger and (ii) a statement on Schedule 13E-3 under the
Exchange Act (the "Schedule 13E-3" and, together
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with the Proxy Statement, the "SEC Filings"). The SEC Filings as initially
filed with the SEC, as each may be supplemented, amended and refiled with the
SEC, and the Proxy Statement as it may be mailed to the Company's shareholders,
shall each be in form and substance reasonably satisfactory to the Buyer. The
Company shall use its commercially reasonable best efforts to, in cooperation
with the Buyer, respond to any comments of the SEC on the SEC Filings and to
cause the Proxy Statement to be mailed to the Company's shareholders at the
earliest practicable time. As promptly as practicable after the date hereof,
(i) the Company shall, and shall cause its Subsidiaries to, prepare and file
the Regulatory Filings (other than the SEC Filings) and any other filings
required of the Company or such Subsidiaries under the U.S. or foreign federal,
state or local laws relating to this Agreement and the transactions
contemplated hereby, including under state takeover laws (the "Other Filings"),
and (ii) the Buyer shall, and shall cause its Subsidiaries to, prepare and file
any filings required of the Buyer or such Subsidiaries under any such laws (the
"Buyer Filings"). The Company and the Buyer will notify each other promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff
or any other government officials for amendments or supplements to the SEC
Filings or any Regulatory Filings, Other Filings or Buyer Filings or for
additional information, and will supply each other with copies of all
correspondence between each of them or any of their respective Representatives,
on the one hand, and the SEC, or its staff or any other government officials,
on the other hand, with respect to any such filings. The SEC Filings and any
Regulatory Filing, Other Filing and Buyer Filing shall comply in all material
respects with all applicable requirements of law. The Buyer shall promptly
provide to the Company all information about the Buyer required to be included
or incorporated by reference in the SEC Filings or any Regulatory Filing or
Other Filing and shall otherwise cooperate with the Company in taking the
actions described in this paragraph. Whenever any event occurs which is
required to be set forth in an amendment or supplement to an SEC Filing or any
Regulatory Filing, Other Filing or Buyer Filing, the Company or Buyer, as the
case may be, shall promptly inform the other party of such occurrence and
cooperate in filing with the SEC or its staff or any other Government
Authority, and/or mailing to shareholders of the Company, such amendment or
supplement, and each party shall bear all responsibility and any liability with
respect to the information it provides.
(c) The Buyer, in cooperation with the Company, shall prepare and mail to
the holders of SUSA Units (other than the Company and its Subsidiaries), as
soon as practicable after the date hereof (but no later than the mailing of the
Proxy Statement to holders of Company Common Stock), an information statement
(the "Information Statement") containing (i) to the extent relevant,
substantially the same information as the information contained in the Proxy
Statement to be mailed to holders of Company Common Stock, (ii) information
relating to the Unit Consideration, the Election and the other transactions
affecting such holders described in Section 2.7, the terms and conditions of
the Agreement of Limited Partnership set forth on Exhibit B, the consequences
of the Election (including tax consequences thereof), and the proposed business
of the Surviving Partnership, and (iii) a prospective Electing Holder
questionnaire to determine whether such holder is an "accredited investor".
(d) Subject to Section 5.6, the Company shall use commercially reasonable
best efforts to take all actions in accordance with applicable law, the Company
Charter and the Company Bylaws to promptly and duly call, give notice of,
convene and hold as promptly as practicable, (and in any event within 45 days
after the Proxy Statement and the Schedule 13E-3 have been cleared by the SEC),
a meeting of its shareholders for the purpose of considering and voting upon
the transactions contemplated by this Agreement, including the Purchase and the
Merger. Subject to Section 5.6, to the fullest extent permitted by applicable
law, (i) the Company Board shall recommend and the Special Committee shall
unanimously recommend approval by the shareholders of the Company of this
Agreement and the transaction contemplated hereby, including the Purchase and
the Merger, and include in the Proxy Statement such recommendation, and (ii)
the Company Board and the Special Committee shall not withdraw or modify, or
propose or resolve to withdraw or modify in a manner adverse to the Buyer, such
recommendation. Subject to Section 5.6, the Company shall solicit from its
shareholders proxies in favor of the approval of the transaction contemplated
hereby, including the Purchase and the Merger, and, in connection therewith,
shall use commercially reasonable best efforts to comply with the applicable
requirements of the national securities exchange on which the Company Common
Stock is listed or the TBCA; provided that, after consultation with the Buyer,
the Company may adjourn or postpone such shareholder meeting to the extent
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necessary to ensure that any required supplement or amendment to the Proxy
Statement is provided to the Company's shareholders or if, as of the time for
which the meeting is originally scheduled (as set forth in the Proxy
Statement), there are insufficient shares of Company Common Stock represented
(either in person or by proxy) to constitute a quorum necessary to conduct the
business of the meeting.
(e) The Company shall use its commercially reasonable best efforts to obtain
the consents set forth on Schedule 3.4.
(f) The Buyer shall use commercially reasonable efforts to obtain the funds
under the Buyer Financing as and to the extent necessary in connection with the
transactions contemplated hereby.
SECTION 5.2 Take-Along Right. During the Take-Along Period, the Buyer shall
(a) at any meeting of shareholders of the Company called to approve an
agreement providing for a Superior Transaction (entered into during the
Permitted Period), and at every adjournment or postponement thereof, vote (and
cause its Affiliates to vote) all of the shares of Company Common Stock owned
of record or beneficially as of the date hereof by the Buyer (or such
Affiliates) in favor of the approval of such Superior Transaction, and (b) sell
(or cause to be sold) all of the shares of Company Common Stock owned of record
or beneficially by the Buyer (and its Affiliates), for the same consideration
and on terms no less favorable (except as otherwise contemplated by the Support
Agreement) as are offered to the other holders of the Company Common Stock in
such Superior Transaction, except in each case as otherwise provided in, and
subject to, the definition of Superior Transaction; provided that (i) at the
time of termination hereof (in connection with such Superior Transaction) the
Company shall have complied with Sections 5.6(c) (after taking into account the
provisions of the last sentence of that Section) and 7.1(f), and (ii)
immediately prior to or upon consummation of such Superior Transaction, the
Buyer shall receive cash consideration for all of its shares of Company Common
Stock as set forth in the definition of Superior Transaction in Section
5.6(g)(ii). In addition, the Buyer shall, and shall cause each of its
Affiliates that owns shares of Company Common Stock to, execute and deliver to
the other party to a definitive agreement relating to a Superior Transaction
that has been agreed and entered into by the Company at the time such agreement
is entered into, a support agreement in the form attached as Exhibit C (the
"Support Agreement"), upon the written request of such party.
SECTION 5.3 Strategic Alliance Agreement; Series A Preferred Stock. (a) In
all respects not inconsistent with the terms and provisions of this Section,
the Strategic Alliance Agreement shall continue to be in full force and effect
in accordance with the terms and subject to the conditions thereof, and the
execution, delivery and performance (other than consummation) hereof, or the
execution, delivery and performance (other than consummation) of an agreement
providing for a Superior Transaction (in compliance with the terms hereof),
shall not constitute an "Early Termination Event" thereunder; provided that,
upon the Effective Time or consummation of a Superior Transaction, in
compliance with the terms hereof, the Strategic Alliance Agreement shall be
terminated and shall cease to have any force or effect, and provided further
that it is explicitly understood and agreed that nothing in the Strategic
Alliance Agreement or herein shall prevent, limit or restrict in any way the
right of the Buyer and its Affiliates to make, in response to any matter of
which the Buyer is notified in accordance with Section 5.6(c) or of which the
Buyer otherwise becomes aware or for any other reason or no reason, an offer,
proposal or inquiry with respect to an improvement or modification in favor of
the Company and its shareholders in the terms of the transaction to be effected
hereby, or to enter into any negotiation or discussion relating thereto, or to
make what would be a Superior Proposal with respect to any Superior Transaction
entered into by the Company in connection with or following the termination of
this Agreement (or to make any inquiry with respect thereto, or to enter into
any negotiation or discussion relating thereto). The Company, the Buyer and
SUSA hereby acknowledge and agree that the negotiations leading to, or the
entering into, this Agreement, the exercise of any rights hereunder in
accordance with and subject to the terms hereof (including the rights afforded
to the Sellers under Sections 5.6(f) and 7.1(f) of this Agreement), and the
consummation of any of the transactions contemplated by this Agreement shall
not, in any event, constitute a violation or attempted violation by any of such
parties of any provision of the Strategic Alliance Agreement (or of any
provision of the Company Charter or the Company Bylaws), and each such party
hereby irrevocably
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waives any claim in connection therewith against any of the other parties or
their respective Representatives, including for purposes of Section 7.8 of the
Strategic Alliance Agreement.
(b) At or prior to the Closing, and from time to time thereafter, the Buyer
shall take all action necessary and appropriate to designate or cause to be
designated 650,000 shares of preferred stock of the general partner of the
Surviving Partnership as "8 7/8% Series A Cumulative Redeemable Preferred
Stock," having substantially the same terms as the Company's Series A Preferred
Stock (as defined in the Company Charter).
SECTION 5.4 Public Announcements. Subject to each party's disclosure
obligations imposed by law and any stock exchange or similar rules, the Company
and the Buyer will cooperate with each other in the development and
distribution of all news releases and other public information disclosures with
respect to this Agreement and any of the transactions contemplated hereby.
SECTION 5.5 Conduct of the Business. Except as expressly provided herein or
contemplated hereby or as consented to in writing by the Buyer, from and after
the date of this Agreement until the earlier of the termination of this
Agreement in accordance with the terms hereof or the Closing Date, the Company
shall, and shall cause each of its Subsidiaries to, act and carry on its
business in the ordinary course of business consistent with past practice and
use commercially reasonable efforts, consistent with past practice, to maintain
and preserve its and each Subsidiary's business organization, assets and
properties, keep available the services of its present officers and employees
and preserve its advantageous business relationships with customers, strategic
partners, suppliers, distributors and others having business dealings with it.
Without limiting the generality of the foregoing, from and after the date of
this Agreement until the earlier of the termination of this Agreement in
accordance with the terms hereof or the Closing Date, the Company shall not,
and shall not permit any of its Subsidiaries to, except as set forth on
Schedule 5.5, directly or indirectly, do any of the following without the prior
written consent of the Buyer, except as expressly provided herein or
contemplated hereby:
(a) except for the redemption of SUSA Units for Company Stock in the
ordinary course of business, change the number of shares of the authorized or
issued capital stock (or equivalent thereof) of the Company or such Subsidiary
or issue or grant any option, warrant, call, commitment, subscription, right to
purchase or agreement of any character relating to the authorized or issued
capital stock (or equivalent thereof) of the Company or such Subsidiary (unless
expressly required by the terms of a Company Plan or preexisting Employment
Arrangement, in each case, as in effect as of the date of this Agreement), or
any securities convertible into shares of such stock (including, in the case of
the Company, SUSA Units), or split, combine or reclassify any shares of the
capital stock (or equivalent thereof) of the Company or such Subsidiary or
declare, set aside or pay any extraordinary dividend (except for Permitted
Dividends or as may be required to comply with the requirements of Section
5.11), other distribution (whether in cash, stock or property or any
combination thereof) in respect of the capital stock (or equivalent thereof) of
the Company or such Subsidiary, or redeem or otherwise acquire any shares of
such stock (or equivalent thereof), or take any action that would cause the
Conversion Factor (as defined in the SUSA Agreement) to be other than 1.0;
(b) except as permitted by Section 5.5(l), issue, deliver, sell, grant,
pledge or otherwise dispose of or encumber any shares of the capital stock (or
equivalent thereof) of the Company or such Subsidiary, any other voting
securities or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares or securities (other
than the issuance of shares of Company Common Stock upon the exercise of
Company Options outstanding on the date of this Agreement in accordance with
their present terms);
(c) amend the Company Charter or the Company Bylaws or the organizational
documents of such Subsidiary (including the SUSA Agreement), except as provided
in this Agreement;
(d) acquire by merging or consolidating with, or by purchasing all or a
substantial portion of the assets or any stock (or equivalent thereof) of, or
by any other manner, any business or any corporation, partnership,
joint venture, limited liability company, association or other business
organization or division thereof, other
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than acquisitions of self storage facilities and related assets in the ordinary
course of business consistent with past practice;
(e) except for the sale of inventory or the sale or lease of self storage
facilities and related assets in the ordinary course of business consistent
with past practice or as otherwise provided in this Section 5.5, sell, lease,
license, pledge, encumber, assign, dispose of or otherwise transfer (including
by means of a contribution to a partnership or joint venture) any Company
Properties or other material asset of the Company or such Subsidiary (including
any contracts or stock (or equivalent thereof) of the Company's Subsidiaries);
(f) except to the extent expressly contemplated by this Agreement, enter
into an agreement with respect to any merger, consolidation, liquidation or
business combination, or any acquisition or disposition of all or substantially
all of the assets or securities of the Company or any of its Subsidiaries;
(g) (A) incur any indebtedness for borrowed money in excess of $50,000
individually or $150,000 in the aggregate, (B) issue, sell or amend any debt
securities or other rights to acquire any debt securities of the Company or any
of its Subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the economic
effect of any of the foregoing, (C) make any loans, advances or capital
contributions (other than as expressly required by the terms of the Property
Joint Ventures) to, or investment in, or repay any indebtedness owing to
(except as contemplated hereby with the Loan Repayment Amount or the SUSA
Subsidiaries Amount or as expressly required by the terms of any contract, as
set forth on Schedule 5.5(g)), any person other than the Company or any of its
direct or indirect wholly owned Subsidiaries or (D) enter into any hedging
agreement or other financial agreement or arrangement designed to protect the
Company or its Subsidiaries against fluctuations in commodities prices or
exchange rates;
(h) make any capital expenditures or other expenditures in excess of
$150,000 in the aggregate with respect to property, plant or equipment for the
Company or its Subsidiaries (or, with respect to Company Properties, in the
Capital Expenditure Budget and Schedule or as may be required to correct any
material deficiencies in the Company Properties that are discovered after the
date hereof, and with respect to Projects, in the Development Budget and
Schedule, respectively);
(i) make any changes in financial accounting methods, principles or
practices, except insofar as may have been required by a change in GAAP or,
except as so required, change any method of calculating any bad debt,
contingency or other reserve;
(j) knowingly modify, amend or terminate in any adverse manner any contract
or agreement to which the Company or any of its Subsidiaries is party involving
payments to or from the Company in excess of $100,000 in any twelve month
period, or knowingly waive, release or assign any material rights or claims in
an adverse manner (including any write-off or other adverse compromise of any
material accounts receivable of the Company or any of its Subsidiaries);
(k) enter into any contract or agreement requiring the Company or any of its
Subsidiaries to make payments in excess of $100,000 in any twelve month period;
(l) except as required to comply with applicable law or agreements, plans or
arrangements existing on the date hereof or as contemplated by Section 5.9, (A)
adopt, enter into, terminate or amend any employment, severance or similar
agreement or other Company Plan for the benefit or welfare of any current or
former director, officer, Employee or consultant or any collective bargaining
agreement, (B) increase the compensation or fringe benefits of, or pay any
bonus to, any director, officer, Employee or consultant, (C) amend or
accelerate the payment, right to payment or vesting of any compensation or
benefits, including any outstanding options or restricted stock awards, (D) pay
any material benefit not
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provided for as of the date of this Agreement under any Company Plan, (E) grant
any awards under any bonus, incentive, performance or other Company Plan,
including the grant of stock options, stock appreciation rights, stock based or
stock related awards, performance units or restricted stock, or the removal of
existing restrictions in any Company Plans or awards made thereunder, or (F)
take any action to fund or in any other way secure the payment of compensation
or benefits under any Company Plan;
(m) make or rescind any material Tax election, settle or compromise any
material Tax liability or make any material amendment to any Tax return;
(n) initiate, compromise or settle any litigation or arbitration proceeding
relating to this Agreement or the transactions contemplated hereby (and subject
to Section 5.12) or material to the Company and its Subsidiaries, taken as a
whole;
(o) open or close any facility or office material to the Company and its
Subsidiaries, taken as a whole;
(p) adopt or implement any shareholder rights plan or similar device or
arrangement; or
(q) authorize any of, or commit or agree, in writing or otherwise, to take
any of, the foregoing actions or any action which would materially impair or
prevent the satisfaction of any conditions in Article 6.
SECTION 5.6 No Solicitation. (a) No Solicitation or Negotiation. Except as
expressly permitted by this Section, during the period from and including the
46th day following the date of this Agreement (the "No-Solicitation Start
Date") until the termination of this Agreement in accordance with the terms
hereof (the "No-Solicitation Period"), the Company shall not, nor shall it
cause, authorize or permit any of its Subsidiaries or Affiliates or any of its
or their Representatives to, directly or indirectly:
(i) solicit, initiate, encourage or take any other action to facilitate
any inquiries or the making of any proposal or offer that constitutes,
relates to, or could reasonably be expected to lead to, any Acquisition
Proposal; or
(ii) enter into, continue or otherwise participate in any discussions or
negotiations regarding, furnish to any person any information with respect
to, assist or participate in any effort or attempt by, or otherwise
cooperate in any way with, any person with respect to, any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
Acquisition Proposal.
Notwithstanding the foregoing, but subject to Section 5.6(f), in response to an
Acquisition Proposal that did not result or arise from a breach of this
Section, and subject to compliance with Section 5.6(c), the Company may
(x) furnish information, including non-public information, with respect to the
Company to any person (and the Representatives of such persons) making an
Acquisition Proposal that the Special Committee determines in good faith (after
consultation with outside counsel and its financial advisor) is a Superior
Proposal, pursuant to a customary confidentiality agreement containing
customary standstill provisions) and (y) engage in discussions or negotiations
with such person and its Representatives regarding any such Superior Proposal.
Without limiting the foregoing, it is agreed that any violation of any of the
restrictions set forth in this Section 5.6(a) by any Affiliate or
Representative of the Company or any of its Subsidiaries, whether or not such
person is purporting to act on behalf of the Company or otherwise, shall be
deemed to be a violation of such restrictions.
(b) No Change in Recommendation or Alternative Acquisition Agreement. The
Company Board and the Special Committee shall not, during the No-Solicitation
Period:
(i) except as set forth in this Section 5.6(b), withdraw or publicly
propose to withdraw or modify in any manner adverse to the Buyer or publicly
propose to modify in any manner adverse to the Buyer, its approval or
recommendation of this Agreement or the transactions contemplated hereby;
(ii) cause or permit the Company to enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition agreement,
merger agreement or similar agreement (an "Alternative
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Acquisition Agreement") constituting or relating to any Acquisition Proposal
other than a confidentiality agreement referred to in Section 5.6(a) entered
into in the circumstances referred to in such Section 5.6(a); or
(iii) adopt, approve or recommend, or publicly propose to adopt, approve
or recommend, any Acquisition Proposal.
Notwithstanding the foregoing, the Company Board and the Special Committee may,
during such period, (x) withdraw or publicly propose to withdraw or modify or
publicly propose to modify in a manner adverse to the Buyer its approval or
recommendation of this Agreement and the transactions contemplated hereby, if
the Company Board or the Special Committee determines in good faith (after
consultation with the Company's or the Special Committee's outside counsel and
the financial advisor for the Special Committee) that an Acquisition Proposal
constitutes a Superior Proposal as to which the Company intends to enter into a
binding written agreement as provided in Section 7.1(f) and (y) adopt, approve
or recommend, or propose to adopt, approve or recommend, any Superior Proposal
subject to compliance with Section 7.1(f).
(c) Notices to the Buyer. The Company shall promptly advise the Buyer
orally, with written confirmation to follow within 24 hours of the occurrence
of the event or circumstance giving rise to the Company's obligation under this
Section 5.6(c), of the Company's receipt of any Acquisition Proposal or any
material negotiation or discussion concerning the material economic terms and
material conditions of such Acquisition Proposal made by any person(s), and the
identity of the person(s) making or engaging in any such Acquisition Proposal,
negotiation or discussion (including a copy of any such Acquisition Proposal,
or negotiation or discussion, if in writing). The Company shall promptly inform
the Buyer orally, with written confirmation to follow within 24 hours of the
occurrence of the event or circumstance giving rise to the Company's obligation
under this Section 5.6(c), of all material changes or material modifications to
the economic terms of any such Acquisition Proposal, negotiation or discussion
(including a copy thereof, if in writing). The Company shall also notify the
Buyer orally, with written confirmation to follow within 24 hours, of the
identity of any entity that has requested or been granted access to the data
room maintained by the Company (but in each case only in the first instance
thereof by any such entity). Notwithstanding the foregoing, if the Company,
acting in good faith, has immaterially or inadvertently breached its
obligations under this Section 5.6(c), it shall nevertheless not in any event
be considered a breach hereof, if, no less than three Business Days prior to
entering into an agreement with respect to any Acquisition Proposal, the
Company shall have provided the Buyer with the then-current material business
terms of such Acquisition Proposal, including any then-current written proposal
or agreement embodying such Acquisition Proposal (but not including any drafts
or other obsolete or superseded materials). For purposes of this Section
5.6(c), the Company's receipt of any Acquisition Proposal or any material
negotiation or discussion concerning the material economic terms and material
conditions of any Acquisition Proposal (or subsequent communications relating
thereto and described herein, including material changes or material
modifications to any Acquisition Proposal) shall be solely limited to
communications made to or which become known to any one of Messrs. Dean
Jernigan, Christopher Marr, Alan Graf, John McCann, Fred Caven, Scott Mohr,
Gilbert Menna or Randy Parks. For purposes of this Section 5.6(c) and
notwithstanding Section 8.4 to the contrary, notices under this Section shall
be deemed to have been given by the Company to the Buyer only if sent by (i)
any one of Messrs. Dean Jernigan, Christopher Marr, Alan Graf, John McCann,
Fred Caven, Scott Mohr, Gilbert Menna or Randy Parks by electronic mail (with
confirmation by fax in the manner and to the persons set forth in Section 8.4),
to (ii) the attention of all of Messrs. Ronald Blankenship
(rblankenship@securitycapital.com), Paul Szurek (pszurek@securitycapital.com),
Jeffrey Klopf (jklopf@securitycapital.com), Murray McCabe
(murray.mccabe@jpmorgan.com) and Adam Emmerich (aoemmerich@wlrk.com), or, with
the consent of any one or more of such named recipients, by other confirmed
delivery to him alone or such other of such recipients as he may specify.
(d) Certain Permitted Disclosure. Nothing contained in this Section 5.6 or
elsewhere in this Agreement shall be deemed to prohibit the Company from taking
and disclosing to its shareholders a position with respect to a tender offer
contemplated by Rule 14e-2(a) and related Item 1012(a) of Regulation M-A
promulgated under the
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Exchange Act or from making any other disclosure to its shareholders or in any
other regulatory filing if, in the good faith judgment of the Company Board or
the Special Committee, based on the advice of outside counsel, failure to so
disclose would be inconsistent with their or the Company's obligations under
applicable law.
(e) Cessation of Ongoing Discussions. During the No-Solicitation Period,
subject to the provisions of the penultimate sentence of Section 5.6(a), the
Company shall, and shall cause its Subsidiaries and its and their Affiliates
and Representatives to, cease immediately all discussions and negotiations
commenced on or prior to the No-Solicitation Start Date regarding any proposal
that constitutes, or could reasonably be expected to lead to, an Acquisition
Proposal. From and after the No-Solicitation Start Date, the Company shall use
commercially reasonable efforts to have all copies of all nonpublic information
it or its Subsidiaries and its and their Representatives have distributed since
the date hereof, to persons who have executed a confidentiality agreement in
connection with such person's consideration of an Acquisition Proposal,
destroyed or returned to the Company as soon as possible.
(f) Permitted Period. It is understood and agreed that none of the
limitations set forth in this Section 5.6 (other than Section 5.6(c)) with
respect to the solicitation, negotiation or furnishing of information with
respect to Acquisition Proposals shall apply during the period from (and
including) the date of this Agreement to (but excluding) the No-Solicitation
Start Date (the "Permitted Period").
(g) Definitions. For purposes of this Agreement:
"Acquisition Proposal" means any proposal, offer or inquiry by any person
or group (as defined in Section 13(d)(3) under the Exchange Act) (other than
the Buyer or any of its Affiliates or any group including Buyer or any of
its Affiliates) (i) for or with respect to or relating to a merger,
consolidation, dissolution, sale of substantial assets, tender offer,
recapitalization, share exchange or other business combination or similar
transaction (or series of transactions) involving the Company and its
Subsidiaries, taken as a whole, (ii) for or with respect to or relating to a
transaction pursuant to which the Company or any of its Subsidiaries issues
or would issue, or such person or group acquires or would acquire, over 15%
of the equity securities of the Company or such Subsidiary or (iii) for or
with respect to or relating to a transaction pursuant to which such person
or group acquires or would acquire in any manner, directly or indirectly,
over 15% of the consolidated total assets of the Company, in each case,
other than the transactions contemplated by this Agreement. Any Superior
Proposal shall also be deemed an Acquisition Proposal for the purposes
hereof.
"Superior Proposal" means any unsolicited, bona fide written proposal
made by a third party to effect a Superior Transaction.
"Superior Transaction" means the acquisition or cancellation of all of
the common equity securities of the Company pursuant to or in connection
with a tender or exchange offer, a merger, a consolidation, a sale of all or
substantially all of its assets or similar transaction:
(i) on terms which the Special Committee determines in its good faith
judgment to be more favorable from a financial point of view to the
holders of Company Common Stock than the transactions contemplated by this
Agreement (based on the advice of a nationally recognized independent
financial advisor), taking into account all the terms and conditions of
such transaction (including the financial terms thereof and the likelihood
of such a proposal being completed) and this Agreement (including any
written proposal by the Buyer to amend the terms of this Agreement);
(ii) (w) in which all of the holders of Company Common Stock (except as
set forth in clause (z) below) and all of the holders of SUSA Units (other
than the Company) would have the right to receive consideration, in the
form of cash and/or securities (and which securities will be publicly
traded and listed on the NYSE, AMEX or NASDAQ following consummation of
the Superior Transaction), in a per share amount in excess of $42 (with
the value of any common stock or security determined at the time the
Superior Transaction is entered into, based upon the Trailing Average (as
to any such security, if such
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security is publicly traded and listed on the NYSE, AMEX or NASDAQ prior
to the time the Superior Transaction is entered into) or the Agreed Value
(as to any such security, if such security is not publicly traded and
listed on the NYSE, AMEX or NASDAQ prior to the time the Superior
Transaction is entered into)), (x) in which SUSA's limited partners (other
than the Company) have the right, at their sole discretion, to remain as
limited partners of SUSA or a successor limited partnership on terms
comparable to those contemplated by this Agreement or otherwise to
continue their equity interest and tax deferred status, (y) which does not
prohibit the Buyer from being able to propose any amendments to the terms
of this Agreement to make them more favorable from a financial point of
view to the holders of Company Common Stock than the Superior Transaction,
and (z) in which the consideration to be received by the Buyer for all of
its shares of Company Common Stock is payable, and is paid, prior to or
simultaneously with the payment of the consideration to be received by
holders of Company Common Stock other than the Buyer, entirely in cash
(and, if any Company shareholders are to receive or have the option to
receive any securities, in an amount per share equal to the greatest of
(A) if only cash consideration is payable on any shares of Company Common
Stock, the per share cash consideration payable on such shares, (B) if
only securities are payable on any shares of Company Common Stock, an
amount in cash equal to value of such securities determined at the time
the Superior Transaction is entered into (with the value of any such
securities determined at the time the Superior Transaction is entered
into, based upon the Trailing Average, as to securities that are publicly
traded and listed on the NYSE, AMEX or NASDAQ prior to the time the
Superior Transaction is entered into, or the Agreed Value, as to any such
securities which are not publicly traded and listed on the NYSE, AMEX or
NASDAQ prior to the time the Superior Transaction is entered into) and (C)
if a combination of cash and securities is payable as consideration for
any shares of Company Common Stock, an amount in cash equal to the sum of
the values determined in accordance with clause (A), with respect to the
cash portion of the per share consideration payable to holders of Company
Common Stock, and clause (B), with respect to the securities portion of
the per share consideration payable to holders of Company Common Stock);
and
(iii) that is reasonably capable of being completed on the terms
proposed, taking into account all financial, regulatory, legal and other
aspects of such transaction, within the same time-period as the Take-Along
Period (giving due consideration to the respective dates the Buyer and
such person executed definitive agreements with the Company) and with a
likelihood of successful consummation not less favorable than those
applicable to the transactions contemplated hereby.
"Trailing Average", with respect to any publicly traded security listed
on the NYSE, AMEX or NASDAQ, means the average Closing Price (as defined
below) of such security on the fifteen consecutive Trading Days (as defined
below) immediately preceding the date of determination. "Trading Day", with
respect to any security, means a day on which such security is traded on the
national securities exchange or quotation system or in the over-the-counter
market used to determine Closing Prices for such security. "Closing Price"
of a security on any day means the last reported sale price, regular way, of
such security on such day, or, in case no such sale takes place on such day,
the average of the reported closing per share bid and asked prices, regular
way, of such security on such day, in each case, on the national securities
exchange or quotation system or in the over-the-counter market on which such
security is listed or admitted to trading or quoted.
"Agreed Value", with respect to any security not publicly traded and
listed on the NYSE, AMEX or NASDAQ, means an amount equal to what the
Special Committee's and the Buyer's respective financial advisors mutually
agree would be the Trailing Average, were such securities then publicly
listed and traded on the NYSE, AMEX or NASDAQ, or, in the event that such
financial advisers are unable to reach agreement as to such hypothetical
Trailing Average within 5 days after a written request by the Buyer or the
Company, as may be determined by the investment banking firm appointed
pursuant to Schedule 5.6(g). Any mutual determination of the financial
advisors or determination by the investment banking firm appointed pursuant
to this definition shall be final and binding on the parties.
SECTION 5.7 Information and Access. From the date hereof until the Closing
(a) the Company shall, and shall cause its Subsidiaries to, afford to the Buyer
and its Representatives full and reasonable access during
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normal business hours (and at such other times as the parties may mutually
agree) to the properties, books, contracts, commitments, records and
appropriate personnel of the Company and such Subsidiaries and, during such
period, shall furnish promptly to the Buyer (i) a copy of each report, schedule
and other document filed or received by it pursuant to the requirements of the
Securities Laws or the HSR Act, and (ii) all other information concerning the
businesses, assets or personnel of the Company and such Subsidiaries or the
Company Properties as the Buyer may reasonably request, and (b) without
limiting the generality of the foregoing, the Buyer shall have the right to
conduct or cause to be conducted, at the Buyer's expense, an environmental,
physical, structural, electrical, mechanical and other inspection and review of
any Company Properties or request that the Company update, at the Buyer's
expense, any existing reports, reviews or inspections thereof, in which case
the Company shall promptly cause its reports, reviews and inspections to be so
updated by the firm or person who prepared such report or conducted such review
or inspection. The Buyer and its Representatives shall, in the exercise of the
rights described in this Section, not unduly interfere with the operation of
the businesses of the Company or its Subsidiaries or unduly interfere with,
restrict or restrain the access of other persons to the properties, books,
contracts, commitments, records and senior management of the Company and such
Subsidiaries during the Permitted Period or otherwise unduly impair the ability
of the Company to receive a Superior Proposal during the Permitted Period. No
information or knowledge obtained in any investigation pursuant to this Section
or otherwise shall affect or be deemed to modify any representation or warranty
of the Sellers contained in this Agreement or the conditions to the obligations
of the parties to consummate the transactions contemplated hereby.
SECTION 5.8 Notification of Certain Matters. The Buyer and the Company
shall use commercially reasonable efforts to give reasonably prompt notice to
each other of the occurrence, or failure to occur, of any event, known to such
party, which occurrence or failure to occur would be reasonably likely to
result in (a) a breach of any representation or warranty of such party
contained in this Agreement or (b) the failure of any covenant, condition or
agreement to be complied with or satisfied by such party under this Agreement.
In furtherance of and without limiting the foregoing, the Buyer shall use
commercially reasonable efforts to (i) inform the Company if the Buyer no
longer expects that all of the funds, to the extent necessary, will be
available pursuant to the Buyer Financing at the Closing, and (ii) reasonably
promptly apprise the Company of circumstances relating to the Buyer Financing
upon reasonable request of the Company from time to time prior to the Closing.
Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section will not limit or otherwise affect the remedies available hereunder to
the party receiving such notice or the conditions to such party's obligation to
consummate the transactions contemplated hereby.
SECTION 5.9 Employee Matters.
(a) The Buyer agrees to comply with the terms of all employment and
change-in-control agreements set forth (and designated as such) on Schedule
3.13(a). After the date hereof until the Closing, neither the Company Board nor
any committee thereof nor any officer of the Company shall take any action that
would cause any amount to become due or payable or to be paid under any
Employee Arrangement as a result of the execution hereof, the Purchase, the
Redemption or the Merger or any other matter contemplated hereby.
(b) Nothing in this Agreement (other than Section 5.10), express or implied,
shall create a third-party beneficiary relationship or otherwise confer any
benefit, entitlement, or right upon any person other than the parties hereto,
including any right to employment or continued employment for any specified
period, of any nature or kind whatsoever.
SECTION 5.10 D&O Insurance; Indemnification. (a) From and after the
Closing, the Surviving Partnership and the Buyer shall, jointly and severally,
to the fullest extent permitted by Tennessee law for a period of six years from
the Closing, indemnify, hold harmless and provide advancement of expenses to,
each present and former director, trustee and officer of the Company or any of
its Subsidiaries and each person who becomes prior to the Effective Time a
director, trustee or officer of the Company or any of its Subsidiaries (each, an
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"Indemnified Party" and, collectively, the "Indemnified Parties"), from,
against and with respect to any costs or expenses (including attorneys' fees),
judgments, fines, penalties, losses, claims, damages, liabilities or amounts
paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such, which acts or omissions
existed or occurred at or prior to the Effective Time, including any acts or
omissions related to this Agreement or the transactions contemplated hereby (an
"Indemnifiable Action"), whether asserted or claimed prior to, at or after the
Effective Time, to the maximum extent that the Company would then be obligated
to indemnify, hold harmless and advance expenses under the Company Charter or
the Company Bylaws if the same were then in effect.
(b) From and after the Closing, the Buyer shall control the defense of any
Indemnifiable Action with counsel selected by the Buyer, which counsel shall be
reasonably acceptable to the Indemnified Party; provided, however, that the
Indemnified Party shall, at such party's expense, be permitted to participate
in such defense with counsel selected by the Indemnified Party, which counsel
shall be reasonably acceptable to the Buyer. Notwithstanding the foregoing, if
there is any conflict of interest between the Buyer and any Indemnified Party
or there are additional material defenses available to any Indemnified Party,
such Indemnified Party shall be permitted to participate in the defense of such
Indemnifiable Action with counsel selected by such Indemnified Party, which
counsel shall be reasonably acceptable to the Buyer, and the Buyer shall pay
the reasonable fees and expenses of such counsel, as accrued and in advance of
the final disposition of such Indemnifiable Action to the fullest extent
permitted by Tennessee law; provided, however, that, notwithstanding any other
provision of this Section 5.10(b), the Buyer shall not be obligated to pay fees
and expenses of more than one such counsel (plus local counsel) for all
Indemnified Parties in any single Indemnifiable Action.
(c) For a period of six years after the Closing, the Buyer shall, or shall
cause one of its Affiliates to maintain (to the extent available in the market)
in effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy (a complete and accurate copy of which has been
delivered or made available to the Buyer prior to the date of this Agreement)
with coverage in amount and scope at least as favorable to such persons as the
Company's existing coverage with respect to acts or failures to act occurring
prior to the Effective Time.
(d) From and after the Effective Time, the Buyer and the Surviving
Partnership will, jointly and severally, fulfill and honor in all respects the
obligations of the Company pursuant to the indemnification agreements between
the Company and its directors and officers in effect immediately prior to the
date hereof and set forth on Schedule 5.10(d).
(e) If Buyer or the Surviving Partnership or any of their respective
successors or assigns (i) shall consolidate with or merge into any other person
and shall not be the continuing or surviving person of the consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any person, then in each such case, proper provisions shall be made
so that the successors and assigns of the Buyer or the Surviving Partnership
shall assume all of the obligations set forth in this Section 5.10.
(f) The provisions of this Section 5.10 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties and their
heirs and representatives.
SECTION 5.11 REIT Status. From and after the date hereof until the Closing,
the Company will comply with all applicable laws, rules and regulations of the
Code relating to a REIT, and will not take any action or fail to take any
action which would reasonably be expected to, alone or in conjunction with any
other factors, result in the loss of its status as a REIT for federal income
tax purposes. For purposes of determining whether a dividend, other than a
Permitted Dividend, is required to be paid in order to comply with this
covenant, the parties agree that both the distribution of the Share
Consideration in the Merger and the Buyer Amount paid to the Buyer in
redemption of its Company Common Stock, to the extent that such transactions
are scheduled to
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occur during the applicable tax year, shall be treated as a distribution
qualifying for a dividends paid deduction under Sections 561 and 562 of the
Code to the extent provided therein.
SECTION 5.12 Shareholder Litigation. Until the earlier of the termination
of this Agreement in accordance with its terms or the Closing Date, the Company
shall afford the Buyer
the opportunity to participate, at the Buyer's expense and with separate
counsel, in the defense or settlement of any shareholder litigation against the
Company or the Company Board relating to this Agreement or any of the
transactions contemplated hereby, it being understood that the Company shall be
entitled to settle any such litigation, but only with the Buyer's prior written
consent, which will not be unreasonably withheld or delayed.
SECTION 5.13 Purchase Price Allocation. The Purchase Price, the Transferred
Liabilities and any other capitalized item (including SUSA liabilities treated
as additional purchase price under Section 752) shall be allocated among the
SUSA Interest and the Other Assets in a manner consistent with a schedule to be
provided by the Buyer to the Company at or prior to the Closing (the "Purchase
Price Allocation"). The Buyer and the Company shall each file Form 8594 (Asset
Acquisition Statement Under Section 1060) on a timely basis reporting the
allocation of the Purchase Price consistent with such Purchase Price
Allocation. Except as may be required by law, the Buyer and the Company will
(i) file, or cause to be filed, all Tax Returns in a manner consistent with the
Purchase Price Allocation, as adjusted as a result of a substantial increase or
decrease in the Purchase Price, if any, and (ii) may not take any action
inconsistent therewith.
SECTION 5.14 Sale of Shares by the Buyer. The Buyer agrees that, until the
later of (i) termination hereof or (ii) the expiration of the Take-Along
Period, it shall not sell, transfer, pledge or otherwise dispose of any shares
of Company Common Stock (and it shall cause its Affiliates not to take any of
the foregoing actions) other than to its (or their) Affiliates or in accordance
with Section 5.2 of this Agreement. Each Affiliate of the Buyer that owns
shares of Company Common Stock shall, and the Buyer shall cause any such
Affiliate to, agree to be bound by the provisions of this Section 5.14.
ARTICLE 6
CONDITIONS TO CLOSINGS
SECTION 6.1 Conditions to Obligations of the Buyer. The obligations of the
Buyer to effect the transactions contemplated by this Agreement are subject to
satisfaction on or prior to the Closing Date of each of the following
conditions precedent, any of which may be waived in writing exclusively by the
Buyer:
(a) Representations and Warranties. The representations and warranties of
the Sellers contained herein shall have been true and correct in all respects
on and as of the date hereof, and shall be true and correct in all respects on
and as of the Closing Date, with the same effect as though such representations
and warranties had been made on and as of the Closing Date (except, in any such
case, for representations and warranties that speak as of a specific date or
time, which need only be true and correct in all respects as of such date or
time), other than, in all such cases, for such failures to be true and/or
correct as would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect (without regard, for purposes of this
Section 6.1(a), to any materiality or Material Adverse Effect qualifications
contained in such representations and warranties). The Sellers shall have
delivered to the Buyer at the Closing certificates of appropriate officers
dated the Closing Date to such effect.
(b) Covenants. The covenants and agreements of the Sellers to be performed
on or before the Closing Date in accordance with this Agreement (other than
Section 5.8) shall have been duly performed in all material respects (without
regard, for purposes of this Section 6.1(b), to any materiality qualifications
contained in such covenants or agreements). The Sellers shall have delivered to
the Buyer at the Closing certificates of appropriate officers dated the Closing
Date to such effect.
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(c) No Material Adverse Change. No condition to lending or funding, under
or in connection with the Buyer Financing, based upon or related to a material
disruption of, or material adverse change in, financial, banking or capital
market conditions shall have been invoked and be continuing after any
applicable cooling off or similar period, in each case, with the effect that
all or part of the Buyer Financing shall not be available to the Buyer.
(d) HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated, and no action shall have been instituted by the United States
Department of Justice or the United States Federal Trade Commission challenging
or seeking to enjoin the consummation of the transactions contemplated hereby,
which action shall not have been withdrawn or terminated.
(e) Governmental Approvals. Other than the filing of the Merger
Certificate, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Authority (other than under the HSR Act) in connection with the
Purchase, the Redemption, the Merger or the consummation of the other
transactions contemplated by this Agreement, the failure of which to file,
obtain or occur would, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect, shall have been filed, been obtained or
occurred.
(f) Shareholder Approval. The Purchase, the Merger and the other
transactions contemplated hereby shall have been approved by the requisite vote
of the Company's shareholders under applicable law, the Company Charter and the
Company Bylaws at a duly called meeting of such shareholders at which a quorum
was present.
(g) No Injunction. There shall not be in effect any order, decree or
injunction of any Government Authority of competent jurisdiction which enjoins
or prohibits consummation of any of the transactions contemplated hereby, and
there shall be no pending Actions brought by any Government Authority
(including a stop order or similar SEC proceeding with respect to the Proxy
Statement) which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(h) Tax Matters. The Company shall not have terminated its election to be
taxed as a REIT, and shall be in compliance with all applicable laws, rules and
regulations, including the Code, necessary to permit it to be taxed as a REIT.
The Company shall not have taken any action or have failed to take any action
which would reasonably be expected to, alone or in conjunction with any other
factors, result in the loss of its status as a REIT for federal income tax
purposes.
(i) Partnership Matters. All action necessary or appropriate to issue the
Additional Buyer Units and to admit the Buyer as the general partner and a
limited partner, as applicable, of SUSA and Holdings, as set forth on Schedule
3.22(a), in each case, effective as of the Closing, shall have been duly taken,
and the Company (including in its capacity as the sole general partner of SUSA
and Holdings) shall have taken (and caused its Subsidiaries to take) all action
necessary or appropriate to authorize the Purchase, the Redemption, the Merger,
the issuance of the Additional Buyer Units and the other transactions
contemplated hereby.
(j) SUSA Management Purchase Agreement. The transactions contemplated by
the agreement (the "SUSA Management Purchase Agreement"), between Dean Jernigan
and the Buyer, dated as of the date hereof, pursuant to which Dean Jernigan
will sell to the Buyer (or one or more of its Subsidiaries) and the Buyer (or
such Subsidiaries) will purchase from Dean Jernigan, effective immediately
prior to the Purchase, all of the shares of capital stock of SUSA Management,
Inc. owned by Dean Jernigan; shall have been consummated in accordance with
their terms.
(k) Other Deliveries. The Sellers shall have made the deliveries to be made
by the Sellers pursuant to Section 2.5(b)(ii) and (iii).
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SECTION 6.2 Conditions to Obligations of the Sellers. The obligation of the
Sellers to effect the transactions contemplated by this Agreement is subject to
satisfaction on or prior to the Closing Date of each of the following
conditions precedent, any of which may be waived in writing exclusively by the
Company:
(a) Representations and Warranties. The representations and warranties of
the Buyer contained herein shall have been true and correct in all respects on
and as of the date hereof, and shall be true and correct in all respects on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except, in any such
case, for representations and warranties that speak as of a specific date or
time, which need only be true and correct in all respects as of such date or
time), other than, in all such cases, for such failures to be true and/or
correct as would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on the Buyer's ability to consummate the
transactions contemplated hereby (without regard, for purposes of this Section
6.2(a), to any materiality or material adverse effect qualifications contained
in such representations and warranties). The Buyer shall have delivered to the
Sellers at the Closing a certificate of appropriate officers dated the Closing
Date to such effect.
(b) Covenants. The covenants and agreements of the Buyer to be performed on
or before the Closing Date in accordance with this Agreement (other than
Section 5.8) shall have been duly performed in all material respects (without
regard, for purposes of this Section 6.2(b), to any materiality qualifications
contained in such covenants or agreements). The Buyer shall have delivered to
the Sellers at the Closing a certificate of appropriate officers dated the
Closing Date to such effect.
(c) HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated, and no action shall have been instituted by the United States
Department of Justice or the United States Federal Trade Commission challenging
or seeking to enjoin the consummation of the transactions contemplated hereby,
which action shall not have been withdrawn or terminated.
(d) Governmental Approvals. Other than the filing of the Merger
Certificate, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Authority (other than under the HSR Act) in connection with the
Purchase, the Redemption, the Merger or the consummation of the other
transactions contemplated by this Agreement, the failure of which to file,
obtain or occur would, individually or in the aggregate, reasonably be expected
to result in a material adverse effect on the ability of the Buyer to
consummate the transactions contemplated hereby, shall have been filed, been
obtained or occurred.
(e) Shareholder Approval. The Purchase, the Merger and the other
transactions contemplated hereby shall have been approved by the requisite vote
of the Company's shareholders under applicable law, the Company Charter and the
Company Bylaws at a duly called meeting of such shareholders at which a quorum
was present.
(f) No Injunction. There shall not be in effect any order, decree or
injunction of any Government Authority of competent jurisdiction which enjoins
or prohibits consummation of the transactions contemplated hereby.
(g) Other Deliveries. The Buyer shall have made the deliveries to be made
by the Buyer pursuant to Section 2.5(b)(ii).
ARTICLE 7
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time (with
respect to Sections 7.1(b) through 7.1(h), by written notice by the terminating
party to the other party) as follows:
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(a) by mutual written consent of the Buyer and the Company; or
(b) by either the Buyer or the Company, if the Purchase, the Redemption and
the Merger shall not have been consummated by June 5, 2002 (the "Outside
Date"); or
(c) by either the Buyer or the Company, if a Governmental Authority of
competent jurisdiction shall have issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Purchase, the Redemption or the Merger (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any party
whose material failure to fulfill any obligation under this Agreement,
including Section 5.1, has been the principal cause of or resulted in such
order, decree ruling or action); or
(d) by either the Buyer or the Company, if, at the meeting of Company
shareholders (including any adjournment or postponement thereof permitted by
this Agreement) at which a vote on the Purchase, the Merger and the other
transactions contemplated hereby is taken, the requisite vote of such
shareholders in favor of such transactions shall not have been obtained; or
(e) by the Buyer, if, after the Permitted Period (i) the Company Board and
the Special Committee shall have publicly withdrawn or modified in a manner
adverse to the Buyer their recommendation of the Purchase or the Merger or (ii)
the Company Board and the Special Committee fail to reconfirm their
recommendation of the Purchase or the Merger within five Business Days after
the Buyer so requests in writing (which five Business Day period will be
extended for an additional five Business Days if the Company certifies to the
Buyer prior to the expiration of the initial five Business Day period that the
Company Board and the Special Committee are in good faith seeking to obtain
additional information regarding their decision to reconfirm their
recommendation of the Purchase or the Merger, as applicable); or
(f) by the Company, if, prior to the meeting of the Company shareholders at
which a vote on the Purchase, the Merger and the other transactions
contemplated hereby is to be taken, the Company Board and the Special Committee
have entered into a Superior Transaction; provided that:
(i) the Company shall have complied with Section 5.6 in all material
respects; and
(ii) the Company shall, concurrently with such termination, pay the Buyer
the termination fee required by Section 7.3(b); or
(g) by the Buyer, if there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Sellers set
forth in this Agreement, which breach or failure to perform (i) would cause the
conditions set forth in Section 6.1 not to be satisfied, and (ii) shall not
have been cured within 30 days following receipt by the Company of written
notice of such breach from the Buyer; or
(h) by the Company, if there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Buyer set
forth in this Agreement, which breach or failure to perform (i) would cause the
conditions set forth in Section 6.2 not to be satisfied, and (ii) shall not
have been cured within 30 days following receipt by the Buyer of written notice
of such breach from the Company.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall immediately become
void and have no effect, all rights and obligations of any party hereto shall
cease and there shall be no liability or obligation on the part of the Buyer,
the Sellers or their respective officers, directors, shareholders or
Affiliates; provided that (i) any such termination shall not relieve any party
hereto from liability for any willful breach of this Agreement and (ii) the
provisions of Sections 5.2 and 5.4, this Section 7.2, Section 7.3 and Article 8
of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
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SECTION 7.3 Fees and Expenses. (a) Except as set forth in this Section 7.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
and expenses, whether or not the Purchase, the Redemption, the Merger and the
other transactions contemplated hereby are consummated; provided, however, that
the Company and the Buyer shall share equally (i) the filing fee of the Buyer's
pre-merger notification report under the HSR Act and (ii) all fees and
expenses, other than accountants' and attorneys' fees, incurred with respect to
the printing, filing and mailing (as applicable) of the Proxy Statement, the
Information Statement and the Schedule 13E-3, including any related preliminary
materials and any amendments or supplements thereto. All fees and expenses
payable pursuant to this Section 7.3 shall be paid by wire transfer of same-day
funds.
(b) The Company shall pay the Buyer (in full satisfaction of the Company's
obligations hereunder) a termination fee of $22.5 million if this Agreement is
terminated pursuant to Section 7.1(e) or 7.1(f).
(c) Any fee due under Section 7.3(b) shall be paid by the Company, (i) in
the event of a termination pursuant to Section 7.1(e), within one Business Day
after the date of such termination, and (ii) in the event of a termination
pursuant to Section 7.1(f), concurrently with (x) such termination, and (y) if
requested in accordance with Section 5.2 prior to such termination, the
execution of the Support Agreement in accordance with such Section 5.2.
(d) The Sellers acknowledge that the agreements contained in this Section
7.3 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Buyer would not enter into this
Agreement. If the Company fails to promptly pay to the Buyer any fee due under
this Section 7.3, the Company shall pay the costs and expenses (including
reasonable legal fees and expenses) in connection with any action, including
the filing of any lawsuit or other legal action, taken to collect payment,
together with interest on the amount of any unpaid fee at the publicly
announced prime rate of The Chase Manhattan Bank, N.A. plus four percent per
annum, compounded quarterly, from the date such fee was required to be paid.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Sellers and the Buyer contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
expire with, and be terminated and extinguished upon, the Closing Date. This
Section shall have no effect upon any other obligations of the parties hereto,
whether to be performed before or after consummation of the transactions
contemplated hereby.
SECTION 8.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
SECTION 8.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. Except as set
forth in Section 5.10(e), this Agreement is not intended to confer upon any
person not a party hereto (and their successors and assigns) any rights or
remedies hereunder.
Section 8.4 Notices. All notices and other communications hereunder shall
be sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by registered or certified mail, overnight delivery
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service or, to the extent receipt is confirmed, via facsimile, telecopy or
telefax, to the appropriate address or number as set forth below.
Notices to the Company or the Trust shall be addressed to:
Storage USA, Inc.
175 Toyota Plaza, Suite 700
Memphis, Tennessee 38103
Attention: Chief Executive Officer
Attention: General Counsel
Telecopy Number: (901) 252-2174
with a copy to:
Goodwin Procter LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Gilbert G. Menna, P.C.
Telecopy Number: (617) 523-1231
and to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: Randall S. Parks, Esq.
Telecopy Number: (804) 788-8218
Notices to the Buyer shall be addressed to:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf, Esq.
Telecopy Number: (505) 982-2925
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Telecopy Number: (212) 403-2000
Notices and other communications hereunder shall be deemed duly delivered (i)
four Business Days after being sent by registered or certified mail (return
receipt requested, postage prepaid), (ii) one Business Day after being sent for
next Business Day delivery, fees prepaid, via a reputable nationwide overnight
courier service or (iii) when actually received by the party for whom it is
intended in all other cases. Any party to this Agreement may change the address
to which notices and other communications hereunder are to be delivered by
giving the other parties hereto notice in the manner herein set forth.
Section 8.5 Successors and Assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise by any of the
parties hereto without the prior written consent of the other parties, and any
such assignment without such prior written consent shall be null and void,
except that the Buyer may substitute one or more of its wholly
A-51
owned Subsidiaries for itself without consent of the other parties hereto,
provided that the Buyer shall remain jointly and severally liable for all of
its obligations under this Agreement. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable
by, the parties hereto and their respective successors and permitted assigns.
Section 8.6 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought;
provided that, after approval of the shareholders of the Company has been
obtained as contemplated hereby, no amendment hereto shall be made which by law
requires further approval by such shareholders without such further approval.
Any party hereto may, only by an instrument in writing, waive compliance by any
other party with any term or provision hereof on the part of such other party
hereto to be performed or complied with. The failure of any party hereto to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights, and any waiver pursuant to this Section 8.6 by any
party hereto of a breach of any term or provision hereof shall not be construed
as a waiver of any subsequent breach.
Section 8.7 Interpretation; Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof," "herein," and "herewith" and words
of similar import shall, unless the context otherwise requires, be construed to
refer to this Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and Article,
Section, paragraph, Exhibit and Schedule references shall be deemed to the
Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless
otherwise specified, (iii) the word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation," unless
otherwise specified, (iv) Section, Article and other headings contained in this
Agreement are inserted for convenience of reference only and will not affect
the meaning or interpretation of this Agreement, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 8.8 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such
determination shall have the power to limit the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified. In the event
such court does not exercise the power granted to it in the prior sentence, the
parties hereto agree to replace such invalid or unenforceable term or provision
with a valid and enforceable term or provision that shall achieve, to the
extent possible, the economic, business and other purposes of such invalid or
unenforceable term.
Section 8.9 Further Assurances. The parties hereto agree that, from time to
time, whether before, at or after the Closing Date, each of them will execute
and deliver such further instruments of conveyance and transfer and take such
other action as may be necessary to carry out the purposes and intents of this
Agreement.
Section 8.10 Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy shall not
preclude the exercise of any other remedy. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise
A-52
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which the parties are entitled at law or in equity.
Section 8.11 Submission to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby
shall be brought exclusively in any federal or state court located in the State
of Maryland, and each of the parties hereby consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient form. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 8.4 as to
giving notice hereunder shall be deemed effective service of process on such
party.
Section 8.12 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE
ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT OF THIS AGREEMENT.
Section 8.13 Counterparts and Signature. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. This Agreement may be executed and delivered by
facsimile transmission.
Section 8.14 Post-Closing Tax Matters. The Buyer shall use its commercially
reasonable best efforts to cause any dividends paid by the Company during the
Company's taxable year ending with the Effective Time to be designated as
"capital gain dividends" within the meaning of Section 857(b)(3) of the Code to
the extent permitted under applicable law. The Buyer and SUSA will not take any
action following the Closing that is inconsistent with the Company's status as
a REIT for any period prior to the Closing.
A-53
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day first above written.
STORAGE USA, INC.
By: /S/ DEAN JERNIGAN
-----------------------------------
Name: Dean Jernigan
Title: Chairman of the Board,
Chief Executive Officer and
President
STORAGE USA TRUST
By: /S/ DEAN JERNIGAN
-----------------------------------
Name: Dean Jernigan
Title: Chairman of the Board,
Chief Executive Officer and
President
SUSA PARTNERSHIP, L.P.
By: /S/ DEAN JERNIGAN
-----------------------------------
Name: Dean Jernigan
Title: Chairman of the Board,
Chief Executive Officer and
President
SECURITY CAPITAL GROUP INCORPORATED
By: /S/ C. RONALD BLANKENSHIP
-----------------------------------
Name: C. Ronald Blankenship
Title: Vice Chairman and Chief
Operating Officer
A-54
APPENDIX B
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
January 17, 2002
Storage USA, Inc.
Storage USA Trust
SUSA Partnership, L.P.
c/o Storage USA, Inc.
175 Toyota Plaza, Suite 700
Memphis, Tennessee 38103
Re: Purchase and Sale Agreement, dated as of December 5, 2001, by and among
Storage USA, Inc., a Tennessee corporation ("Storage USA"), Storage USA
Trust, a Maryland real estate investment trust and a wholly owned
subsidiary of Storage USA, SUSA Partnership, L.P., a Tennessee limited
partnership of which Storage USA is the sole general partner, and
Security Capital Group Incorporated, a Maryland corporation ("Security
Capital") (the "Purchase Agreement")
Ladies and Gentlemen:
This is to confirm that, in connection with the Memorandum of Understanding,
dated January 17, 2002 (a copy of which is attached hereto), entered into on
behalf of the parties to the litigation referred to therein by their respective
attorneys (the "MOU"), and in consideration of the settlement set forth in the
MOU, all references in the Purchase Agreement to $42.00 -- including without
limitation in Sections 1.116 (definition of "Share Consideration"), Section
1.140 (definition of "Unit Consideration"), Section 2.2(a) (Purchase
Consideration; Redemption), and Section 5.6(g) (No Solicitation -- definition
of "Superior Transaction") -- shall for all purposes be deemed references to
$42.50, and the words "not to exceed $128,197,920" in Section 2.7(a)(iii) shall
be deleted, in each case, effective as of the date hereof and of the MOU.
B-1
Storage USA, Inc.
Storage USA Trust
SUSA Partnership, L.P.
c/o Storage USA, Inc.
Page 2
In all respect not inconsistent with the terms and provisions of this letter
agreement, the Purchase Agreement shall continue in full force and effect in
accordance with the terms and conditions thereof. From and after the date
hereof, each reference to the Purchase Agreement in any other instrument or
document shall be deemed a reference to the Purchase Agreement as amended
hereby, unless the context otherwise requires.
Very truly yours,
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ C. RONALD BLANKENSHIP
-------------------------
Name: C. Ronald Blankenship
Title: Vice Chairman and
Chief Operating Officer
Accepted and agreed:
STORAGE USA, INC.
By: /s/ DEAN JERNIGAN
-----------------------
Name: Dean Jernigan
Title:Chairman, Chief Executive
Officer and President
STORAGE USA TRUST
By: /s/ DEAN JERNIGAN
-----------------------
Name: Dean Jernigan
Title:Chairman, Chief Executive
Officer and President
SUSA PARTNERSHIP, L.P.
By: /s/ DEAN JERNIGAN
-----------------------
Name: Dean Jernigan
Title:Chairman, Chief Executive
Officer and President
B-2
APPENDIX C
LEHMAN BROTHERS
December 3, 2001
Storage USA, Inc.
Special Committee of the Board of Directors
175 Toyota Plaza, Suite 700
Memphis, TN 38103
Members of the Special Committee of the Board:
We understand that Storage USA, Inc. ("Storage USA" or the "Company")
intends to enter into a transaction (the "Proposed Transaction") with Security
Capital Group Incorporated ("Security Capital"), which holds approximately 43%
of the outstanding common shares (the "Common Shares") of the Company. We
further understand that, pursuant to the Proposed Transaction, among other
events, (1) Security Capital will acquire all of the general and limited
partnership interests in SUSA Partnership, L.P. (the "Operating Partnership" or
"OP") that are held directly or indirectly by the Company, (2) the Company will
merge with and into the Operating Partnership, (3) in the merger, the holders
of the Common Shares, other than Security Capital and its affiliates (the
"Shareholders"), will receive cash equal to $42.00 per share, and (4) in the
merger, the holders of common units of limited partnership interest (the
"Common Units") in the OP, other than Security Capital and its affiliates (the
"Unitholders," whose interests currently comprise approximately 10% of the
outstanding interests in the OP), will be offered the option of (i) receiving
cash equal to $42.00 per Common Unit (the "Cash Option" and, together with the
cash consideration received by the Shareholders, the "Cash Consideration") or
(ii) as to all or part of their Common Units, remaining as limited partners of
the OP, which will survive the transaction and exist as a subsidiary of
Security Capital (the "Non-Cash Option"). We further understand that Security
Capital will assume or repay approximately $936 million of the OP's debt and
preferred securities. We also understand that the Company will have a 45-day
period following execution of the Agreement (as defined below) to solicit
superior proposals. The terms and conditions of the Proposed Transaction are
set forth in more detail in the Purchase and Sale Agreement by and among
Storage USA, Storage USA Trust, the OP and Security Capital (the "Agreement").
We have been requested by the Special Committee of the Board of Directors of
the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Shareholders and the Unitholders of the Cash
Consideration to be offered to such holders in the Proposed Transaction. We
have not been requested to opine as to, and our opinion does not in any manner
address, (1) the Company's underlying business decision to proceed with or
effect the Proposed Transaction, (2) the fairness to the Unitholders of the
Non-Cash Option to be offered to such holders in the Proposed Transaction or
the relative value to the Unitholders of the Cash Option and the Non-Cash
Option, and (3) the tax consequences to the Shareholders and the Unitholders of
the Proposed Transaction generally or of the Cash Option and Non-Cash Option
specifically.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) the Second Amended and
Restated Agreement of Limited Partnership for the Operating Partnership and
certain agreements between the Company and Security Capital (and/or its
affiliates or predecessors) including, without limitation, the Stock Purchase
Agreement, dated March 1, 1996, as amended; the Strategic Alliance Agreement,
dated March 19, 1996, as amended; and the Registration Rights Agreement, dated
March 19, 1996, (3) publicly available information concerning the Company that
we believe to be relevant to our analysis, including the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 2000
and the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001, June 30, 2001 and September 30, 2001, (4) financial and operating
information with respect to the business, operations and prospects of the
Company furnished to us by the Company, including the Company's net asset value
analysis and financial projections of the Company prepared by the Company's
management, (5) a trading
C-1
Storage USA, Inc.
Special Committee of the Board of Directors
December 3, 2001
Page 2
history of the Common Shares from their initial public offering in March 1994
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (6) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies that we deemed relevant, (7) published reports of third party
research analysts with respect to the net asset value, stock price targets and
future financial performance of the Company, and (8) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other transactions that we deemed relevant. In addition, we have had
discussions with the management of the Company concerning its business,
operations, assets, financial condition and prospects and have undertaken such
other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company that they are
not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. However, for purposes of our
analysis, we also have considered certain somewhat more conservative
assumptions which resulted in certain adjustments to the net asset value
analysis prepared by the management of the Company. We have discussed these
adjustments with the management of the Company and they have agreed with the
reasonableness of the use of such adjustments in arriving at our opinion. In
arriving at our opinion, we have conducted only a limited physical inspection
of certain of the properties and facilities of the Company and have not made or
obtained any evaluations of the assets or liabilities of the Company. In
addition, prior to the execution of the Agreement, we have not been authorized
to solicit, and we have not so solicited, any indications of interest from any
third party with respect to the purchase of all or a part of the business of
the Company and/or the Operating Partnership. Our opinion necessarily is based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Cash Consideration to be
offered to the Shareholders and to the Unitholders in the Proposed Transaction
is fair to such holders.
We have acted as financial advisor to the Special Committee in connection
with the Proposed Transaction and will receive a fee for our services, a
portion of which has been paid and a substantial portion of which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we may trade
in the securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position
in such securities.
This opinion is for the use and benefit of the Special Committee of the
Board of Directors of the Company and is rendered to the Special Committee of
the Board of Directors in connection with its consideration of the Proposed
Transaction. This opinion is not intended to be and does not constitute (1) a
recommendation to any Shareholder or Unitholder as to whether to accept the
consideration to be offered in connection with the Proposed Transaction or (2)
a recommendation to any Unitholder as to whether to elect the Cash Option or
the Non-Cash Option.
Very truly yours,
/S/ LEHMAN BROTHERS
C-2
Preliminary Copy of Proxy
(Front of Proxy)
STORAGE USA, INC.
175 TOYOTA PLAZA, SUITE 700
MEMPHIS, TN 38103
Proxy Solicited by the Board of Directors of Storage USA, Inc.
For The Special Meeting Of Shareholders To Be Held On
, , 2002.
The undersigned shareholder of Storage USA, Inc., a Tennessee corporation
(the "Company"), hereby constitutes and appoints Dean Jernigan and Christopher
P. Marr, and each of them acting singly, as proxies (the "Proxy Holders") for
the undersigned, with full power of substitution in each, and authorizes each
of them to represent and vote all shares of common stock of the Company held of
record by the undersigned as of the close of business on March 11, 2002, at the
special meeting of shareholders of the Company to be held at the Plaza Club,
175 Toyota Plaza, Second Floor, Memphis, Tennessee, on , 2002 at
9:00 a.m., local time, and any adjournment or postponement thereof, and
otherwise to represent the undersigned at the special meeting with all powers
possessed by the undersigned if personally present at the special meeting.
When properly executed, this proxy will be voted in the manner directed
therein by the undersigned shareholder(s). If this proxy is executed, but no
direction is given, this Proxy will be voted FOR the proposal set forth in
Proposal 1 on the reverse side hereof. The Proxy Holders are each authorized to
vote, in the discretion of the Proxy Holders, upon such other business as may
properly come before the special meeting and any adjournment or postponement
thereof. Shareholders who plan to attend the special meeting may revoke their
proxy by attending and casting their vote at the special meeting in person.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Special Meeting of Shareholders and the proxy statement with respect
thereto and hereby revoke(s) any proxy or proxies heretofore given with respect
to such meeting.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(down triangle) FOLD AND DETACH HERE (down triangle)
Preliminary Copy of Proxy
(Back of Proxy)
[X] Please mark your votes as in this example.
- --------------------------------------------------------------------------------
The Board of Directors of the Company recommends a vote "FOR" Proposal 1.
1. To approve the Purchase and Sale Agreement by and among the Company, SUSA
Partnership, L.P., Storage USA Trust and Security Capital Group Incorporated,
dated as of December 5, 2001, which is attached to the accompanying proxy
statement as Appendix A, as amended by the Letter Agreement by and among the
Company, SUSA Partnership, L.P., Storage USA Trust and Security Capital Group
Incorporated, dated as of January 17, 2002, which is attached to the
accompanying proxy statement as Appendix B, and the transactions contemplated
thereby including the sale of all of the Company's assets to Security Capital
Group Incorporated and the merger of the Company with and into SUSA
Partnership, L.P., all as more fully described in the accompanying proxy
statement.
[_] For [_] Against [_] Abstain
2. To transact any other business as may properly come before the special
meeting and any adjournments or postponements of that meeting in the discretion
of the Proxy Holders.
Check here only if you plan to attend the special meeting in person. [_]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder(s) Signature(s)
Date ________________________________________________________________________
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, only one of such persons need sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person. Please mark, sign, date and return the proxy card promptly,
using the enclosed envelope.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(down triangle) FOLD AND DETACH HERE (down triangle)