<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
STATEMENT ON SCHEDULE 14D-1
Tender Offer Statement Pursuant To Section 14(d)(1) of
the Securities Exchange Act of 1934
_________________
STATEMENT ON SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 3 - B. Wayne Hughes)
(Amendment No. 2 - Public Storage, Inc.)
_________________
PUBLIC STORAGE PROPERTIES IV, LTD.
(Name of Subject Company)
_________________
B. Wayne Hughes
Public Storage, Inc.
(Bidder)
_________________
Units of Limited Partnership Interest
(Title of Class of Securities)
_________________
NONE
(CUSIP Number of Class of Securities)
_________________
DAVID GOLDBERG
Public Storage, Inc.
701 Western Avenue, 2nd Floor
Glendale, California 91201-2397
(818) 244-8080
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Bidder)
_________________
CALCULATION OF REGISTRATION FEE
================================================================================
Transaction Valuation* Amount of Filing Fee**
- --------------------------------------------------------------------------------
$2,682,000 $537
* This Tender Offer Statement on Schedule 14D-1 is being filed in connection
with an Offer made by B. Wayne Hughes to acquire up to 6,000 of the outstanding
units of limited partnership interest (the "Units") of Public Storage Properties
IV, Ltd., a California limited partnership (the "Partnership"). The total value
of the transaction was estimated solely for purposes of calculating the filing
fee.
[__] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable
Form or Registration No.:
Filing Party:
Date Filed:
<PAGE>
1) Name of Reporting Person: B. Wayne Hughes
S.S. or I.R.S. Identification No. of Above Person:
2) Check the Appropriate Box if a Member of a Group (See Instructions)
[__]
[__] (a)
_________________________________________________________________________
[__]
[__] (b)
_________________________________________________________________________
3) SEC Use Only
______________________________________________________________________
4) Sources of Funds (See Instructions): PF, BK
5) [__] Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f).
6) Citizenship or Place of Organization: United States of America
7) Aggregate Amount Beneficially Owned by Each Reporting Person: 6,312 units
of limited partnership interest (see footnote (a) below).
8) [__] Check if the Aggregate Amount in Row 7 Excludes Certain Shares (See
Instructions).
9) Percent of Class Represented by Amount in Row 7: 15.8%
10) Type of Reporting Person (See Instructions): IN
- ---------------
(a) Includes (i) 420 units of limited partnership interest ("Units") as to which
B. Wayne Hughes has sole voting and dispositive power and (ii) 5,892 Units
as to which B. Wayne Hughes has sole dispositive power and no voting power;
Public Storage, Inc. has an option to acquire these Units and an irrevocable
proxy to vote these Units.
-2-
<PAGE>
1) Name of Reporting Person: Public Storage, Inc.
S.S. or I.R.S. Identification No. of Above Person: 95-3551121
2) Check the Appropriate Box if a Member of a Group (See Instructions)
[__]
[__] (a)
_________________________________________________________________________
[__]
[__] (b)
_________________________________________________________________________
3) SEC Use Only
______________________________________________________________________
4) Sources of Funds (See Instructions): N/A
5) [__] Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f).
6) Citizenship or Place of Organization: California
7) Aggregate Amount Beneficially Owned by Each Reporting Person: 18,857 units
of limited partnership interest (see footnote (a) below).
8) [__] Check if the Aggregate Amount in Row 7 Excludes Certain Shares (See
Instructions).
9) Percent of Class Represented by Amount in Row 7: 47.1%
10) Type of Reporting Person (See Instructions): CO
- ---------------
(a) Includes (i) 12,965 Units as to which Public Storage, Inc. has sole voting
and dispositive power and (ii) 5,892 Units which Public Storage, Inc. has
an option to acquire from B. Wayne Hughes and as to which Public Storage,
Inc. has sole voting power (pursuant to an irrevocable proxy) and no
dispositive power.
-3-
<PAGE>
This Statement on Schedule 14D-1 also constitutes (i) Amendment No. 3 to
Statement on Schedule 13D dated April 6, 1995, as previously amended by
Amendment No. 1 dated July 1, 1995 and Amendment No. 2 dated November 16, 1995,
filed by B. Wayne Hughes, and (ii) Amendment No. 2 to Statement on Schedule 13D
dated November 16, 1995, as previously amended by Amendment No. 1 dated April 1,
1996, filed by Public Storage, Inc.
Item 1. Security and Subject Companies.
------------------------------
(a) The name of the subject company is Public Storage Properties IV,
Ltd., a California limited partnership (the "Partnership"), and the
address of its principal executive office is 701 Western Avenue, 2nd
Floor, Glendale, California 91201-2397.
(b) The class of securities to which this Statement relates is the units
of limited partnership interest (the "Units") of the Partnership. There
are 40,000 outstanding Units. The information set forth under
"Introduction" and "The Offer" in the Offer to Purchase dated March 21,
1997 (the "Offer") annexed hereto as Exhibit (a)(1) is incorporated
herein by reference.
(c) The information set forth under "Market Prices of Units" in the
Offer is incorporated herein by reference.
Item 2. Identity and Background.
-----------------------
(a)-(d); (g) This Statement is filed by B. Wayne Hughes ("Hughes") and
Public Storage, Inc. (the "Company"), a California corporation. The
business address of each is 701 Western Avenue, 2nd Floor, Glendale,
California 91201-2397. The information set forth under "Background and
Purpose of the Offer" in the Offer and Schedule 5 thereto is
incorporated herein by reference.
(e)-(f) During the last five years, neither Hughes nor the Company nor,
to Hughes' or the Company's best knowledge, any of the persons
identified in response to 2(a) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was
a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of which any such person was or
is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
Item 3. Past Contracts, Transactions or Negotiations with the Subject Company.
---------------------------------------------------------------------
(a)-(b) The information set forth in "Background and Purpose of the
Offer -- Relationships" and "Certain Related Transactions" in the Offer
is incorporated herein by reference.
Item 4. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
(a)-(b) The information set forth in "The Offer -- Source of Funds" in
the Offer is incorporated herein by reference.
(c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
----------------------------------------------------------------
(a)-(g) The information set forth in "Background and Purpose of the
Offer," "Special Considerations" and "Effects of Offer on Non-Tendering
Unitholders" in the Offer is incorporated herein by reference.
-4-
<PAGE>
Item 6. Interest in Securities of the Subject Company.
---------------------------------------------
(a) Hughes beneficially owns 6,312 Units of the Partnership which
represents approximately 15.8% of the outstanding Units, including (i)
420 Units as to which Hughes has sole voting and dispositive power
and (ii) 5,892 Units as to which Hughes has sole dispositive power and
no voting power; the Company has an option to acquire these Units and an
irrevocable proxy to vote these Units. The Company beneficially owns
18,857 Units of the Partnership which represents approximately 47.1% of
the outstanding Units, including (i) 12,965 Units as to which the
Company has sole voting and dispositive power and (ii) 5,892 Units which
the Company has an option to acquire from Hughes and as to which the
Company has sole voting power (pursuant to an irrevocable proxy) and no
dispositive power. In the aggregate, Hughes and the Company beneficially
own 19,277 Units of the Partnership which represents approximately 48.2%
of the outstanding Units. To the knowledge of Hughes and the Company,
none of the Company's executive officers or directors owns any other
Units, except that David Goldberg, an executive officer of the Company,
owns 10 Units and Dann V. Angeloff, a director of the Company, owns nine
Units.
(b) The information set forth in "Market Prices of Units -- General" in
the Offer is incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect to
------------------------------------------------------------------------
the Subject Company's Securities.
--------------------------------
The information set forth in "Background and Purpose of the Offer -- The
Company" in the Offer is incorporated herein by reference. There are no
other contracts, arrangements, understandings or relationships between
Hughes or the Company and any person with respect to any Units of the
Partnership, except as described in items 6 and 8 hereof.
Item 8. Persons Retained, Employed or to be Compensated.
-----------------------------------------------
The information set forth in "The Offer -- Soliciting Agent" in the
Offer is incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders.
---------------------------------------
Not applicable.
Item 10. Additional Information.
----------------------
(a)-(e) Not applicable.
(f) The Offer and the Letter of Transmittal, Exhibits (a)(1) and (e)(1)
hereto, are incorporated herein by reference in their entirety.
Item 11. Material to be filed as Exhibits.
--------------------------------
See Exhibit Index contained herein.
-5-
<PAGE>
SIGNATURE
---------
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, correct and complete.
Dated: March 20, 1997 /s/ B. Wayne Hughes
-----------------------------------
B. Wayne Hughes
PUBLIC STORAGE, INC.
By: /s/ HARVEY LENKIN
---------------------------------
Harvey Lenkin
President
-6-
<PAGE>
Exhibit Index
-------------
Exhibit No.
- -----------
(a) (1) Offer to Purchase dated March 21, 1997.
(2) Letter of Transmittal.
(3) Form of letters to Unitholders.
(b) (1) Letter agreement by and between Hughes and Wells Fargo Bank, National
Association dated as of November 1, 1995 (the "Credit Agreement") and
Revolving Line of Credit Note.
(2) Amendment to Credit Agreement dated as of January 13, 1997.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
-7-
<PAGE>
EXHIBIT 99.(a)(1)
[LETTERHEAD OF B. WAYNE HUGHES]
================================================================
IF YOU HAVE ANY QUESTIONS ABOUT THIS OFFER, PLEASE CALL THE
SOLICITING AGENT, CHRISTOPHER WEIL & COMPANY, INC., AT
(800) 478-2605 OR PUBLIC STORAGE, INC.'S INVESTOR SERVICES
DEPARTMENT AT (800) 421-2856 or (818) 244-8080. IF YOU NEED
HELP IN COMPLETING THE LETTER OF TRANSMITTAL, PLEASE CALL THE
DEPOSITARY, THE FIRST NATIONAL BANK OF BOSTON, AT (617) 575-3120.
==================================================================
March 21, 1997
Re: Tender Offer for Units of
Public Storage Properties IV, Ltd.
----------------------------------
Dear Unitholder:
B. Wayne Hughes ("Hughes") is offering to purchase up to 6,000 of the
limited partnership units (the "Units") in Public Storage Properties IV, Ltd., a
California limited partnership (the "Partnership") at a net cash price per Unit
of $447 (the "Offer"). There will be no commissions or fees paid by you
associated with the sale. A tender of Units will result in a substantial
taxable gain to a tendering Unitholder unless it is a tax-exempt investor.
HUGHES IS A GENERAL PARTNER OF THE PARTNERSHIP.
The Offer is not conditioned upon a minimum number of Units being
tendered. If more than 6,000 Units are validly tendered, Hughes will only
accept 6,000 Units, with such Units purchased on a pro rata basis.
SINCE HUGHES IS A GENERAL PARTNER OF THE PARTNERSHIP, NO
RECOMMENDATION IS MADE TO ANY UNITHOLDER WHETHER OR NOT TO PARTICIPATE IN THE
OFFER.
Hughes has enclosed an Offer to Purchase and Letter of Transmittal
which together describe the terms of the Offer. Hughes urges you to read both
the Offer to Purchase and the Letter of Transmittal carefully. If you wish to
sell your Units and receive a net cash price of $447 per Unit, please complete
the enclosed Letter of Transmittal and return it in the enclosed postage-paid
envelope at the address set forth on the back cover of the Offer to Purchase.
The Offer will expire on April 21, 1997 unless extended.
Thank you for your prompt attention to this matter.
Very truly yours,
/s/ B. Wayne Hughes
-------------------------------
B. Wayne Hughes
<PAGE>
OFFER TO PURCHASE FOR CASH UP TO 6,000
LIMITED PARTNERSHIP UNITS OF
PUBLIC STORAGE PROPERTIES IV, LTD., AT
$447 NET PER UNIT
BY
B. WAYNE HUGHES
==========================================================
THE OFFER, WITHDRAWAL RIGHTS AND THE PRORATION PERIOD
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 21,
1997, UNLESS THE OFFER IS EXTENDED.
==========================================================
B. WAYNE HUGHES ("HUGHES") IS OFFERING TO PURCHASE UP TO 6,000 OF THE
LIMITED PARTNERSHIP UNITS (THE "UNITS") IN PUBLIC STORAGE PROPERTIES IV, LTD., A
CALIFORNIA LIMITED PARTNERSHIP (THE "PARTNERSHIP"), AT A NET CASH PRICE PER UNIT
OF $447 (THE "OFFER"). THE OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF
UNITS BEING TENDERED. IF MORE THAN 6,000 UNITS (APPROXIMATELY 15% OF THE
OUTSTANDING UNITS) ARE VALIDLY TENDERED, HUGHES WILL ACCEPT ONLY 6,000 UNITS,
WITH SUCH UNITS PURCHASED ON A PRO RATA BASIS.
The Offer involves certain risk factors and detriments that should be
considered by holders of Units, including the following:
. Since Hughes is a General Partner of the Partnership, no
recommendation is made to Unitholders with respect to the Offer.
. The Offer Price was established by Hughes and is not the result
of arm's length negotiations.
. No independent person has been retained to evaluate or render any
opinion with respect to the fairness of the Offer Price.
(Continued on following page)
____________________
IMPORTANT
Any holder of Units (a "Unitholder") desiring to tender Units should
complete and sign the Letter of Transmittal in accordance with the instructions
in the Letter of Transmittal and mail or deliver the Letter of Transmittal and
any other required documents to The First National Bank of Boston at the address
set forth on the back cover of this Offer to Purchase.
Any questions about the Offer may be directed to the Soliciting Agent,
Christopher Weil & Company, Inc., at (800) 478-2605. Any requests for
assistance or additional copies of the Offer to Purchase and the Letter of
Transmittal may be directed to the Company's Investor Services Department at
(800) 421-2856 or (818) 244-8080. If you need any help in completing the Letter
of Transmittal, please call the Depositary, The First National Bank of Boston,
at (617) 575-3120. The Soliciting Agent will receive 2% of the Offer Price for
each Unit tendered and accepted by Hughes. See "The Offer - Soliciting Agent."
____________________
<PAGE>
. Hughes and an affiliate, Public Storage, Inc. (the "Company" or
"PSI"), which currently own 48.2% of the outstanding Units and
are in a position to significantly influence all Partnership
voting decisions, could, after the Offer, own as much as 63.2% of
the Units and be in a position to control all voting decisions
with respect to the Partnership, such as the timing of the
liquidation of the Partnership, a sale of all of the
Partnership's properties, a merger or other extraordinary
transaction or removal of the General Partners (and election of
successor general partners).
. The Offer Price is 10% less than the General Partners' estimate
of the liquidation value per Unit.
. The General Partners believe that the Partnership's properties,
like mini-warehouses generally, have increased in value over the
last several years and, although there can be no assurance, may
continue to appreciate in value.
. As alternatives to tendering their Units, Unitholders could
retain their Units until liquidation of the Partnership or seek a
private sale of their Units now or later.
. A tender of Units will result in a substantial taxable gain to a
tendering Unitholder unless it is a tax-exempt investor. See
"Special Considerations."
The Company and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company and the
Partnership may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at the New York
Regional Office, 7 World Trade Center, 12th Floor, New York, New York 10007, and
the Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such information
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street N.W., Washington D.C. 20549 or by accessing
the Commission's Worldwide Web site at http://www.sec.gov. Such information for
the Company can also be inspected at the New York Stock Exchange ("NYSE"), 20
Broad Street, New York, New York 10005 and the Pacific Exchange, Inc. ("PSE"),
301 Pine Street, San Francisco, California 94104.
Hughes and the Company have filed with the Commission a statement on
Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act furnishing certain
information with respect to the Offer. Pursuant to Rules 14d-9 and 14e-2 under
the Exchange Act, the Partnership will be required to file with the Commission a
statement on Schedule 14D-9 furnishing certain information with respect to its
position concerning the Offer. Such Schedules and any amendments thereto should
be available for inspection and copying as set forth above (except that such
Schedules and any amendments thereto will not be available at the regional
offices of the Commission).
The Letter of Transmittal and any other required documents should be sent
or delivered by each Unitholder to the Depositary at one of the addresses set
forth below:
The Depositary for the Offer is:
The First National Bank of Boston
<TABLE>
<S> <C> <C>
By Mail By Hand By Overnight Courier
The First National Bank of Boston BancBoston Trust The First National Bank of Boston
Shareholder Services Company of New York Corporate Agency & Reorganization
P.O. Box 1872 55 Broadway 150 Royall Street
Mail Stop 45-02-53 3rd Floor Mail Stop 45-02-53
Boston, MA 02105 New York, NY 10006 Canton, MA 02021
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY..................................................................................... 1
The Parties............................................................................. 1
The Offer............................................................................... 1
Purpose of the Offer.................................................................... 1
Position of the General Partners With Respect to the Offer.............................. 2
Special Considerations.................................................................. 2
SPECIAL CONSIDERATIONS...................................................................... 2
Conflicts of Interest with Respect to the Offer......................................... 2
No Arms' Length Negotiation............................................................. 2
Control of all Partnership Voting Decisions by Hughes and the Company................... 3
Offer Price Less than General Partners' Estimate of Liquidation Value per Unit.......... 3
Possible Increase in Value.............................................................. 3
Alternatives to Tendering Units......................................................... 3
Taxable Gain............................................................................ 3
BACKGROUND AND PURPOSE OF THE OFFER......................................................... 4
The Partnership......................................................................... 4
Hughes.................................................................................. 5
The Company............................................................................. 5
Prior Tender Offer...................................................................... 5
Relationships........................................................................... 5
Purpose of the Offer.................................................................... 7
POSITION OF THE GENERAL PARTNERS WITH RESPECT TO THE OFFER.................................. 7
DETERMINATION OF OFFER PRICE................................................................ 9
THE OFFER................................................................................... 9
Terms of the Offer...................................................................... 9
Proration; Acceptance for Payment and Payment for Units................................. 9
Procedures for Tendering Units.......................................................... 10
Withdrawal Rights....................................................................... 11
Extension of Tender Period; Termination and Amendment................................... 12
Source of Funds......................................................................... 12
Conditions of the Offer................................................................. 13
Fees and Expenses....................................................................... 13
Soliciting Agent........................................................................ 13
Dissenters' Rights and Investor Lists................................................... 14
Federal Income Tax Consequences......................................................... 14
Miscellaneous........................................................................... 14
EFFECTS OF OFFER ON NON-TENDERING UNITHOLDERS............................................... 14
Control of the Partnership.............................................................. 14
Effect on Trading Market................................................................ 14
Partnership Status...................................................................... 15
Partnership Business.................................................................... 15
MARKET PRICES OF UNITS...................................................................... 16
General................................................................................. 16
Information Obtained from Dean Witter Regarding Sales Transactions...................... 17
Information From The Stanger Report Regarding Sales Transactions........................ 17
Information from the Chicago Partnership Board Regarding Sales Transactions............. 18
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
CERTAIN RELATED TRANSACTIONS................................................... 19
General Partners' Interest................................................. 19
Property Management........................................................ 19
Limited Partner Interests.................................................. 19
SCHEDULE 1 - PARTNERSHIP DISTRIBUTIONS...................................... 1-1
SCHEDULE 2 - PROPERTY INFORMATION........................................... 2-1
SCHEDULE 3 - PARTNERSHIP FINANCIAL STATEMENTS............................... 3-1
SCHEDULE 4 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP................... 4-1
SCHEDULE 5 - DIRECTORS AND EXECUTIVE OFFICERS OF PUBLIC STORAGE, INC........ 5-1
</TABLE>
(iv)
<PAGE>
To the Holders of Limited Partnership Units of
Public Storage Properties IV, Ltd., a California limited partnership
SUMMARY
UNITHOLDERS ARE URGED TO READ CAREFULLY THIS OFFER TO PURCHASE, INCLUDING
THE MATTERS DISCUSSED UNDER "SPECIAL CONSIDERATIONS," AND THE ACCOMPANYING
LETTER OF TRANSMITTAL BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
Certain significant matters discussed in this Offer to Purchase are
summarized below. This summary is not intended to be a complete description and
is qualified in its entirety by reference to the more detailed information
appearing elsewhere in this Offer to Purchase.
THE PARTIES
Public Storage Properties IV, Ltd. The Partnership, organized in 1978, owns
interests in 17 properties. The general
partners of the Partnership are Hughes,
the chairman of the board, chief
executive officer and controlling
shareholder of the Company, and the
Company (the "General Partners"). See
"Background and Purpose of the Offer --
The Partnership" and "-- Relationships."
At December 31, 1996, there were
approximately 1,506 holders of record
owning 40,000 Units. Hughes and the
Company collectively own 19,277 Units in
the Partnership (48.2% of the outstanding
Units).
B. Wayne Hughes Hughes is a General Partner of the
Partnership and the chairman of the
board, chief executive officer and
controlling shareholder of the Company.
See "Background and Purpose of the
Offer -- Hughes" and "--Relationships."
Public Storage, Inc. The Company is a real estate investment
trust ("REIT"), organized in 1980 as a
California corporation, that has invested
primarily in existing mini-warehouses.
The Company is one of the General
Partners of the Partnership. See
"Background and Purpose of the Offer --
The Company" and "-- Relationships."
THE OFFER
Number of Units
Subject to Offer 6,000 (approximately 15% of the
outstanding Units).
Offer Price $447 per Unit (the "Offer Price").
Expiration, Withdrawal
and Proration Date April 21, 1997, unless extended. See
"The Offer."
PURPOSE OF THE OFFER
Hughes has decided to increase his ownership of the Partnership and has
chosen to accomplish this through a tender offer on terms he believes are
attractive to him. Hughes believes that the acquisition of Units through the
Offer represents a good investment for him. Unitholders who require or desire
liquidity are being offered the opportunity to receive cash for their Units as
an alternative to a possible third party tender offer for 4.9% of the Units.
See "Background and Purpose of the Offer -- Purpose of the Offer."
1
<PAGE>
POSITION OF THE GENERAL PARTNERS WITH RESPECT TO THE OFFER
In view of their conflicts of interest, the General Partners make no
recommendation to any Unitholder to tender or to refrain from tendering Units.
The Offer Price is less than the General Partners' estimate of the liquidation
value per Unit. Accordingly, the Offer may not be advantageous to Unitholders
who do not require or desire liquidity. The General Partners have no present
intention to seek the liquidation of the Partnership. See "Position of the
General Partners With Respect to the Offer." Under the Partnership Agreement, a
liquidation of the Partnership or a removal of the General Partners can be
initiated by limited partners and would require approval by holders of more than
50% of the outstanding Units in the Partnership at a meeting of limited partners
or without a meeting by written consent.
SPECIAL CONSIDERATIONS
In their evaluation of the Offer, Unitholders should carefully consider the
following:
. The General Partners have substantial conflicts of interests with
respect to the Offer;
. The Offer Price has been established by Hughes and is not the
result of arms' length negotiations;
. No independent person has been retained to evaluate or render any
opinion with respect to the fairness of the Offer Price;
. After the Offer, Hughes and the Company, which currently own
48.2% of the outstanding Units and are in a position to
significantly influence all Partnership voting decisions, could
own as much as 63.2% of the Units and be in a position to control
all Partnership voting decisions;
. The Offer Price is 10% less than the General Partners' estimate
of the liquidation value per Unit;
. The General Partners believe that the Partnership's properties,
like mini-warehouses generally, have increased in value over the
last several years and may continue to do so, although there can
be no assurance;
. As alternatives to tendering their Units, Unitholders could
retain their Units until liquidation of the Partnership or seek a
private sale of the Units now or later.
. A tender of Units will result in a substantial taxable gain to a
tendering Unitholder unless it is a tax-exempt investor. See
"Special Considerations."
SPECIAL CONSIDERATIONS
In their evaluation of the Offer, Unitholders should carefully consider the
following:
Conflicts of Interest with Respect to the Offer. Since the Offer is
-----------------------------------------------
being made by Hughes, a General Partner of the Partnership, Hughes has
substantial conflicts of interest with respect to the Offer. Hughes
has an interest in purchasing Units at the lowest possible price,
whereas Unitholders who desire to sell have an interest in selling
their Units at the highest possible price. Hughes could have proposed
a liquidation of the Partnership, which may have resulted in higher
proceeds to Unitholders, instead of offering to purchase a portion of
the Units.
No Arms' Length Negotiation. The Offer Price has been established by
---------------------------
Hughes, who is a General Partner of the Partnership, and is not the
result of arms' length negotiations between Hughes and the
Partnership. The General Partners have not retained any unaffiliated
person to represent the Unitholders. If an unaffiliated person had
been engaged to represent the Unitholders, the terms of the Offer
might have been different and the unaffiliated person might have been
able to negotiate a higher Offer Price. Hughes, the chief executive
officer of the Company, the largest owner and operator of mini-
warehouses in the United States, believes that
2
<PAGE>
the Offer presents an opportunity to increase, on attractive terms,
his investment in mini-warehouses in which he already has an interest.
Control of all Partnership Voting Decisions by Hughes and the Company.
---------------------------------------------------------------------
Hughes and the Company, which currently own 48.2% of the outstanding
Units and are in a position to significantly influence all Partnership
voting decisions, could, after the Offer, own as much as 63.2% of the
Units and be in a position to control all voting decisions with
respect to the Partnership, such as the timing of the liquidation of
the Partnership, a sale of all of the Partnership's properties, a
merger or other extraordinary transaction or removal of the General
Partners (and election of successor general partners). This voting
power could (i) prevent non-tendering Unitholders from taking action
they desired but that Hughes and the Company opposed and (ii) enable
Hughes and the Company to take action desired by the Company but
opposed by non-tendering Unitholders. Conflicts could exist between
the best interests of the Partnership and Hughes and the Company with
regard to the operation, sale or financing of the Partnership's
properties. For example, continued operation of the properties could
be in the interests of Hughes and the Company, while a sale could be
in the interest of the Partnership.
Offer Price Less than General Partners' Estimate of Liquidation Value
---------------------------------------------------------------------
per Unit. The Offer Price is 10% less than the General Partners'
--------
estimate of the liquidation value per Unit. There is no present
intention to liquidate the Partnership. The Offer may not be
advantageous to Unitholders who do not need to sell their Units. No
independent person has been retained to evaluate or render any opinion
with respect to the fairness of the Offer Price.
Possible Increase in Value. The General Partners believe that the
--------------------------
Partnership's properties, like mini-warehouses generally, have
increased in value over the last several years and, although there can
be no assurance, may continue to appreciate in value.
Alternatives to Tendering Units. As alternatives to tendering their
-------------------------------
Units, Unitholders could retain their Units until liquidation of the
Partnership or seek a private sale of their Units now or later. Under
the Partnership Agreement, a liquidation of the Partnership or a
removal of the General Partners can be initiated by limited partners
and would require approval by holders of more than 50% of the
outstanding Units in the Partnership at a meeting of limited partners
or without a meeting by written consent. Meetings of limited partners
may be called at any time by the General Partners or by one or more
limited partners holding 10% or more of the outstanding Units by
delivering written notice of such call to the General Partners.
Taxable Gain. A tender of Units will result in a substantial capital
------------
gain (estimated at $400 per Unit for original Unitholders) to a
tendering Unitholder unless it is a tax-exempt investor. See "The
Offer -- Federal Income Tax Consequences."
3
<PAGE>
BACKGROUND AND PURPOSE OF THE OFFER
THE PARTNERSHIP. The Partnership is a California limited partnership which
raised $20,000,000 from the sale of 40,000 Units at $500 per Unit in a
registered public offering of the Units completed in November 1978. All of the
Partnership's net proceeds of that offering have been used to develop 17 mini-
warehouses. One of the properties was destroyed by Hurricane Andrew in 1992 and
rebuilt in 1994. The properties were developed at an original total cost of
$17,851,000 and were financed in 1988; $29,360,000 in financing proceeds were
distributed to the limited and general partners (approximately $545 per Unit).
The general partners of the Partnership are Hughes, the chairman of the
board, chief executive officer and controlling shareholder of the Company, and
the Company. The Partnership's properties are managed by the Company. The
Partnership's properties, like those of the Company, are operated under the
"Public Storage" name.
For certain information on Partnership distributions and on Partnership
properties (including property operations for 1996), see Schedules 1 and 2 to
this Offer to Purchase, respectively, and for financial information on the
Partnership refer to Schedule 3 to this Offer to Purchase and the reports on the
Partnership filed with the Commission, which may be obtained in the manner
described on the inside front cover to this Offer to Purchase.
The following sets forth certain summarized financial information for the
Partnership. This information should be read in conjunction with the
Partnership's property operating results for 1996, the Partnership's Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included as Schedules 2, 3 and 4, respectively, to this
Offer to Purchase. EACH UNITHOLDER SHOULD CAREFULLY REVIEW THE PARTNERSHIP'S
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE PARTNERSHIP.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, (3) Year Ended December 31,
-------------------- ---------------------------------------------------------
(In thousands, except per Unit data)
OPERATING DATA: 1996 1995 1995 1994 1993 1992 1991
------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $5,744 $ 5,758 $ 7,629 $ 7,085 $ 6,979 $ 6,743 $ 6,395
Depreciation and amortization 602 548 742 692 648 617 577
Net income (loss) 1,254 1,244 1,724 1,208 1,099 796 441
General partners' share of
net income 14 14 20 13 12 9 38
Limited partners' per Unit
data (1):
Net income (loss) 31.00 30.75 42.60 29.88 27.18 19.68 10.08
Cash distributions -- -- -- -- -- -- 2.50
Funds from operations (2)(3) 1,856 1,792 2,341 1,900 1,747 1,413 1,018
<CAPTION>
As of September 30, As of December 31,
------------------- ---------------------------------------------------------
(In thousands, except per Unit data)
BALANCE SHEET DATA: 1996 1995 1994 1993 1992 1991
------ ------ ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,268 $ 967 $ 551 $ 2,807 $ 1,125 $ 1,470
Marketable securities (fair value
at September 30, 1996 and
December 31, 1995, cost at
December 31, 1994, 1993 and 1992) 6,722 5,645 3,948 1,485 732 --
Total assets 20,186 18,367 16,505 17,548 14,677 14,788
Mortgage note payable 26,556 27,178 28,086 28,754 29,355 29,897
Book value per Unit (4) (180.55) (203.80) (235.75) (258.18) (278.55) (293.30)
- ---------------
</TABLE>
4
<PAGE>
(1) Limited Partners' per Unit data is based on the weighted average number of
Units (40,000) outstanding during the year.
(2) Funds from operations is defined as income before loss on early
extinguishment of debt and gains or losses on disposition of real estate,
adjusted as follows: (i) plus depreciation and amortization and (ii) less
distributions (from operations) to minority interests in excess of minority
interest in income. FFO is a supplemental performance measure for equity
REITs used by industry analysts. FFO does not take into consideration
principal payments on debt, capital improvements, distributions and other
obligations of the Partnership. Accordingly, FFO is not a substitute for
the Partnership's net cash provided by operating activities or net income
as a measure of the Partnership's liquidity or operating performance.
(3) Unaudited.
(4) This per unit amount is unaudited and does not include an allocation of the
valuation amount for unrealized gains/(losses) on marketable securities.
HUGHES. Hughes is the chairman of the board, chief executive officer and
controlling shareholder of the Company. Hughes has a net worth in excess of $10
million.
THE COMPANY. The Company is a REIT, organized in 1980 as a corporation
under the laws of California, that has invested primarily in existing mini-
warehouses. The Company is the largest owner of mini-warehouses in the United
States. The Company has also invested to a much smaller extent in existing
business parks containing commercial and industrial rental space. At September
30, 1996, the Company had equity interests (through direct ownership, as well as
general and limited partnership interests and capital stock interests) in 1,072
properties located in 37 states, consisting of 1,037 mini-warehouse facilities
and 35 business parks. The Company's Common Stock (symbol "PSA") and ten series
of preferred stock are traded on the NYSE. Since November 1995, the Company has
been self-administered and self-managed through a merger with Public Storage
Management, Inc. ("PSMI"). At September 30, 1996, the Company had total assets,
total debt and total shareholders' equity of approximately $2.4 billion, $112.6
million and $2.1 billion, respectively. The Company has an option to purchase
from Hughes Units tendered in the Offer at his cost after 12 months from the
Expiration Date. The Company also has an option to purchase from Hughes his
interests in partnerships (and REITs), including Units in the Partnership.
The Company's principal executive offices are located at 701 Western
Avenue, Suite 200, Glendale, California 91201-2397. Its telephone number is
(818) 244-8080.
Additional information concerning the Company is set forth in the reports
on the Company, which may be obtained from the Company, the Commission, the NYSE
or the PSE, in the manner described on the inside front cover to this Offer to
Purchase.
PRIOR TENDER OFFER. In April 1995, the Company acquired in a tender offer
an aggregate of 16,292 Units at $250 per Unit.
RELATIONSHIPS. The following chart shows the relationships among the
Partnership, the Company and the General Partners. As reflected in the table
below, the Company is controlled by Hughes, its chairman of the board and chief
executive officer. Hughes and the Company are the General Partners of the
Partnership, the properties of which are also managed by the Company.
5
<PAGE>
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships among the Partnership, the
Company and Hughes: the Company is a general partner and the property manager of
the Partnership and owner of 32.4% of the Units in the Partnership; Hughes is a
general partner of the Partnership and owner of 15.8% of the Units in the
Partnership; Hughes owns 40.5% of the Company and Public Shareholders own 59.5%
of the Company.
SOLID LINES INDICATE OWNERSHIP INTERESTS AND BROKEN LINES INDICATE OTHER
RELATIONSHIPS.
Hughes = B. Wayne Hughes. Hughes, one of the General Partners, is the
chairman of the board and chief executive officer of the Company
and owner of 15.8% of the Units in the Partnership.
Partnership = Public Storage Properties IV, Ltd., a California limited
partnership.
Company = Public Storage, Inc., the Corporate General Partner and owner of
32.4% of the Units in the Partnership. Percentage of stock
ownership of the Company by Hughes represents percentage of
outstanding shares of Common Stock owned as of March 18, 1997,
by Hughes and members of his immediate family.
6
<PAGE>
PURPOSE OF THE OFFER. Hughes and the Company have been General Partners of
the Partnership since its organization in 1978. Accordingly, they are familiar
with the operations and prospects of the Partnership. In addition, Hughes and
the Company beneficially own 19,277 of the 40,000 outstanding Units in the
Partnership (48.2%). All of these Units have been acquired since May 1979 for
an aggregate purchase price of $4,702,386 in cash. Substantially all of these
Units were acquired directly from Unitholders, including 16,292 Units acquired
in a tender offer completed in April 1995 at $250 per Unit, and the balance
through secondary firms of the type described below under "Market Prices of
Units -- Information From The Stanger Report Regarding Sales Transactions." For
certain additional information on recent Company purchases of Units, see "Market
Prices of Units -- General."
Hughes has decided to increase his ownership of the Partnership and has
chosen to accomplish this through a tender offer on terms that he believes are
attractive to him. Hughes believes that he will benefit from ownership of Units
acquired in the Offer. Hughes believes that the acquisition of Units through
the Offer represents a good investment for him. Also, Unitholders who require
or desire liquidity are being offered the opportunity to receive cash for their
Units as an alternative to a possible third party tender offer for 4.9% of the
Units.
POSITION OF THE GENERAL PARTNERS WITH RESPECT TO THE OFFER
Since Hughes is a General Partner of the Partnership and there is no
independent general partner, no recommendation is made to any Unitholder to
tender or to refrain from tendering his or her Units. EACH UNITHOLDER MUST MAKE
HIS OR HER OWN DECISION WHETHER OR NOT TO TENDER, BASED UPON A NUMBER OF
FACTORS, INCLUDING THE UNITHOLDER'S FINANCIAL POSITION, INCLUDING NEED OR DESIRE
FOR LIQUIDITY, OTHER FINANCIAL OPPORTUNITIES AND TAX POSITION. The General
Partners believe that the Offer provides all Unitholders who require or desire
liquidity the opportunity to receive cash for their Units without paying the
fees or commissions often paid in connection with transactions through secondary
firms. Also, the Offer is an alternative to a possible third party tender offer
for 4.9% of the Units. See "Market Prices of Units."
The Offer Price is 10% less than the General Partners' estimate of the
liquidation value per Unit set forth under "Determination of Purchase Price."
Also, a tender of Units will result in a substantial taxable gain to a tendering
Unitholder unless it is a tax-exempt investor. Accordingly, the Offer may not
be advantageous to Unitholders who do not require or desire liquidity. However,
the General Partners have no present intention to seek the liquidation of the
Partnership because they believe that it is not an opportune time to sell mini-
warehouses and a sale could have adverse federal and state income tax
consequences to many Unitholders and the General Partners. The Partnership's
properties were originally developed in 1978-79 with the expectation that they
be sold or financed within seven to ten years. The Partnership generated
substantial cash distributions (approximately $678 per Unit) until its
properties were financed in 1988 and the financing proceeds distributed
(approximately $545 per Unit). Cash distributions were discontinued in 1991 to
enable the Partnership to increase its cash reserves in connection with
restructuring its property debt which matures in October 1998. In or prior to
October 1998 the Partnership would be required to refinance or sell its
properties. The Partnership has sought from time to time to restructure its
property debt. If restructured, the Partnership might be able to reinstate
distributions. There is no assurance that the debt will be restructured or that
distributions will be reinstated.
Although there can be no assurance, based on recently completed
environmental investigations, the Partnership is not aware of any environmental
contamination of its facilities material to its overall business or financial
condition. The Partnership's results of operation have improved over the last
several years and the General Partners believe that the Partnership's properties
have appreciated in value and may continue to do so, as a result of the decrease
in the level of new mini-warehouse construction from the peak levels of new
construction in 1984-1988. There can be no assurance, however, that the
improvement in property operations will continue or that the Partnership's
properties will continue to appreciate in value. EACH UNITHOLDER SHOULD
CAREFULLY REVIEW THE PARTNERSHIP'S FINANCIAL STATEMENTS AND MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
PARTNERSHIP INCLUDED AS SCHEDULES 3 AND 4, RESPECTIVELY, TO THIS OFFER TO
PURCHASE.
While the Offer presents each Unitholder with the opportunity to make an
individual decision on whether or not to dispose of his or her Units, a sale of
the properties and liquidation of the Partnership could result in a higher price
for Unitholders and a higher cost to the Company, a General Partner of the
Partnership, if the properties are sold to the Company. Under the Partnership
Agreement, a liquidation of the Partnership or a removal of the General Partners
can
7
<PAGE>
be initiated by limited partners and would require approval by holders of more
than 50% of the outstanding Units at a meeting or by written consent. See
"Special Considerations -- Alternatives to Tendering Units."
The General Partners will continue after the Offer to receive the same
share of distributions with respect to the Partnership that they received prior
to the Offer.
Since 1994 the Company has entered into merger agreements with 13
affiliated REITs under which the Company has acquired, or is acquiring, the
REITs' properties in transactions under which the REITs' shareholders were, or
are being, afforded, on a tax free basis, the opportunity to convert their
investment in the REITs into an investment in the Company, which generally owns
the same type of properties as the REITs. These merger agreements were
conditioned on approval by the respective REITs shareholders and satisfied the
obligation in all but one of the REITs' bylaws to present a proposal to its
shareholders for the sale or financing of its properties at a specified time.
The Company has also acquired properties from affiliated private partnerships,
which, unlike the Partnership, had little or no diversification because of the
small number of properties they owned.
The Company intends, from time to time, to acquire additional Units. The
Company has no present plans or intentions to engage in a "going private
transaction" with the Partnership, which is defined generally in the
Commission's rules as a merger or other extraordinary transaction between an
entity and its affiliates that reduces the number of security holders below 300.
The General Partners do not intend any material change in the
Partnership's operations after the Offer. However, the Company may at a later
time offer to acquire the Partnership's properties and the acquisition could
result in liquidation payments to Unitholders higher, or lower, than the Offer
Price. After the Offer, Hughes and the Company could own as much as 63.2% of
the Units and thus control a sale of the properties.
8
<PAGE>
DETERMINATION OF OFFER PRICE
The Offer Price has been established by Hughes and is not the result of
arm's length negotiations. The Offer Price represents 90% of the General
Partners' estimate of the liquidation value per Unit. The General Partners'
estimate of the liquidation value per Unit is based on their own analysis of the
Partnership.
The General Partners have estimated the liquidation value per Unit ($497)
as follows: (i) computed the estimated value of the operating facilities by
applying to the Partnership's property net operating income (12 months ended
December 31, 1996) before non-recurring charges and after certain property tax
adjustments, as reduced for capital expenditures (3.5% of rental income), a
capitalization rate of 9.75%, (ii) reduced the valuation by estimated sales
expenses of 5%, (iii) added the Partnership's other net assets as of September
30, 1996 (consisting primarily of cash and shares of Company common stock using
a market price of $27 per share), (iv) deducted the Partnership's mortgage debt,
including a prepayment penalty of $2,069,000, (v) allocated the Partnership's
net assets between the limited partners (74.17%) and the General Partners
(25.83%) in accordance with the Partnership Agreement and (vi) divided the
limited partners' share by the number of outstanding Units.
The capitalization rate used by the General Partners in estimating the
liquidation value per Unit is within the range of capitalization rates observed
by them in other sales transactions during 1996. An actual sale of the
Partnership's properties would likely result in a higher or lower liquidation
value per Unit. In arriving at the Offer Price, the estimated liquidation value
per Unit was reduced by 10% to reflect ongoing Partnership administrative
expenses and lack of liquidity of the Units.
THE OFFER
TERMS OF THE OFFER. Upon the terms and subject to the conditions set forth
in this Offer to Purchase and in the related Letter of Transmittal (which
together constitute the "Offer") (including, if the Offer is extended or
amended, the terms of any such extension or amendment), Hughes will accept for
payment and pay for up to 6,000 Units validly tendered on or prior to the
Expiration Date and not withdrawn in accordance with the Offer. The term
"Expiration Date" shall mean 5:00 P.M., New York City time, on April 21, 1997,
unless and until Hughes in his sole discretion shall have extended the period of
time for which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date on which the Offer, as so extended by
Hughes, shall expire. Unitholders who tender their Units will not be obligated
to pay partnership transfer fees or commissions.
The Offer Price is $447 per Unit.
The Offer is conditioned on satisfaction of certain conditions as set forth
herein. Hughes reserves the right (but shall not be obligated), in his
reasonable discretion, to waive any or all of such conditions. If, by the
Expiration Date, any or all of such conditions have not been satisfied or
waived, Hughes reserves the right (but shall not be obligated) to (i) decline to
purchase any of the Units tendered and terminate the Offer, (ii) waive all the
unsatisfied conditions and, subject to complying with applicable rules and
regulations of the Commission, purchase all Units validly tendered, (iii) extend
the Offer and, subject to the right of Unitholders to withdraw Units until the
Expiration Date, retain the Units that have been tendered during the period or
periods for which the Offer is extended or (iv) amend the Offer.
The Partnership has provided Hughes the list of Unitholders for the purpose
of disseminating the Offer. Unitholders whose Units are accepted for payment in
the Offer will not receive any cash distributions payable after the Expiration
Date.
Hughes and the Company collectively beneficially own 19,277, or
approximately 48.2%, of the outstanding Units.
PRORATION; ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS. If the number of
Units validly tendered prior to the Expiration Date and not withdrawn is not
more than 6,000, Hughes, upon the terms and subject to the conditions of the
Offer, will accept for payment all Units so tendered.
9
<PAGE>
If the number of Units validly tendered and not withdrawn prior to the
Expiration Date is more than 6,000 Units, Hughes, upon the terms and subject to
the conditions of the Offer, will accept for payment only 6,000 Units, with such
Units purchased on a pro rata basis. If proration would result in a Unitholder
owning less than five Units, Hughes will not accept any Units tendered by such
Unitholder in the Offer.
If proration of tendered Units is required, because of the difficulty of
determining the number of Interests validly tendered and not withdrawn, Hughes
may not be able to announce the final results of such proration until at least
approximately seven business days after the Expiration Date. Subject to Hughes'
obligation under Rule 14e-1(c) under the Exchange Act to pay Unitholders the
Offer Price in respect of Units tendered or return those Units promptly after
the termination or withdrawal of the Offer, Hughes does not intend to pay for
any Units accepted for payment pursuant to the Offer until the final proration
results are known. Notwithstanding any such delay in payment, no interest will
be paid on the Offer Price.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), Hughes will accept for payment, and will pay for, Units validly
tendered and not withdrawn in accordance with the Offer, as promptly as
practicable following the Expiration Date. In all cases, payment for Units
purchased pursuant to the Offer will be made only after timely receipt by the
Depositary of a properly completed and duly executed Letter of Transmittal and
any other documents required by the Letter of Transmittal.
For purposes of the Offer, Hughes shall be deemed to have accepted for
payment (and thereby purchased) tendered Units when, as and if Hughes gives oral
or written notice to the Depositary of Hughes' acceptance for payment of such
Units pursuant to the Offer. Upon the terms and subject to the conditions of
the Offer, payment for Units purchased pursuant to the Offer will in all cases
be made by deposit of the purchase price with the Depositary, which will act as
agent for the tendering Unitholders for the purpose of receiving payment from
Hughes and transmitting payment to tendering Unitholders. Under no
circumstances will interest be paid on the purchase price by reason of any delay
in making such payment.
If any tendered Units are not accepted for payment pursuant to the terms
and conditions of the Offer, the Letter of Transmittal with respect to such
Units not purchased will be destroyed by the Depositary. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units tendered
pursuant to the Offer is delayed or Hughes is unable to accept for payment,
purchase or pay for Units tendered pursuant to the Offer, then, without
prejudice to Hughes' rights under the Offer (but subject to compliance with Rule
14e-1(c) under the Exchange Act), the Depositary may, nevertheless, on behalf of
Hughes, retain tendered Units, subject to any limitations of applicable law, and
such Units may not be withdrawn except to the extent that the tendering
Unitholders are entitled to withdrawal rights as described in the Offer.
If, prior to the Expiration Date, Hughes shall increase the consideration
offered to Unitholders pursuant to the Offer, such increased consideration shall
be paid for all Units accepted for payment pursuant to the Offer, whether or not
such Units were tendered prior to such increase.
Hughes reserves the right to transfer or assign, at any time and from time
to time, in whole or in part, without notice to Unitholders to one or more
affiliates or family members, the right to purchase Units tendered pursuant to
the Offer, but no such transfer or assignment will relieve Hughes of his
obligations under the Offer or prejudice the rights of tendering Unitholders to
receive payment for Units validly tendered and accepted for payment pursuant to
the Offer.
PROCEDURES FOR TENDERING UNITS. For Units to be validly tendered pursuant
to the Offer, a properly completed and duly executed Letter of Transmittal, and
any other documents required by the Letter of Transmittal must be received by
the Depositary at its address set forth on the back cover of this Offer to
Purchase on or prior to the Expiration Date.
In order for a tendering Unitholder to participate in the Offer, Units must
be validly tendered and not withdrawn prior to the Expiration Date, which is
5:00 P.M., New York City time, on April 21, 1997 (unless extended).
10
<PAGE>
The method of delivery of the Letter of Transmittal and all other required
documents is at the option and risk of the tendering Unitholder, and delivery
will be deemed made only when actually received by the Depositary. If delivery
is by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
By executing a Letter of Transmittal as set forth above, a tendering
Unitholder irrevocably appoints Hughes' designees as such Unitholder's proxies,
in the manner set forth in the Letter of Transmittal, each with full power of
substitution, to the full extent of such Unitholder's rights with respect to the
Units tendered by such Unitholder and accepted for payment by Hughes. Such
appointment will be effective when, and only to the extent that, Hughes accepts
such Units for payment. Upon such acceptance for payment, (i) all prior proxies
given by such Unitholder with respect to such Units will, without further
action, be revoked, (ii) no subsequent proxies may be given (and if given will
not be effective) and (iii) the designees of Hughes will, with respect to such
Units, be empowered to exercise all voting and other rights of such Unitholder
as they in their sole discretion may deem proper at any meeting of Unitholders,
by written consent or otherwise. Hughes reserves the right to require that, in
order for Units to be deemed validly tendered, immediately upon Hughes'
acceptance for payment of such Units, Hughes must be able to exercise full
voting and other rights as a record and beneficial owner with respect to such
Units, including voting at any meeting of Unitholders or action by written
consent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of Units pursuant to the
procedures described above will be determined by Hughes, in his sole discretion,
which determination shall be final and binding. Hughes reserves the absolute
right to reject any or all tenders if not in proper form or if the acceptance
of, or payment for, the Units tendered may, in the opinion of Hughes' counsel,
be unlawful. Hughes also reserves the right to waive any defect or irregularity
in any tender with respect to any particular Units of any particular Unitholder,
and Hughes' interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the Instructions thereto) will be final and
binding. Neither Hughes, the Depositary nor any other person will be under any
duty to give notification of any defects or irregularities in the tender of any
Units or will incur any liability for failure to give any such notification.
A tender of Units pursuant to any of the procedures described above will
constitute a binding agreement between the tendering Unitholder and Hughes upon
the terms and subject to the conditions of the Offer, including the tendering
Unitholder's representation and warranty that such Unitholder owns the Units
being tendered.
WITHDRAWAL RIGHTS. Except as otherwise provided in the Offer, all tenders
of Units pursuant to the Offer are irrevocable, provided that Units tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment as provided in this Offer to
Purchase, may also be withdrawn at any time after May 20, 1997.
For withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at the address set forth
on the back cover of this Offer to Purchase. Any such notice of withdrawal must
specify the name of the person who tendered the Units to be withdrawn and must
be signed by the person(s) who signed the Letter of Transmittal in the same
manner as the Letter of Transmittal was signed. The signature(s) on the notice
of withdrawal must be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program).
If purchase of, or payment for, Units is delayed for any reason or if
Hughes is unable to purchase or pay for Units for any reason, without prejudice
to Hughes' rights under the Offer, tendered Units may be retained by the
Depositary on behalf of Hughes and may not be withdrawn except to the extent
that tendering Unitholders are entitled to withdrawal rights as set forth
herein, subject to Rule 14e-1(c) under the Exchange Act, which provides that no
person who makes a tender offer shall fail to pay the consideration offered or
return the securities deposited by or on behalf of security holders promptly
after the termination or withdrawal of the tender offer.
All questions as to the form and validity (including timeliness of receipt)
of notices of withdrawal will be determined by Hughes, in his sole discretion,
which determination shall be final and binding. Neither Hughes, the
11
<PAGE>
Depositary, nor any other person will be under any duty to give notification of
any defects or irregularities in any notice of withdrawal or will incur any
liability for failure to give any such notification.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of the Offer. Withdrawn Units may be re-tendered, however, by
following any of the procedures described in the Offer at any time prior to the
Expiration Date.
EXTENSION OF TENDER PERIOD; TERMINATION AND AMENDMENT. Hughes expressly
reserves the right, in his sole discretion, at any time and from time to time,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of, and the payment for, any Units by giving oral
or written notice of such extension to the Depositary (during any such extension
all Units previously tendered and not withdrawn will remain subject to the
Offer), (ii) to terminate the Offer and not accept for payment any Units not
theretofore accepted for payment or paid for, by giving oral or written notice
of such termination to the Depositary, (iii) upon the occurrence of any of the
conditions specified in the Offer, delay the acceptance for payment of, or
payment for, any Units not theretofore accepted for payment or paid for, by
giving oral or written notice of such termination or delay to the Depositary and
(iv) to amend the Offer in any respect (including, without limitation, by
increasing or decreasing the consideration offered or the number of Units being
sought in the Offer or both) by giving oral or written notice of such amendment
to the Depositary. Any extension, termination or amendment will be followed as
promptly as practicable by public announcement, the announcement in the case of
an extension to be issued no later than 9:00 a.m., Eastern time, on the next
business day after the previously scheduled Expiration Date, in accordance with
the public announcement requirement of Rule 14d-4(c) under the Exchange Act.
Without limiting the manner in which Hughes may choose to make any public
announcement, except as provided by applicable law (including Rule 14d-4(c)
under the Exchange Act), Hughes will have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by issuing a
release to the Dow Jones News Service. Hughes may also be required by
applicable law to disseminate to Unitholders certain information concerning the
extensions of the Offer and any material changes in the terms of the Offer.
If Hughes extends the Offer, or if Hughes (whether before or after his
acceptance for payment of Units) is delayed in his payment for Units or is
unable to pay for Units pursuant to the Offer for any reason, then, without
prejudice to Hughes' rights under the Offer, the Depositary may retain tendered
Units on behalf of Hughes, and such Units may not be withdrawn except to the
extent tendering Unitholders are entitled to withdrawal rights as described in
the Offer. However, the ability of Hughes to delay payment for Units that
Hughes has accepted for payment is limited by Rule 14e-1(c) under the Exchange
Act, which requires that Hughes pay the consideration offered or return the
securities deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If Hughes makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Hughes will extend the Offer to comply with the Commission's interpretations of
Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during
which an offer must remain open following a material change in the terms of the
offer or information concerning the offer, other than a change in price,
percentage of securities sought or the soliciting agent's fee, will depend upon
the facts and circumstances, including the relative materiality of the change in
the terms or information. (In the Commission's view, an offer should remain
open for a minimum of five business days from the date such material change is
first published, sent or given to security holders.) With respect to a change
in price, percentage of securities sought or the soliciting agent's fee,
however, a minimum ten business day period is required to allow for adequate
dissemination to security holders and for investor response.
Following the termination of the Offer, Hughes may make an offer for Units
not tendered in this Offer, which may be on terms similar or different from
those described in the Offer. There is no assurance that, following the
Expiration Date, Hughes will make another offer for Units not tendered in the
Offer.
SOURCE OF FUNDS. Hughes expects that approximately $2,772,000 is necessary
to consummate the Offer, including related fees and expenses, assuming all 6,000
Units are tendered and accepted for payment. These funds will be available from
Hughes' available funds or from borrowings under Hughes' $40,000,000 credit
facility with Wells Fargo Bank, National Association. The credit facility is
secured by marketable securities. The credit facility bears interest, at
Hughes' option, either at the prime rate or LIBOR plus 1 1/2%. Hughes intends
to repay amounts borrowed under this facility from his cash flow.
12
<PAGE>
CONDITIONS OF THE OFFER. The obligation of Hughes to complete the purchase
of tendered Units is subject to each and all of the following conditions which,
in the reasonable judgment of Hughes with respect to each and every matter
referred to below and regardless of the circumstances (including any action or
inaction by Hughes) giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for purchase:
(a) There shall not be threatened, instituted or pending any action or
proceeding before any domestic or foreign court or governmental agency or
other regulatory or administrative agency or commission (i) challenging the
acquisition by Hughes of the Units, seeking to restrain or prohibit the
making or consummation of the Offer, seeking to obtain any material damages
or otherwise directly or indirectly relating to the transactions
contemplated by the Offer, (ii) seeking to prohibit or restrict Hughes'
ownership or operation of any material portion of Hughes' business or
assets, or to compel Hughes to dispose of or hold separate all or any
material portion of his business or assets as a result of the Offer, (iii)
seeking to make the purchase of, or payment for, some or all of the Units
illegal, (iv) resulting in a delay in the ability of Hughes to accept for
payment or pay for some or all of the Units, (v) imposing material
limitations on the ability of Hughes effectively to acquire or hold or to
exercise full rights of ownership of the Units, including, without
limitation, the right to vote the Units purchased by Hughes on all matters
properly presented to limited partners of the Partnership, (vi) which, in
the reasonable judgment of Hughes, could materially and adversely affect
the treatment of the Offer for federal income tax purposes, (vii) which
otherwise is reasonably likely to materially adversely affect the
Partnership or the value of the Units or (viii) which imposes any material
condition unacceptable to Hughes;
(b) No statute, rule, regulation or order shall be enacted,
promulgated, entered or deemed applicable to the Offer, no legislation
shall be pending and no other action shall have been taken, proposed or
threatened by any domestic government or governmental authority or by any
court, domestic or foreign, which, in the reasonable judgment of Hughes, is
likely, directly or indirectly, to result in any of the consequences
referred to in paragraph (a) above; and
(c) There shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war,
armed hostilities or other international or national calamity materially
affecting the United States, (iv) any limitation by any governmental
authority or any other event which is reasonably likely to affect the
extension of credit by banks or other leading institutions in the United
States, (v) any material decline in security prices on the NYSE or (vi) in
the case of any of the foregoing existing at the time of the Offer, any
material worsening thereof.
The foregoing conditions are for the reasonable benefit of Hughes. The
conditions may be waived by Hughes at any time and from time to time in his
reasonable discretion. Any determination by Hughes will be final and binding on
all parties. If any such conditions are waived, the Offer will remain open for
a minimum of five business days from the date notice of such waiver is first
published, sent or given to Unitholders.
FEES AND EXPENSES. Hughes has retained The First National Bank of Boston
to act as Depositary in connection with the Offer. Hughes will pay the
Depositary reasonable and customary compensation for its services. Hughes will
indemnify the Depositary against certain liabilities and expenses in connection
therewith, including liabilities under the federal securities laws. Hughes will
also pay all costs and expenses of printing and mailing the Offer.
Assuming all 6,000 Units are tendered and accepted for payment, expenses of
the Offer (exclusive of the purchase price of the Units) are estimated at
$90,000, including: legal and accounting fees and expenses ($10,000), printing
($4,700), filing fees ($500), Depositary Agent fees and expenses ($8,000),
Soliciting Agent fees ($54,000), distribution of Offer materials ($5,000) and
miscellaneous ($7,800).
SOLICITING AGENT. Hughes has retained Christopher Weil & Company, Inc., a
registered broker dealer, to answer questions and solicit responses to this
transaction and will pay Christopher Weil & Company, Inc. 2% of the Offer Price
for each Unit tendered and accepted by Hughes. In addition, Christopher Weil &
Company, Inc. will be indemnified against certain liabilities, including
liabilities under the federal securities laws. Christopher Weil & Company, Inc.
has
13
<PAGE>
acted in a similar capacity in connection with other tender and exchange offers
by the Company and in soliciting consents from the limited partners of other
partnerships sponsored by the General Partners and their affiliates.
DISSENTERS' RIGHTS AND INVESTOR LISTS. Neither the Partnership Agreement
nor California law provides any right for Unitholders to have their respective
Units appraised or redeemed in connection with or as a result of the Offer.
Each Unitholder has the opportunity to make an individual decision on whether or
not to tender in the Offer. Under the Partnership Agreement, any Unitholder is
entitled (i) upon request, to obtain a list of the limited partners in the
Partnership, at the expense of the Partnership and (ii) upon reasonable request,
to inspect and copy, at his or her expense and during normal business hours, the
books and records of the Partnership.
FEDERAL INCOME TAX CONSEQUENCES. The sale of Units for cash will be
treated for federal income tax purposes as a taxable sale of the Units
purchased. The particular tax consequences of the tender for a Unitholder will
depend upon a number of factors related to that Unitholder's tax situation,
including the Unitholder's tax basis in his or her Units, and whether the
Unitholder will be able to utilize currently any capital losses that result from
the sale in the Offer. The General Partners anticipate that Unitholders who
acquired their Units in an early closing of the original offering and who sell
their Units in the Offer will generally recognize a capital gain of
approximately $400 per Unit as a result of the sale (assuming a sale effective
at the beginning of the second quarter of 1997 based on an estimate of the
Partnership's 1996 and 1997 income). The tax impact, however, could be quite
different for Unitholders who acquired their Units at a different time. To the
extent a Unitholder recognizes a capital loss on the sale of all Units, such
loss can be applied to offset capital gains from other sources. (Losses from a
sale of less than all of the Units that a Unitholder is deemed to own may be
subject to limitation under the passive loss rules.) In addition, individuals
may use such capital losses in excess of capital gains to offset up to $3,000 of
ordinary income in any single year ($1,500 for a married individual filing a
separate return). Any such capital losses that are not used currently can be
carried forward and used in subsequent years. A corporation's capital losses in
excess of current capital gains generally may be carried back three years, with
any remaining unused portion available to be carried forward for five years.
BECAUSE THE INCOME TAX CONSEQUENCES OF A TENDER OF UNITS WILL NOT BE THE SAME
FOR ALL UNITHOLDERS, UNITHOLDERS CONSIDERING TENDERING THEIR UNITS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX
SITUATIONS.
MISCELLANEOUS. THE OFFER IS BEING MADE TO ALL UNITHOLDERS, PROVIDED,
HOWEVER, THAT THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF) UNITHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. HUGHES IS NOT AWARE OF ANY JURISDICTION WITHIN THE UNITED STATES
IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD BE ILLEGAL.
HOWEVER, IF ANY SUCH JURISDICTION EXISTS, HUGHES MAY IN HIS DISCRETION TAKE SUCH
ACTIONS AS IT MAY DEEM NECESSARY TO MAKE THE OFFER IN SUCH JURISDICTION.
FOLLOWING THE TERMINATION OF THE OFFER, HUGHES AND/OR THE COMPANY MAY MAKE
AN OFFER FOR UNITS NOT TENDERED IN THIS OFFER, WHICH MAY BE ON TERMS SIMILAR OR
DIFFERENT FROM THOSE DESCRIBED IN THE OFFER. THERE IS NO ASSURANCE THAT,
FOLLOWING THE EXPIRATION DATE, HUGHES AND/OR THE COMPANY WILL MAKE ANOTHER OFFER
FOR UNITS NOT TENDERED IN THE OFFER.
EFFECTS OF OFFER ON NON-TENDERING UNITHOLDERS
CONTROL OF THE PARTNERSHIP. After the Offer, Hughes and the Company will
be in a position to control the vote of the limited partners. See "Special
Considerations -- Control of all Partnership Voting Decisions by Hughes and the
Company."
EFFECT ON TRADING MARKET. There is no established public trading market
for the Units, and, therefore, a reduction in the number of Unitholders should
not materially further restrict the Unitholders' ability to find purchasers for
their Units. See "Market Prices of Units" for certain limited information
regarding secondary sales of the Units.
14
<PAGE>
PARTNERSHIP STATUS. The General Partners believe the purchase of Units by
Hughes, as proposed, should not adversely affect the issue of whether the
Partnership is classified as a partnership for federal income tax purposes.
PARTNERSHIP BUSINESS. The Offer will not materially affect the operation
of the properties owned by the Partnership since the properties will continue to
be managed by the Company.
Although after the Offer Hughes and/or the Company may acquire
additional Units thereby increasing its ownership position in the Partnership,
the General Partners have no present plans or intentions with respect to the
Partnership for a liquidation, a merger, a sale or purchase of material assets
or borrowings and no Partnership assets have been identified for sale or
financing.
15
<PAGE>
MARKET PRICES OF UNITS
GENERAL. The Units are not listed on any national securities exchange or
quoted in the over the counter market, and there is no established public
trading market for the Units. Secondary sales activity for the Units has been
limited and sporadic. The General Partners monitor transfers of the Units (i)
because the admission of the transferee as a substitute limited partner
requires the consent of the General Partners under the Partnership Agreement,
(ii) in order to track compliance with safe harbor provisions to avoid treatment
as a "publicly traded partnership" for tax purposes and (iii) because the
General Partners have purchased Units. However, the General Partners do not
have information regarding the prices at which all secondary sales transactions
in the Units have been effectuated. Various organizations offer to purchase and
sell limited partnership interests (such as the Units) in secondary sales
transactions. Various publications such as The Stanger Report summarize and
report information (on a monthly, bimonthly or less frequent basis) regarding
secondary sales transactions in limited partnership interests (including the
Units), including the prices at which such secondary sales transactions are
effectuated.
The General Partners estimate, based solely on the transfer records of the
Partnership and the Partnership's transfer agent, that the number of Units
transferred in sales transactions (i.e., excluding transactions believed to be
between related parties, family members or the same beneficial owner) was as
follows:
<TABLE>
<CAPTION>
Number of Total Percentage of Number of
Year Units Transferred(1) Units Outstanding Transactions(1)
- ----------- -------------------- ----------------- ---------------
<S> <C> <C> <C>
1994 1,494(2) 3.73% 101(2)
1995 17,572(3)(4) 43.93% 1,209(3)(4)
1996 1,175(5)(6)(7)(8) 2.94% 68(5)(6)(7)(8)
</TABLE>
- ---------------
(1) Transfers are recorded quarterly on the Partnership's records, as of the
first day following each calendar quarter.
(2) In 1994, the Company purchased 957 Units in 44 transactions: 70 Units at
$69.00 per Unit (January 1), 10 Units at $75.00 per Unit (January 1), 25
Units at $183.00 per Unit (January 1), 20 Units at $75.00 per Unit (April
1), 221 Units at $120.00 per Unit (April 1), 70 Units at $183.00 per Unit
(April 1), 56 Units at $120.00 per Unit (July 1), 267 Units at $183.00 per
Unit (July 1), 10 Units at $135.00 per Unit (October 1), 60 Units at $150.00
per Unit (October 1), 34 Units at $155.00 per Unit (October 1), 10 Units at
$160.00 per Unit (October 1), 25 Units at $165.00 per Unit (October 1) and
79 Units at $183.00 per Unit (October 1).
(3) In 1995, the Company purchased 775 Units in 47 transactions: 25 Units at
$135.00 per Unit (January 1), 5 Units at $140.00 per Unit (January 1), 10
Units at $141.00 per Unit (January 1), 12 Units at $183.00 per Unit (January
1), 10 Units at $183.00 per Unit (April 1), 10 Units at $183.01 per Unit
(April 1), 509 Units at $250.00 per Unit (July 1) and 194 Units at $250.00
per Unit (October 1),
(4) In 1995, the Company accepted for purchase 16,292 Units tendered in response
to the Company's cash tender offer at $250.00 per Unit.
(5) On January 1, 1996, the Company purchased 85 Units in seven transactions:
10 Units at $246.75 per Unit and 75 Units at $250.00 per Unit.
(6) On April 1, 1996, the Company purchased 408 Units in 31 transactions at
$250.00 per Unit.
(7) On July 1, 1996, the Company purchased 130 Units in nine transactions: 10
Units at $255.14 per Unit, 5 Units at $255.00 per Unit and 115 Units at
$250.00 per Unit.
(8) On October 1, 1996, Hughes purchased 420 Units in nine transactions: 240
Units at $250.00 per Unit, 130 Units at $255.00 per Unit and 50 Units at
$300.00 per Unit.
All of the purchases of Units described in notes (2), (3) (5), (6), (7) and
(8) above were acquired directly from Unitholders or through secondary firms of
the type described below under "Information From The Stanger Report Regarding
Sales Transactions."
16
<PAGE>
INFORMATION OBTAINED FROM DEAN WITTER REGARDING SALES TRANSACTIONS. Dean
Witter Reynolds Inc. ("Dean Witter") was the dealer-manager for the
Partnership's initial offering of Units. Set forth below is information
obtained from Dean Witter on the high and low sale price per Unit for sale
transactions during each quarter of 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Per Unit Transaction Price (1)(2)
Number
Number of Units
High Low of Sales(2) Sold(2)
---- ---- ----------- --------
<S> <C> <C> <C> <C>
1994
First Quarter -- -- -- --
Second Quarter -- -- -- --
Third Quarter -- -- -- --
Fourth Quarter -- -- -- --
1995
First Quarter -- -- -- --
Second Quarter -- -- -- --
Third Quarter -- -- -- --
Fourth Quarter -- -- -- --
1996
First Quarter -- -- -- --
Second Quarter -- -- -- --
Third Quarter -- -- -- --
Fourth Quarter -- -- -- --
</TABLE>
- ---------------
(1) The original purchase price was $500 per Unit.
(2) This information was compiled by Dean Witter in the ordinary course based
upon reports made of negotiated sales. The price information represents the
prices reported to have been paid by the buyers to the sellers net of
commissions.
INFORMATION FROM THE STANGER REPORT REGARDING SALES TRANSACTIONS. The
information set forth below is extracted from sections of the June 1994,
September 1994, December 1994, March 1995, June 1995, September 1995, December
1995, March 1996, June 1996 and Fall 1996 issues of The Stanger Report captioned
"Limited Partnership Secondary-Market Prices" and additional information
provided to the General Partners by Robert A. Stanger & Co., Inc. ("Stanger").
Those publications (the "Stanger Publications") and the additional information
provided by Stanger summarized secondary market prices for public limited
partnerships based on actual transactions during the reporting periods listed on
the tables below. The following secondary-market firms provided high and low
price data to The Stanger Report for some or all of the reporting periods: 2nd
Market Capital Service - (800) 999-7793/(608) 833-7793, American Partnership
Services - (800) 736-9797/(801) 756-1166, Bigelow Management, Inc. - (800) 431-
7811/(212) 697-5880, Chicago Partnership Board - (800) 272-6273/(312) 332-4100,
Cuyler & Associates - (800) 274-9991/(602) 596-0120, DCC Securities Corp. -
(800) 945-0440/(212) 370-1090, Empire Securities - (805) 943-0950, EquityLine
Properties - (800) 327-9990/(305) 670-9700, Equity Resources Group - (671) 876-
4800, Fox & Henry, Inc. - (708) 325-4445, Frain Asset Management - (800) 654-
6110, Joseph Charles & Assoc., Inc. - (800) 526-1763, Liquidity Fund - (800)
833-3360, MacKenzie-Patterson Securities - (800) 854-8357/(510) 631-9100,
Murillo Company - (800) 275-9626/(805) 327-9626, Nationwide Partnership
Marketplace - (800) 969-8996/(415) 382-3555, New York Partnership Exchange -
(800) 444-7357/(813) 955-8816, Pacific Partnership Group - (800) 727-7244/(602)
957-3050, Partnership Service Network -(800) 483-0776/(813) 588-0776,
Partnership Exchange Securities Company - (800) 736-9797/(510) 763-5555, Raymond
James & Associates - (800) 248-8863, The Partnership Marketing Company - (707)
824-8600, Secondary Income Funds -(708) 325-4445, Securities Planners, Inc. -
(800) 747-0088 and Sunpoint Securities, Inc. - (813) 588-0776. IN EVALUATING
WHETHER OR NOT TO TENDER THEIR UNITS IN THE OFFER, UNITHOLDERS MAY WISH TO
CONTACT THESE FIRMS OR OTHER FIRMS INVOLVED IN SECONDARY SALES OF INTERESTS IN
LIMITED PARTNERSHIPS.
17
<PAGE>
The information regarding sale transactions in Units from the Stanger
Publications and Stanger is as follows:
<TABLE>
<CAPTION>
Reporting period Per Unit Transaction Price(1)
---------------- ------------------------------
High Low No. of Units(2)
---------------- ----------- ------------------
<S> <C> <C> <C>
1994
- ----
January 1 - March 31 $120.00 $ 75.01 190
April 1 - June 30 120.00 113.00 92
July 1 - September 30 160.00 75.00 134
October 1 - October 31(3) 140.00 110.00 70
October 31 - December 31 183.00 110.00 216
1995
- ----
January 1 - March 31 185.00 135.00 60
April 1 - June 30 250.00 250.00 20
July 1 - September 30 250.00 250.00 50
October 1 - December 31 250.00 140.00 25
1996
- ----
January 1 - March 31 225.00 225.00 12
April 1 - June 30 255.14 150.00 47
July 1 - September 30 305.00 225.00 25
October 1 - December 31(3) 305.00 225.00 34
</TABLE>
_________________
(1) The original purchase price was $500 per Unit. The General Partners do not
know whether the transaction prices shown are before or after commissions.
(2) The General Partners do not know the number of transactions.
(3) Based on information provided by Stanger.
The information from The Stanger Report contained above is provided without
verification by the General Partners and is subject to the following
qualifications in The Stanger Report: "Limited partnerships are designed as
illiquid, long-term investments. Secondary-market prices generally do not
reflect the current value of partnership assets, nor are they indicative of
total return since prior cash distributions and tax benefits received by the
original investor are not reflected in the price. Transaction prices are not
verified by Robert A. Stanger & Co."
INFORMATION FROM THE CHICAGO PARTNERSHIP BOARD REGARDING SALES
TRANSACTIONS. According to the Chicago Partnership Board, Inc. ("CPB"), an
auctioneer for limited partnership interests, the amounts paid by buyers for
Units in transactions executed by CPB ranged from $255 to $305 per Unit during
the period February 21, 1996 to February 21, 1997 with an ending transaction
price of $305.
According to CPB, all prices are amounts paid by buyers and, due to
transaction costs, mark-ups and general partner imposed transfer fees, sellers
typically receive a lesser amount.
No assurances can be given that the above prices represent the true value
of Units.
18
<PAGE>
CERTAIN RELATED TRANSACTIONS
GENERAL PARTNERS' INTEREST. The Company and Hughes are General Partners of
the Partnership. The Company receives incentive distributions equal to 25% of
the Partnership's cash available for distribution (operating cash flow, plus net
proceeds from sale or financing of property). The General Partners also have a
1.1% interest in the Partnership in respect of their capital contributions and
participate in Partnership distributions in proportion to their interest in the
Partnership.
PROPERTY MANAGEMENT. The Partnership's properties are managed by the
Company pursuant to management agreements under which the property managers
receive 6% of gross revenues from operations of the mini-warehouses properties.
In 1993, 1994 and 1995 (exclusive of the prepayment described below), the
property managers received $389,000, $418,000 and $423,000, respectively, from
the Partnership.
In November 1995, the Management Agreement was amended to provide that upon
demand from PSI or PSMI made prior to December 15, 1995, the Partnership agreed
to prepay (within 15 days after such demand) up to 12 months of management fees
(based on the management fees for the comparable period during the calendar year
immediately preceding such prepayment) discounted at the rate of 14% per year to
compensate for early payment. In December 1995, the Partnership prepaid, to
PSI, eight months of 1996 management fees at a cost of $265,000.
LIMITED PARTNER INTERESTS. Of the 40,000 outstanding Units, 19,277 (48.2%)
are beneficially owned by Hughes and the Company. All of these Units have been
acquired since May 1979 for an aggregate purchase price of $4,702,386 in cash.
Substantially all of these Units were acquired directly from Unitholders,
including Units acquired in a tender offer completed in April 1995, and the
balance through secondary firms of the type described above under "Market Prices
of Units -- Information From The Stanger Report Regarding Sales Transactions."
An executive officer of the Company beneficially owns five Units. Hughes and
the Company participate in Partnership distributions on the same terms as other
Unitholders in respect of Units owned by Hughes and the Company. See
"Background and Purpose of the Offer --Relationships."
No person has been authorized to give any information or to make any
representation on behalf of the Company not contained herein or in the Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized.
/s/ B. Wayne Hughes
___________________________________
B. Wayne Hughes
March 21, 1997
19
<PAGE>
SCHEDULE 1
PARTNERSHIP DISTRIBUTIONS
PARTNERSHIP DISTRIBUTIONS. There have been no Partnership distributions
since 1991.
1-1
<PAGE>
SCHEDULE 2
PROPERTY INFORMATION
The following table sets forth information as of December 31, 1996, about
properties owned by the Partnership.
<TABLE>
<CAPTION>
Net Number
Size of Rentable of Completion
Location Parcel Area Spaces Date
-------- ------- -------- ------- ----------
<S> <C> <C> <C> <C>
CALIFORNIA
Azusa 5.85 acres 105,000 sq. ft. 941 November 1978
Concord 2.87 acres 52,000 sq. ft. 525 January 1979
Oakland 1.97 acres 41,000 sq. ft. 372 April 1979
Pasadena 1.82 acres 37,000 sq. ft. 338 November 1978
Redlands 3.44 acres 63,000 sq. ft. 580 February 1979
Richmond 1.82 acres 35,000 sq. ft. 352 March 1979
Riverside 2.47 acres 45,000 sq. ft. 392 May 1979
Sacramento 2.36 acres 41,000 sq. ft. 386 August 1979
Howe Avenue
Sacramento 3.38 acres 44,000 sq. ft. 463 June 1979
West Capitol
San Carlos 2.80 acres 51,000 sq. ft. 458 October 1979
Santa Clara 4.45 acres 75,000 sq. ft. 699 June 1979 and July 1981
Tustin 4.40 acres 67,000 sq. ft. 559 December 1978
FLORIDA
Miami 1.70 acres 29,000 sq. ft. 278 January 1979
Airport Expressway
Miami 4.00 acres 46,000 sq. ft. 477 April 1979 (originally)
Cutler Ridge October 1994 (rebuilt)
Pembroke Park 2.35 acres 49,000 sq. ft. 446 July 1979
Ft. Lauderdale 2.77 acres 45,000 sq. ft. 504 September 1979
I-95 & 23rd Ave.
Ft. Lauderdale 3.32 acres 56,000 sq. ft. 558 September 1979
I-95 & Sunrise
</TABLE>
The properties are held subject to encumbrances which are described in Note
7 of the Notes to the Financial Statements included in Schedule 3 to this Offer
to Purchase.
The weighted average occupancy levels for the mini-warehouse facilities
were 85% in 1995 and 1994. The monthly average realized rent per square foot
for the mini-warehouse facilities was $.78 in 1995 compared to $.84 in 1994.
2-1
<PAGE>
SUMMARY OF HISTORICAL INFORMATION RELATING TO PROPERTIES OF PUBLIC STORAGE
PROPERTIES IV, LTD.
RENTAL INCOME AND OPERATING EXPENSES BEFORE DEPRECIATION
(Does Not Reflect Capital Improvements)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Rental Income $7,423,000 $7,045,000
Operating Expenses 2,299,000 2,227,000
Excess of Rental Income over
Operating Expenses 5,124,000 4,818,000
</TABLE>
2-2
<PAGE>
SCHEDULE 3
PARTNERSHIP FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
References
----------
<S> <C>
Report of independent auditors.................................... F-1
Balance sheets at December 31, 1995 and 1994...................... F-2
For the years ended December 31, 1995, 1994 and 1993
Statements of income......................................... F-3
Statements of partners' deficit.............................. F-4
Statements of cash flows..................................... F-5
Notes to financial statements..................................... F-7
Condensed balance sheets at September 30, 1996 and
December 31, 1995............................................ F-11
Condensed statements of income for three and
nine months ended September 30, 1996 and 1995................ F-12
Condensed statement of partners' deficit for the
nine months ended September 30, 1996......................... F-13
Condensed statements of cash flows for the
nine months ended September 30, 1996 and 1995................ F-14
Notes to condensed financial statements........................... F-15
</TABLE>
3-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Public Storage Properties IV, Ltd.
We have audited the balance sheets of Public Storage Properties IV, Ltd., a
California limited partnership, as of December 31, 1995 and 1994 and the related
statements of income, partners' deficit, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties IV,
Ltd. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 27, 1996
Los Angeles, California
F-1
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 967,000 $ 551,000
Marketable securities of affiliate
(cost of $3,791,000 in 1995 and
$3,392,000 in 1994) (Note 2) 5,645,000 3,948,000
Rent and other receivables 100,000 88,000
Real estate facilities:
Buildings and equipment 15,015,000 14,703,000
Land 5,244,000 5,256,000
----------- ------------
20,259,000 19,959,000
Less accumulated depreciation (9,203,000) (8,461,000)
----------- ------------
11,056,000 11,498,000
----------- ------------
Other assets 599,000 420,000
----------- ------------
Total assets $18,367,000 $ 16,505,000
=========== ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 81,000 $ 48,000
Advances to reconstruct real estate facility - 237,000
Deferred revenue 244,000 292,000
Mortgage not payable 27,178,000 28,086,000
Partners' deficit:
Limited partners' deficit, $500 per unit, 40,000 units
authorized, issued and outstanding (8,152,000) (9,430,000)
General partners' deficit (2,838,000) (3,284,000)
Unrealized gain on marketable securities (Note 2) 1,854,000 556,000
----------- ------------
Total partners' deficit (9,136,000) (12,158,000)
----------- ------------
Total liabilities and partners' deficit $18,367,000 $ 16,505,000
=========== ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF INCOME
For the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $7,045,000 $6,659,000 $6,477,000
Dividends from marketable securities of affiliate 247,000 177,000 71,000
Other income 337,000 249,000 431,000
---------- ---------- ----------
7,629,000 7,085,000 6,979,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 1,804,000 1,626,000 1,639,000
Management fees paid to affiliate 423,000 418,000 389,000
Depreciation and amortization 742,000 692,000 648,000
Administrative 68,000 70,000 67,000
Environmental cost 26,000 - -
Interest expense 2,967,000 3,071,000 3,137,000
---------- ---------- ----------
6,030,000 5,877,000 5,880,000
---------- ---------- ----------
Income before gain on sale of land 1,599,000 - -
Gain on sale of land 125,000 - -
---------- ---------- ----------
NET INCOME $1,724,000 $1,208,000 $1,099,000
========== ========== ==========
Limited partners' share of net income ($42.60 per unit
in 1995, $29.88 per unit in 1994, and $27.18 per
unit in 1993) $1,704,000 $1,195,000 $1,087,000
General partners' share of net income 20,000 13,000 12,000
---------- ---------- ----------
$1,724,000 $1,208,000 $1,099,000
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Unrealized
Gain on Total
Limited General Marketable Partners
Partners Partners Securities Deficit
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $(11,142,000) $(3,879,000) $ - $(15,021,000)
Net income 1,087,000 12,000 - 1,099,000
Equity transfer (272,000) 272,000 - -
------------ ----------- ---------- ------------
Balance at December 31, 1993 (10,327,000) (3,595,000) - (13,922,000)
Unrealized gain on marketable
securities (Note 2) - - 556,000 556,000
Net income 1,195,000 13,000 - 1,208,000
Equity Transfer (298,000) 298,000 - -
------------ ----------- ---------- ------------
Balance at December 31, 1994 (9,430,000) (3,284,000) 556,000 (12,158,000)
Unrealized gain on marketable
securities (Note 2) - - 1,298,000 1,298,000
Net income 1,704,000 20,000 - 1,724,000
Equity transfer (426,000) 426,000 - -
------------ ----------- ---------- ------------
Balance at December 31, 1995 $ (8,152,000) $(2,838,000) $1,854,000 $ (9,136,000)
============ =========== ========== ============
</TABLE>
See accompanying notes
F-4
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,724,000 $ 1,208,000 $1,099,000
Adjustments to reconcile net income to cash provided
by operating activities:
Gain on sale of land (125,000) - -
Depreciation and amortization 742,000 692,000 648,000
(Increase) decrease in rent and other receivables (12,000) 62,000 (524,000)
(Increase) decrease in other assets (179,000) 86,000 26,000
Increase (decrease) in accounts payable 33,000 (485,000) (33,000)
Decrease in advances to reconstruct real estate facility (236,000) - -
Decrease in deferred revenue (48,000) (339,000) (5,000)
---------- ----------- ----------
Total adjustments 175,000 16,000 112,000
---------- ----------- ----------
Net cash provided by operating activities 1,899,000 1,224,000 1,211,000
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sale of land 137,000 - -
Insurance proceeds relating to damaged real
estate facility - 837,000 1,934,000
Purchase of marketable securities of affiliate (399,000) (1,907,000) (283,000)
Expenditures to reconstruct damaged real estate
facility (1,000) (1,415,000) (282,000)
Additions to real estate facilities (312,000) (327,000) (297,000)
---------- ----------- ----------
Net cash (used in) provided by investing activities (575,000) (2,812,000) 1,072,000
---------- ----------- ----------
Cash flows from financing activities:
Principal payments on mortgage note payable (908,000) (668,000) (601,000)
---------- ----------- ----------
Net cash used in financing activities (908,000) (668,000) (601,000)
---------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 416,000 (2,256,000) 1,682,000
Cash and cash equivalents at the beginning of the year 551,000 2,807,000 1,125,000
---------- ----------- ----------
Cash and cash equivalents at the end of the year $ 967,000 $ 551,000 $2,807,000
========== =========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994, and 1993
(Continued)
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Supplemental schedule of non-cash
investing and financing activities:
Increase in fair value of marketable
securities of affiliate $(1,298,000) $(556,000) $ -
=========== ========= =========
Unrealized gain on marketable
securities of affiliate $ 1,298,000 $ 556,000 $ -
=========== ========= =========
Increase in rent and other
receivables - insurance proceeds $ - $ - $(289,000)
=========== ========= =========
Increase in deferred revenue $ - $ - $ 289,000
=========== ========= =========
Increase in accounts payable -
purchase of marketable securities $ - $ - $ 470,000
=========== ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Description of Partnership
--------------------------
Public Storage Properties IV, Ltd. (the "Partnership") was formed with
the proceeds of a public offering. The general partners in the Partnership
are Public Storage, Inc., formerly known as Storage Equities, Inc. and B.
Wayne Hughes ("Hughes"). In 1995, there were a series of mergers among
Public Storage Management, Inc. (which was the Partnership's mini-warehouse
property operator), Public Storage, Inc. (which was one of the
Partnership's general partners) and their affiliates (collectively,
"PSMI"), culminating in the November 16, 1995 merger of PSMI into Storage
Equities, Inc., a real estate investment trust listed on the New York Stock
Exchange. In the PSMI merger, Storage Equities, Inc.'s name was changed to
Public Storage, Inc. ("PSI") and PSI became a co-general partner of the
Partnership and the operator of the Partnership's mini-warehouse
properties.
2. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
Basis of Presentation
---------------------
Certain prior years amounts have been reclassified to conform with the
1995 presentation.
Mini-Warehouse Facilities
-------------------------
Cost of land includes appraisal fees and legal fees related to
acquisition and closing costs. Buildings and equipment reflect costs
incurred to develop primarily mini-warehouse facilities which provide self-
service storage spaces for lease, usually on a month-to-month basis, to the
general public. The buildings and equipment are depreciated on the
straight-line basis over estimated useful lives of 25 and 5 years,
respectively.
Included in real estate facilities is a facility located in Miami,
Florida which was damaged by Hurricane Andrew in August 1992. The facility
which has a net carrying value of $933,000 at December 31, 1995 (including
land of $525,000), was idle from August 1992 through October 1994, when
operations recommenced.
In 1995, the Partnership sold a portion of its Pembroke, Florida
property to the State of Florida under a condemnation proceeding for
$137,000. The Partnership recognized a gain of $125,000 on the sale.
Proceeds from the sale were used to make an unscheduled principal payment
on the Partnership's mortgage note payable.
Allocation of Net Income:
-------------------------
The general partners' share of net income consists of amounts
attributable to their capital contribution and an additional percentage of
cash flow (as defined) which relates to the general partners' share of cash
distributions as set forth in the Partnership Agreement (Note 4). All
remaining net income is allocated to the limited partners.
Per unit data is based on the weighted average number of the limited
partnership units (40,000) outstanding during the period.
Cash and Cash Equivalents:
--------------------------
For financial statement purposes, the Partnership considers all highly
liquid investments purchased with a maturity of three months or less to be
cash equivalents.
Marketable Securities:
----------------------
Marketable securities at December 31, 1995 and 1994 consist of 297,130
(which includes the November 1995 purchase) and 274,675 shares of common
stock of PSI, respectively. In November 1995, the Partnership purchased an
additional 22,455 shares of PSI common stock at a cost of $399,000. The
Partnership has designated its portfolio of marketable securities as being
available for sale. Accordingly, at December 31, 1995 and 1994, the
Partnership has recorded the marketable securities at fair value, based
upon the closing quoted price of the securities at December 31, 1995 and
1994, and has recorded a corresponding unrealized gain totaling $1,298,000
and $556,000, respectively, as a credit to Partnership equity. The
Partnership recognized dividends of $247,000, $177,000, and $71,000 for the
years ended December 31, 1995, 1994, and 1993, respectively.
F-7
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
2. Summary of Significant Accounting Policies and Partnership Matters
------------------------------------------------------------------
(Continued)
-----------
Other Assets
------------
Included in other assets is deferred financing costs of $252,000
($344,000 at December 31, 1994). Such balance is being amortized in
interest expense using the straight-line method over the life of the
related mortgage note payable.
Environmental Cost
------------------
Substantially all of the Partnership's facilities were acquired prior
to the time that it was customary to conduct environmental investigations
in connection with property acquisitions. During 1995, the Partnership
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent
environmental consulting firm. Based on the assessments, the Partnership
has expensed, as of December 31, 1995, an estimated $26,000 for known
environmental remediation requirements. Although there can be no
assurance, the Partnership is not aware of any environmental contamination
of any of its property sites which individually or in the aggregate would
be material to the Partnership's overall business, financial condition, or
results of operations.
3. Cash Distributions
------------------
The Partnership Agreement requires that cash available for
distribution (cash flow from all sources less cash necessary for any
obligations or capital improvement needs) be distributed at least
quarterly. Cash distributions have been suspended since the third quarter
of 1991 in order to build cash reserves for future debt service payments.
4. General Partners' Equity
------------------------
The general partners have a 1.1% interest in the Partnership. In
addition, the general partners had an 8% interest in cash distributions
attributable to operations (exclusive of distributions attributable to sale
and financing proceeds) until the limited partners recovered all of their
investment. Thereafter, the general partners have a 25% interest in all
cash distributions (including sale and financing proceeds). During 1986,
the limited partners recovered all of their initial investment. All
subsequent distributions are being made 25.83% (including the 1.1%
interest) to the general partners and 74.17% to the limited partners.
Transfers of equity are made periodically to conform the partners' equity
accounts to the provisions of the Partnership Agreement. These
transactions have no effect on the results of operations or distributions
to partners.
The financing of the properties (Note 7) provided the Partnership with
cash for a special distribution without affecting the Partnership's taxable
income. The majority of the proceeds from the financing, approximately
$29,360,000, were distributed to the partners in October 1988 resulting in
a deficit in limited and general partners' equity accounts.
F-8
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
5. Related Party Transactions
--------------------------
The Partnership has a Management Agreement with PSI (as successor-in-
interest to PSMI). Under the terms of the agreement, PSI operates the
mini-warehouse facilities for a fee equal to 6% of the facilities' monthly
gross revenue (as defined).
In November 1995, the Management Agreement was amended to provide that
upon demand from PSI or PSMI made prior to December 15, 1995, the
Partnership agreed to prepay (within 15 days after such demand) up to 12
months of management fees (based on the management fees for the comparable
period during the calendar year immediately preceding such prepayment)
discounted at the rate of 14% per year to compensate for early payment. In
December 1995, the Partnership prepaid, to PSI, 8 months of 1996 management
fees at a cost of $265,000. The amount is included in other assets in the
Balance Sheet at December 31, 1995 and will be amortized as management fee
expense in 1996.
6. Taxes Based on Income
---------------------
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's financial statements do not
reflect a provision for such taxes.
Taxable net income was $1,715,000, $1,408,000, and $1,209,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. The difference
between taxable net income and net income is primarily related to
depreciation expense resulting from differences in depreciation methods.
7. Mortgage Note Payable
---------------------
During September 1988, the Partnership financed all of its properties
with a $30,500,000, ten-year nonrecourse mortgage note secured by the
Partnership's properties. The note provides for fixed interest of 10.47
percent per annum. Loan payments for the first year consisted of interest
only. Thereafter, principal is being amortized over a 20 year term with
monthly payments of principal and interest of $303,891. The note matures
on October 1, 1998 and a balloon payment is due for accrued interest and
any unpaid principal on that date.
The principal repayment schedule as of December 31, 1995 of the note
is as follows:
<TABLE>
<S> <C>
1996 $ 840,000
1997 933,000
1998 25,405,000
-----------
$27,178,000
===========
</TABLE>
Interest paid on the note was $2,876,000, $2,979,000 and $3,045,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
F-9
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
8. ADVANCES TO RECONSTRUCT REAL ESTATE FACILITY
--------------------------------------------
In 1993, the Partnership reached a settlement with its insurance
carrier for the damage sustained to the property located in Miami, Florida
and for business interruption while the facility was being reconstructed.
The settlement provided for the payment of $2,987,000 consisting of (i)
reconstruction and related costs of the facility and (ii) business
interruption. The insurance proceeds received with respect to
reconstruction were recorded on the balance sheet as "Advances to
reconstruct real estate facility" and has been reduced by the amount of
actual costs paid with respect to the reconstruction of the facility. The
facility recommenced operations in October 1994 and the reconstruction of
the facility was completed in the second quarter of 1995. The balance of
the $236,000 in Advances to Reconstruct Real Estate Facility was recognized
as income during the second quarter of 1995 and is included in other income
in the Statements of Income.
Business interruption proceeds were being recognized over the period
from the time the facility was damaged through the time estimated that the
project would be fully operating at a stabilized occupancy. Through
December 31, 1995, the Partnership has recognized as income gross business
interruption proceeds of approximately $1,025,000. Other income includes
business interruption insurance proceeds (net of certain costs and expenses
of maintaining the facility) of $49,000, $202,000, and $398,000 for the
year ended December 31, 1995, 1994 and 1993, respectively. During 1995,
the remaining business interruption insurance proceeds of $49,000, included
in deferred revenue was recognized as income.
F-10
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,268,000 $ 967,000
Marketable securities of affiliate
(cost of $3,791,000 in 1996 and 1995) 6,722,000 5,645,000
Rent and other receivables 128,000 100,000
Real estate facilities, at cost:
Buildings and equipment 15,337,000 15,015,000
Land 5,244,000 5,244,000
----------- -----------
20,581,000 20,259,000
Less accumulated depreciation (9,805,000) (9,203,000)
----------- -----------
10,776,000 11,056,000
----------- -----------
Other assets 292,000 599,000
----------- -----------
Total assets $20,186,000 $18,367,000
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 200,000 $ 81,000
Deferred revenue 235,000 244,000
Mortgage note payable 26,556,000 27,178,000
Partners' deficit:
Limited partners' deficit, $500 per
unit, 40,000 units authorized, issued
and outstanding (7,222,000) (8,152,000)
General partners' deficit (2,514,000) (2,838,000)
Unrealized gain on marketable securities 2,931,000 1,854,000
----------- -----------
Total partners' deficit (6,805,000) (9,136,000)
----------- -----------
Total liabilities and partners'
deficit $20,186,000 $18,367,000
=========== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Restated)
REVENUE:
Rental income $1,868,000 $1,798,000 $5,490,000 $5,257,000
Dividends from marketable securities of
affiliate 65,000 60,000 196,000 181,000
Other income 26,000 16,000 58,000 320,000
---------- ---------- ---------- ----------
1,959,000 1,874,000 5,744,000 5,758,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 460,000 429,000 1,356,000 1,315,000
Management fees paid to affiliate 105,000 108,000 303,000 316,000
Depreciation 207,000 187,000 602,000 548,000
Administrative 20,000 20,000 47,000 55,000
Environmental cost - - - 25,000
Interest expense 722,000 747,000 2,182,000 2,255,000
---------- ---------- ---------- ----------
1,514,000 1,491,000 4,490,000 4,514,000
---------- ---------- ---------- ----------
NET INCOME $ 445,000 $ 383,000 $1,254,000 $1,244,000
========== ========== ========== ==========
Limited partners' share of net income
($31.00 per unit in 1996 and $30.75
per unit in 1995) $1,240,000 $1,230,000
General partners' share of net income 14,000 14,000
---------- ----------
$1,254,000 $1,244,000
========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENT OF PARTNERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Gain on Total
Limited General Marketable Partners'
Partners Partners Securities Deficit
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $(8,152,000) $(2,838,000) $1,854,000 $(9,136,000)
Unrealized gain on marketable securities - - 1,077,000 1,077,000
Net income 1,240,000 14,000 - 1,254,000
Equity transfer (310,000) 310,000 - -
----------- ----------- ---------- -----------
Balance at September 30, 1996 $(7,222,000) $(2,514,000) $2,931,000 $(6,805,000)
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,254,000 $ 1,244,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 602,000 548,000
Decrease in advances to reconstruct real estate facility - (236,000)
Increase in rent and other receivables (28,000) (21,000)
Decrease in other assets 42,000 68,000
Amortization of prepaid management fees 265,000 -
Increase in accounts payable 119,000 152,000
Decrease in deferred revenue (9,000) (53,000)
----------- -----------
Total adjustments 991,000 458,000
----------- -----------
Net cash provided by operating activities 2,245,000 1,702,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures to reconstruct damaged real estate facility - (1,000)
Additions to real estate facilities (322,000) (288,000)
----------- -----------
Net cash used in investing activities (322,000) (289,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable (622,000) (548,000)
----------- -----------
Net cash used in financing activities (622,000) (548,000)
----------- -----------
Net increase in cash and cash equivalents 1,301,000 865,000
Cash and cash equivalents at the beginning of the period 967,000 551,000
----------- -----------
Cash and cash equivalents at the end of the period $ 2,268,000 $ 1,416,000
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Increase in fair value of marketable securities $(1,077,000) $(1,168,000)
=========== ===========
Unrealized gain on marketable securities 1,077,000 1,168,000
=========== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although management believes that the disclosures contained
herein are adequate to make the information presented not misleading. These
unaudited condensed financial statements should be read in conjunction with
the financial statements and related notes appearing in the Partnership's
Form 10-K for the year ended December 31, 1995.
2. In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting of only normal accruals,
necessary to present fairly the Partnership's financial position at
September 30, 1996, the results of its operations for the three and nine
months ended September 30, 1996 and 1995 and its cash flows for the nine
months then ended.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the full
year.
4. Certain prior year amounts have been reclassified to conform with the 1996
presentation.
5. Marketable securities at September 30, 1996 consist of 297,130 shares of
common stock of Public Storage, Inc., a publicly traded real estate
investment trust and a general partner of the Partnership. The Partnership
has designated its portfolio of marketable securities as available for sale.
Accordingly, at September 30, 1996, the Partnership has recorded the
marketable securities at fair value, based upon the closing quoted prices of
the securities at September 30, 1996, and a corresponding unrealized gain
totaling $1,077,000 as a credit to Partnership equity.
6. In 1995, the Partnership prepaid eight months of 1996 management fees at a
cost of $265,000. The amount has been amortized as management fees paid to
affiliate during the nine months ended September 30, 1996.
7. In 1993, the Partnership reached a settlement with its insurance carrier for
damage sustained to the property located in Miami, Florida from Hurricane
Andrew in August 1992 and for business interruption while the facility was
being reconstructed. The settlement provided for the payment of $2,987,000
consisting of (i) reconstruction and related costs of the facility and (ii)
business interruption. The insurance proceeds received with respect to
reconstruction were recorded on the balance sheet as "Advances to
reconstruct real estate facility" and has been reduced by the amount of
actual costs paid with respect to the reconstruction of the facility. The
facility recommenced operations in October 1994 and the reconstruction of
the facility was completed in the second quarter of 1995. The balance of
$236,000 in Advances to Reconstruct Real Estate Facility was recognized as
income during the second quarter of 1995 and is included in Other income on
the Condensed Statements of Income.
F-15
<PAGE>
SCHEDULE 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP
Results of Operations
- ---------------------
Three and nine months ended September 30, 1996 compared to three and nine
months ended September 30, 1995: The Partnership's net income for the nine
months ended September 30, 1996 and 1995 was $1,254,000 and $1,244,000,
respectively, representing a increase of $10,000 or 1%. Net income for the
three months ended September 30, 1996 and 1995 was $445,000 and $383,000,
respectively, representing a increase of $62,000 or 16%. The increases in net
income for both the three and nine months ended September 30, 1996 is an
increase in operating results at the Partnership's mini-warehouse facilities
combined with decreased interest expense.
Rental income was $5,490,000 compared to $5,257,000 for the nine months
ended September 30, 1996 and 1995, respectively, representing an increase of
$233,000 or 4%. Rental income was $1,868,000 compared to $1,798,000 for the
three months ended September 30, 1996 and 1995, respectively, representing an
increase of $70,000 or 4%. These increases are primarily attributable to
increases in rental rates and occupancy levels at the Partnership's mini-
warehouse facilities. The weighted average occupancy levels at the mini-
warehouse facilities were 89% and 86% for the nine months ended September 30,
1996 and 1995, respectively. Realized rent remained stable at $.78 per
occupied square foot for the nine months ended September 30, 1996 and 1995
respectively.
Other income decreased $262,000 for the nine months ended September 30,
1996 compared to the same period in 1995. The decrease in the nine months ended
September 30, 1996 over 1995 is due to the recognition of $236,000 in income
from unused insurance proceeds, combined with the recognition of $49,000 of
business interruption income in the first quarter of 1995. The $236,000 of
income is attributable to actual cost being lower than amounts received from
insurance proceeds to reconstruct a real estate facility located in Miami,
Florida, which was damaged by Hurricane Andrew in August 1992 (see Note 7 in the
Notes to Condensed Financial Statements). Other income increased $10,000 for
the three months ended September 30, 1996 over the same period in 1995. The
increase is due to an increase in invested cash balances.
Dividend income from marketable securities of affiliate increased $15,000
and $5,000 for the nine and three month periods ended September 30, 1996,
respectively, compared to the same periods in 1995. These increases are
attributable to an increase in the number of shares owned in 1996 compared to
the same periods in 1995.
Cost of operations (including management fees paid to affiliate) increased
28,000 or 2% to 1,659,000 from 1,631,000 for the nine months ended September 30,
1996 and 1995 respectively. This increase is mainly attributable to increases
in repairs and maintenance, and advertising expenses. Cost of operations
(including management fees paid to affiliate) increased $28,000 or 5% to
$565,000 from $537,000 for the three months ended September 30, 1996 and 1995,
respectively. These increases are mainly attributable to increases in payroll
and advertising and promotion costs, partially offset by decreases in
management fees paid to an affiliate.
In 1995, the Partnership prepaid eight months of 1996 management fees on
its mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. The Partnership
has expensed the prepaid management fees during the nine months ended September
30, 1996. The amount is shown as management fees paid to affiliate in the
condensed statements of income. As a result of the prepayment, the Partnership
saved approximately $26,000 in management fees, based on the management fees
that would have been payable on rental income generated in the nine months ended
September 30, 1996 compared to the amount prepaid.
4-1
<PAGE>
Interest expense decreased $73,000 for the nine months ended September 30,
1996 compared to the same period in 1995 due to a lower outstanding loan balance
in 1996 over 1995.
In 1995, the Partnership incurred cost of $25,000 to conduct environmental
assessments of its properties to evaluate the environmental condition of and
potential environmental liabilities of such properties. Those assessments did
not indicate any environmental contamination of any of its property sites which
individually or in the aggregate would be material to the Partnership's overall
business, financial condition, or results of operations. No such cost was
incurred in 1996.
Year ended December 31, 1995 compared to year ended December 31, 1994: The
Partnership's net income was $1,724,000 in 1995 compared to $1,208,000 in 1994,
representing an increase of $516,000. The increase was primarily attributed to
(i) $236,000 of income recognized as a result of actual cost being lower than
amounts received from insurance proceeds to reconstruct the Miami, Cutler/Ridge
facility located in Florida which was damaged by Hurricane Andrew in August 1992
and (ii) $125,000 gain recognized on the sale of a portion of the Partnership's
Pembroke, Florida property to the State of Florida in a condemnation proceeding
during 1995. Also contributing to the increase in net income was an increase in
property net operating income at the Partnership's mini-warehouse facilities
combined with decreased interest expense and partially offset by environmental
costs incurred on the Partnership's facilities in 1995 (see discussion below).
During 1995, property net operating income (rental income less cost of
operations, management fees paid to an affiliate and depreciation expense) was
$4,076,000 in 1995 compared to $3,923,000 in 1994, representing an increase of
$153,000 or 4%. This increase was primarily attributable to an increase in
rental income at the Partnership's mini-warehouse facilities partially offset by
an increase in cost of operations and depreciation expense.
Rental income was $7,045,000 in 1995 compared to $6,659,000 in 1994,
representing an increase of $386,000 or 6%. The increase was primarily
attributable to an increase in rental rates at the Partnership's facilities. The
weighted average occupancy levels at the mini-warehouse facilities were 85% in
1995 and 1994. The monthly realized rent per occupied square foot averaged $.78
in 1995 compared to $.84 in 1994.
Other income increased $88,000 in 1995 compared to 1994. This increase was
primarily attributable to the recognition of $236,000 in income from unused
insurance proceeds, as discussed above, offset by a lower amount of business
interruption income recognized in 1995 over 1994. Included in other income is
business interruption income of $49,000 in 1995 and $202,000 (net of certain
costs and expenses of maintaining the Miami facility) in 1994.
Dividend income from marketable securities of affiliate increased $70,000
in 1995 compared to 1994. This increase was mainly attributable to an increase
in the number of shares owned in 1995 compared to 1994 and an increase in the
dividend rate from $.21 to $.22 per quarter per share.
Cost of operations (including management fees paid to an affiliate)
increased $183,000 or 9% to $2,227,000 in 1995 from $2,044,000 in 1994. This
increase was primarily attributable to increases in payroll, property tax,
security costs, and repairs and maintenance.
Substantially all of the Partnership's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During 1995, the Partnership completed
environmental assessments of its properties to evaluate the environmental
condition of, and potential environmental liabilities of such properties. These
assessments were performed by an independent environmental consulting firm.
Based on the assessments, the Partnership has expensed, as of December 31, 1995,
an estimated $26,000 for known environmental remediation requirements. Although
there can be no assurance, the Partnership is not aware of any environmental
contamination of any of its property sites which individually or in the
aggregate would be material to the Partnership's overall business, financial
condition, or results of operations.
4-2
<PAGE>
Interest expense was $2,967,000 and $3,071,000 in 1995 and 1994,
respectively, representing a decrease of $104,000 or 3%. The decrease was
primarily a result of a lower outstanding loan balance in 1995 compared to 1994.
Year ended December 31, 1994 compared to year ended December 31, 1993: The
Partnership's net income was $1,208,000 in 1994 compared to $1,099,000 in 1993,
representing an increase of $109,000. The increase was primarily due to an
increase in property net operating income at the Partnership's mini-warehouse
facilities combined with decreased interest expense.
In 1992, a mini-warehouse facility located in Miami, Florida (Miami/Cutler
Ridge) was damaged by Hurricane Andrew. In 1993, the Partnership reached a
settlement with its insurance carrier for the damage sustained to the property
and for business interruption while the facility was being rebuilt. The
Partnership has received approximately $1,025,000 of insurance proceeds relating
to business interruption. This amount is being recognized as income over the
period from the time the facility was damaged through the time estimated that
the project will be fully operating at a stabilized occupancy. Included in
other income is business interruption insurance proceeds (net of certain costs
and expenses of maintaining the facility) of $202,000 for 1994 and $398,000 for
1993. The facility recommenced operations in October 1994.
During 1994, property net operating income (rental income less cost of
operations, management fees paid to an affiliate and depreciation expense) was
$3,923,000 in 1994 compared to $3,801,000 in 1993, representing an increase of
$122,000 or 3%. This increase was primarily attributable to an increase in
rental revenue at the Partnership's mini-warehouse facilities partially offset
by an increase in cost of operations and depreciation expense.
Rental income was $6,659,000 in 1994 compared to $6,477,000 in 1993,
representing an increase of $182,000 or 3%. The increase was primarily
attributable to increased occupancy levels combined with increased rental rates
at the Partnership's facilities. The weighted average occupancy levels at the
mini-warehouse facilities were 85% in 1994 compared to 81% in 1993. The monthly
realized rent per occupied square foot averaged $.84 in 1994 compared to $.78 in
1993.
Dividend income from marketable securities of affiliate increased $106,000
in 1994 compared to 1993. This increase was mainly attributable to an increase
in the number of shares owned in 1994 compared to 1993.
Cost of operations (including management fees paid to an affiliate)
increased $16,000 or 1% to $2,044,000 in 1994 from $2,028,000 in 1993. This
increase was primarily attributable to increases in payroll, property tax and
repairs and maintenance partially offset by a decrease in advertising expense.
Interest expense was $3,071,000 and $3,137,000 in 1994 and 1993,
respectively, representing a decrease of $66,000 or 2%. The decrease was
primarily a result of a lower outstanding loan balance in 1994 compared to 1993.
Liquidity and Capital Resources
- -------------------------------
Cash flows from operating activities ($2,245,000 for the nine months ended
September 30, 1996 and $1,899,000 for the year ended December 31, 1995) have
been sufficient to meet all current obligations of the Partnership, including
principal repayments of the Partnership's note payable. During 1996, the
Partnership anticipates approximately $371,000 of capital improvements. During
1995, the Partnership's property operator commenced a program to enhance the
visual appearance of the mini-warehouse facilities operated by it. Such
enhancements will include new signs, exterior color schemes, and improvements to
the rental offices. Included in the 1996 capital improvement budget are
estimated costs of $37,000 for such enhancements.
4-3
<PAGE>
At September 30, 1996, the Partnership held 297,130 (including the November
1995 purchase) shares of common stock (marketable securities) with a fair value
totaling $6,722,000 (cost basis of $3,791,000 at September 30, 1996) in Public
Storage, Inc. (PSI). In November 1995, the Partnership purchased an additional
22,455 shares of PSI common stock at a cost of $399,000. The Partnership
recognized $247,000 in dividends during 1995 and $196,000 for the nine months
ended September 30, 1996.
In November 1995, the Management Agreement was amended to provide that upon
demand from PSI or PSMI made prior to December 15, 1995, the Partnership agreed
to prepay (within 15 days after such demand) up to 12 months of management fees
(based on the management fees for the comparable period during the calendar year
immediately preceding such prepayment) discounted at the rate of 14% per year to
compensate for early payment. In December 1995, the Partnership prepaid, to
PSI, 8 months of 1996 management fees at a cost of $265,000.
In 1995, the Partnership sold a portion of its Pembroke, Florida property
under a condemnation proceeding to the State of Florida. The Partnership
received sales proceeds of $137,000, which was used to make an unscheduled
principal payment on its mortgage note payable.
In the third quarter of 1991, quarterly distributions were discontinued to
enable the Partnership to increase its reserves for principal payments that
commenced in 1990 and increase in subsequent years through 1998, at which time
the remaining principal balance is due.
The distributions in the aggregate to the Limited and General Partners for
each of the prior years were as follows:
<TABLE>
<S> <C>
1978 $ 167,000
1979 1,263,000
1980 2,196,000
1981 2,415,000
1982 2,635,000
1983 2,964,000
1984 3,568,000
1985 4,393,000
1986 4,314,000
1987 4,310,000
1988 32,660,000
1989 641,000
1990 371,000
1991 135,000
1992 -
1993 -
1994 -
1995 -
1996 -
</TABLE>
During 1988, the Partnership financed all of its properties with a
$30,500,000 loan with fixed interest of 10.47 percent per annum. Net proceeds
of $29,360,000 were distributed to the partners in October 1988 and are included
in the 1988 distribution. At December 31, 1995, the outstanding balance of the
mortgage note was $27,178,000, which matures on October 1, 1998.
4-4
<PAGE>
SCHEDULE 5
DIRECTORS AND EXECUTIVE OFFICERS OF PUBLIC STORAGE, INC.
<TABLE>
<CAPTION>
Name of Director Employer/Address/ Current Position/
or Executive Officer Nature of Business Dates of Employment *
- -------------------- ------------------ ---------------------
<S> <C> <C>
B. Wayne Hughes Public Storage, Inc. Chairman of the Board and Chief
(Executive Officer and Director) 701 Western Avenue, Suite 200 Executive Officer
Glendale, CA 91201-2397 11/91-present
President and Chief Executive
Real estate investment Officer of PSI
1978-11/95
Officer of PSI and affiliates
1972-11/95
Harvey Lenkin Public Storage, Inc. President
(Executive Officer and Director) 11/91-present
Real estate investment Vice President of PSI
1988-11/95
Officer of PSI
1978-11/95
Hugh W. Horne Public Storage, Inc. Senior Vice President
(Executive Officer) from 11/13/95
Real estate investment Vice President
1980-11/13/95
Secretary
1980-2/92
Officer of PSI and affiliates
1973-11/95
Marvin M. Lotz Public Storage, Inc. Senior Vice President
(Executive Officer) from 11/16/95
Real estate investment Officer of affiliates of PSI
9/83-11/95
David Goldberg Public Storage, Inc. Senior Vice President and
(Executive Officer) General Counsel from 11/95
Real estate investment Counsel to PSI 6/91-11/95
A. Timothy Scott Public Storage, Inc. Senior Vice President and Tax
(Executive Officer) Counsel from 11/96
Real estate investment
Obren B. Gerich Public Storage, Inc. Senior Vice President from 11/95
(Executive Officer) Vice President 1980-11/95
Real estate investment Chief Financial Officer
1980-10/91
Officer of PSI 1975-11/95
</TABLE>
5-1
<PAGE>
<TABLE>
<CAPTION>
Name of Director Employer/Address/ Current Position/
or Executive Officer Nature of Business Dates of Employment *
- -------------------- ------------------ ---------------------
<S> <C> <C>
John Reyes Public Storage, Inc. Senior Vice President and Chief
(Executive Officer) Financial Officer from 12/96
Real estate investment Vice President and Controller
11/95-12/96
Sarah Hass Public Storage, Inc. Vice President from 11/95
(Executive Officer) Secretary 2/92-present
Real estate investment
Robert J. Abernethy American Standard Development President
(Director) Company; Self Storage 1977-present
Management Company
5221 West 102nd Street
Los Angeles, CA 90045
Developer and operator of mini-
warehouses
Dann V. Angeloff The Angeloff Company President
(Director) 727 West Seventh Street 1976-present
Suite 331
Los Angeles, CA 90017
Corporate financial advisory firm
William C. Baker Santa Anita Operating Company Chairman and Chief Executive
(Director) 285 West Huntington Drive Officer
Arcadia, CA 91007 8/96-present
Operator of the Santa Anita
Racetrack
Carolina Restaurant Enterprises, Chairman and Chief Executive
Inc. Officer
3 Lochmoor Lane 1/92-present
Newport Beach, CA 92660
Franchisee of Red Robin
International, Inc.
Red Robin International, Inc. President
28 Executive Park, Suite 200 4/93-5/95
Irvine, CA 92714
Operate and franchise restaurants
</TABLE>
5-2
<PAGE>
<TABLE>
<CAPTION>
Name of Director Employer/Address/ Current Position/
or Executive Officer Nature of Business Dates of Employment *
- -------------------- ------------------ ---------------------
<S> <C> <C>
Uri P. Harkham The Jonathan Martin Fashion President and Chief Executive
(Director) Group Officer
1157 South Crocker Street 1975-present
Los Angeles, CA 90021
Design, manufacture and market
women's clothing
Harkham Properties Chairman of the Board
1157 South Crocker Street 1978-present
Los Angeles, CA 90021
Real estate
</TABLE>
To the knowledge of the Company, all of the foregoing persons are
citizens of the United States, except Uri P. Harkham, who is a citizen of
Australia.
_______________
* The term "PSI" includes Public Storage, Inc. (formerly Storage Equities,
Inc.) and its predecessors and their affiliates.
5-3
<PAGE>
The Letter of Transmittal and any other required documents should be
sent or delivered by each Unitholder to the Depositary at one of the addresses
set forth below:
The Depositary for the Offer is:
The First National Bank of Boston
<TABLE>
<S> <C> <C>
By Mail By Hand By Overnight Courier
The First National Bank of Boston BancBoston Trust The First National Bank of Boston
Shareholder Services Company of New York Corporate Agency & Reorganization
P.O. Box 1872 55 Broadway 150 Royall Street
Mail Stop 45-02-53 3rd Floor Mail Stop 45-02-53
Boston, MA 02105 New York, NY 10006 Canton, MA 02021
</TABLE>
Any questions about the Offer to Purchase may be directed to the
Soliciting Agent at its telephone number set forth below:
The Soliciting Agent for the Offer is:
Christopher Weil & Company, Inc.
(800) 478-2605
Any requests for assistance or additional copies of the Offer to
Purchase and the Letter of Transmittal may be directed to Hughes at his address
and telephone number set forth below:
B. Wayne Hughes
c/o Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
(800) 421-2856
(818) 244-8080
<PAGE>
EXHIBIT 99(a)(2)
LETTER OF TRANSMITTAL
To Purchase Limited Partnership Units of Public Storage Properties IV, Ltd.,
a California limited partnership
Pursuant to the Offer to Purchase dated March 21, 1997
of B. Wayne Hughes
- --------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
Name and Address of Registered Holder Number of Units Tendered
- ------------------------------------- ------------------------
___________________*
* Unless otherwise indicated,
it will be assumed that all
Units held by the registered
holder are being tendered.
- --------------------------------------------------------------------------------
THIS OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 21,
1997, UNLESS EXTENDED. UNITS WHICH ARE TENDERED PURSUANT TO THIS OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THIS OFFER.
This Letter of Transmittal is to be executed and returned to The First National
Bank of Boston (the "Depositary") at one of the following addresses:
<TABLE>
<S> <C> <C> <C>
By Mail By Hand By Overnight Courier For Information
The First National Bank of BancBoston Trust The First National Bank of The First National Bank
Boston Company of New York Boston of Boston
Shareholder Services 55 Broadway Corporate Agency & Shareholder Services
P.O. Box 1872 3rd Floor Reorganization (617) 575-3120
Mail Stop 45-02-53 New York, NY 10006 150 Royall Street
Boston, MA 02105 Mail Stop 45-02-53
Canton, MA 02021
</TABLE>
Delivery of this instrument to an address other than as set forth above will not
constitute a valid delivery. The accompanying instructions should be read
carefully before this Letter of Transmittal is completed.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to B. Wayne Hughes ("Hughes"), for $447
per Unit in cash the above-described units of limited partnership interest (the
"Units") of Public Storage Properties IV, Ltd., a California limited partnership
(the "Partnership"), in accordance with the terms and subject to the conditions
of Hughes' offer contained in Hughes' Offer to Purchase dated March 21, 1997
(the "Offer to Purchase"), and in this Letter of Transmittal (which together
with the Offer to Purchase constitutes the "Offer"). The undersigned hereby
acknowledges receipt of the Offer to Purchase.
Subject to, and effective upon, acceptance for tender of the Units
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, Hughes, all right, title and interest in and to all of the Units that
are being tendered hereby and that are being accepted for purchase pursuant to
the Offer and any non-cash distributions, other Units or other securities issued
or issuable in respect thereof on or after March 21, 1997 and appoints the
Depositary the true and lawful attorney-in-fact of the undersigned with respect
to such Units (and such non-cash distributions, other Units or securities), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) transfer ownership of such
Units (and any such non-cash distributions, other Units or securities), to or
upon the order of Hughes, (b) present such Units (and any such non-cash
distributions, other Units or securities) for transfer on the books of the
Partnership and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Units (and any such non-cash distributions, other
Units or securities), all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned
(i) has received and reviewed the Offer to Purchase and (ii) has full power and
authority to sell, assign and transfer the Units tendered hereby (and any and
all non-cash distributions, other Units or securities issued or issuable in
respect thereof on or after March 21, 1997) and that when the same are accepted
for purchase by Hughes, Hughes will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary or Hughes to be necessary or desirable to complete the
sale, assignment and transfer of the Units tendered hereby and any non-cash
distributions, other Units or other securities
<PAGE>
issued or issuable in respect of such Units on or after March 21, 1997. In
addition, the undersigned shall promptly remit and transfer to the Depositary
for the account of Hughes any and all other Units or other securities (including
rights) issued to the undersigned on or after March 21, 1997 in respect of Units
tendered hereby, accompanied by appropriate documentation of transfer, and
pending such remittance or appropriate assurance thereof, Hughes shall be
entitled to all rights and privileges as owner of any such other Units or other
securities and may withhold the entire consideration or deduct from the
consideration the amount of value thereof as determined by Hughes, in his sole
discretion.
The undersigned has been advised that (i) Hughes is a General Partner of
the Partnership; Public Storage, Inc., the other General Partner of the
Partnership, is controlled by Hughes; and the General Partners of the
Partnership make no recommendation as to whether or not the undersigned should
tender his or her Units in the Offer and the undersigned has made his or her own
decision to tender the Units and (ii) the General Partners believe that the
Offer Price is less than the amount that Unitholders might receive if the
Partnership were liquidated.
The undersigned understands that notwithstanding any other provisions of
the Offer and subject to the applicable rules of the Securities and Exchange
Commission, Hughes will not be required to accept for purchase any Units, may
postpone the acceptance for purchase of Units tendered and may terminate or
amend the Offer if prior to the time of purchase of any such Units any of the
following events shall occur or Hughes shall have learned of the occurrence of
any of such events:
(a) There shall be threatened, instituted or pending any action or
proceeding before any domestic or foreign court or governmental agency or
other regulatory or administrative agency or commission (i) challenging
the acquisition by Hughes of the Units, seeking to restrain or prohibit
the making or consummation of the Offer, seeking to obtain any material
damages or otherwise directly or indirectly relating to the transactions
contemplated by the Offer, (ii) seeking to prohibit or restrict Hughes'
ownership or operation of any material portion of Hughes' business or
assets, or to compel Hughes to dispose of or hold separate all or any
material portion of his business or assets as a result of the Offer,
(iii) seeking to make the purchase of, or payment for, some or all of the
Units illegal, (iv) resulting in a delay in the ability of Hughes to
accept for payment or pay for some or all of the Units, (v) imposing
material limitations on the ability of Hughes to effectively acquire or
hold or to exercise full rights of ownership of the Units, including,
without limitation, the right to vote the Units purchased by Hughes on
all matters properly presented to the limited partners of the
Partnership, (vi) which, in the sole judgment of Hughes, could materially
and adversely affect the treatment of the Offer for federal income tax
purposes, (vii) which otherwise is reasonably likely to materially
adversely affect the Partnership or value of the Units or (viii) which
imposes any material condition unacceptable to Hughes;
(b) Any statute, rule, regulation or order shall be enacted,
promulgated, entered or deemed applicable to the Offer, any legislation
shall be pending, or any other action shall have been taken, proposed or
threatened, by any domestic government or governmental authority or by
any court, domestic or foreign, which, in the sole judgment of Hughes, is
likely, directly or indirectly, to result in any of the consequences
referred to in paragraph (a) above; or
(c) There shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange ("NYSE"), (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States,
(iii) the commencement of a war, armed hostilities or other international
or national calamity materially affecting the United States, (iv) any
limitation by any governmental authority or any other event which is
reasonably likely to affect the extension of credit by banks or other
lending institutions in the United States, (v) any material decline in
security prices on the NYSE or (vi) in the case of any of the foregoing
existing at the time of the Offer, any material worsening thereof;
which in the sole judgment of Hughes with respect to each and every matter
referred to above and regardless of the circumstances (including any action or
inaction by Hughes) giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for purchase. The foregoing
conditions are for the sole benefit of Hughes and may be asserted by Hughes
regardless of the circumstances giving rise to any such conditions (including
any action or inaction by Hughes) or may be waived by Hughes in whole or in
part. The failure by Hughes at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, and each such right shall be
deemed a continuing right which may be asserted at any time and from time to
time.
The undersigned hereby irrevocably appoints B. Wayne Hughes and Harvey
Lenkin designees of Hughes, and each of them, the attorneys and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper, and otherwise act (including pursuant to written consent) with
respect to all of the Units tendered hereby which have been accepted for payment
by Hughes prior to the time of such vote or action (and any and all non-cash
distributions, other Units or securities, issued or issuable in respect thereon
on or after March 21, 1997), which the undersigned is entitled to vote, at any
meeting (whether annual or special and whether or not an adjourned meeting) of
limited partners of the Partnership, or with respect to which the undersigned is
empowered to act in connection with action by written consent in lieu of any
such meeting or otherwise. This proxy is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Units by Hughes, in accordance with the terms of the Offer. Such acceptance for
payment shall revoke any other proxy granted by the undersigned at any time with
respect to such Units (and any such non-cash distributions, other Units or
securities) and no subsequent proxies will be given (and if given will be deemed
not to be effective) with respect thereto by the undersigned. Hughes reserves
the right to require that in order for Units to be properly tendered,
immediately upon acceptance of such Units for purchase by Hughes, Hughes is able
to exercise full voting rights with respect to such Units.
The undersigned understands that tenders of Units pursuant to any one of
the procedures described in the Offer and in the instructions hereto will
constitute a binding agreement between the undersigned and Hughes upon the terms
and subject to the conditions of the Offer.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, legal and
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
Please issue the payment for the Units in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Mailing Instructions,"
please mail the payment (and accompanying documents, as appropriate) to the
undersigned at the registered address. In the event that the "Special Mailing
Instructions" are completed, please deliver the payment to the registered
holder(s) at the address so indicated.
-2-
<PAGE>
- --------------------------------------------------------------------------------
TENDER OF UNITS IN OFFER
The Undersigned tenders Units in the Offer on the terms described above.
SIGN HERE
Signature(s)
-------------------------------------------------------------------
-------------------------------------------------------------------
Date ( )
----------------------- ----------------------
Telephone number
(Must be signed by registered holder(s) as name(s) appear(s) under registration
above. If signature is by trustees, executors, administrators, guardians,
attorneys-in-fact, agents, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information.
See Instruction 3.)
Name(s)
-------------------------------------------------------------------
-------------------------------------------------------------------
(Please print)
Capacity (full title)
-----------------------------------------------------------
Address
--------------------------------------------------------------------
--------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL MAILING INSTRUCTIONS
To be completed ONLY if payment is to be issued to the registered holder(s) but
mailed to OTHER than the address of record. (See Instruction 5.)
Mail payment to:
Name
--------------------------------------------------------------------
(Must be same as registered holder(s))
Address
--------------------------------------------------------------------
(Please print)
--------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
-3-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. DELIVERY OF LETTER OF TRANSMITTAL. A properly completed and duly
executed Letter of Transmittal and any other documents required by this Letter
of Transmittal, must be received by the Depositary at its address set forth
herein on or prior to April 21, 1997, unless extended.
The method of delivery of this Letter of Transmittal and all other
required documents, is at the option and risk of the tendering Unitholder and
the delivery will be deemed made only when actually received by the Depositary.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
assure timely delivery.
No alternative, conditional or contingent tenders will be accepted, and
no fractional Units will be accepted for payment or purchased. All tendering
Unitholders, by execution of this Letter of Transmittal, waive any right to
receive any notice of the acceptance of their Units for payment.
2. PARTIAL TENDERS. If fewer than all the Units held by a Unitholder are
to be tendered, (i) fill in the number of Units which are to be tendered in the
section entitled "Number of Units Tendered" and (ii) the Unitholder must hold at
least five Units after such tender. Accordingly, a Unitholder should not tender
if, as a result of such tender, the tendering holder (other than one
transferring all of his or her Units) will hold less than five Units. All Units
held by a Unitholder will be deemed to have been tendered unless otherwise
indicated.
3. SIGNATURES ON LETTER OF TRANSMITTAL.
(a) If this Letter of Transmittal is signed by the registered
holder(s) of the Units, the signature(s) must correspond exactly with the
Unitholder's registration.
(b) If any of the Units are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any Units are registered in different names, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations.
(d) If this Letter of Transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and if requested, proper evidence satisfactory to Hughes
of such person's authority so to act must be submitted.
4. STOCK TRANSFER TAXES. Except as set forth in this Instruction 4,
Hughes will pay or cause to be paid any stock transfer taxes with respect to the
transfer and sale of Units to him or his order pursuant to the Offer. If
payment of the purchase price is to be made to any person other than the
registered holder, the amount of any stock transfer taxes (whether imposed on
the registered holder or such other person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or exemption therefrom is submitted.
5. SPECIAL MAILING INSTRUCTIONS. If payment for the Units is to be
issued to the registered holder(s) but mailed to other than the address of
record, the section entitled "Special Mailing Instructions" must be completed.
6. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to, or additional copies of the Offer to Purchase and this
Letter of Transmittal may be obtained from, the Depositary or the Soliciting
Agent at their respective addresses set forth below.
7. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Units will be
determined by Hughes, in his sole discretion, and his determination shall be
final and binding. Hughes reserves the absolute right to reject any or all
tenders of any particular Units (i) determined by it not to be in the
appropriate form or (ii) the acceptance for purchase of Units which may, in the
opinion of Hughes' counsel, be unlawful.
IMPORTANT: THIS LETTER OF TRANSMITTAL, TOGETHER WITH ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO APRIL 21, 1997,
UNLESS EXTENDED.
<TABLE>
<S> <C>
THE DEPOSITARY: THE SOLICITING AGENT FOR THE OFFER IS:
THE FIRST NATIONAL BANK OF BOSTON CHRISTOPHER WEIL & COMPANY, INC.
Shareholder Services (800) 478-2605
P.O. Box 1872
Mail Stop 45-02-53
Boston, Massachusetts 02105
(617) 575-3120
</TABLE>
-4-
<PAGE>
EXHIBIT 99(a)(3)
[LETTERHEAD OF B. WAYNE HUGHES]
March 21, 1997
Re: Tender Offer for Units of
Public Storage Properties IV, Ltd.
----------------------------------
Dear Unitholder:
As a Unitholder of Public Storage Properties IV, Ltd. (the "Partnership"),
B. Wayne Hughes ("Hughes") mailed to you on March 21, 1997 an Offer to Purchase
dated March 21, 1997 wherein Hughes is offering to purchase for cash limited
partnership units of the Partnership.
Your telephone number is not part of our records. We would like to answer
any questions you may have regarding the Offer to Purchase and could do so if
you would either:
1. Provide us with your telephone number and a convenient time to contact
you by filling in and returning the enclosed card to Hughes in the
enclosed postage-paid envelope, or
2. Call Christopher Weil & Company, Inc., the company retained by Hughes
to assist limited partners in understanding the Offer to Purchase, at
(800) 478-2605.
Thank you for your prompt attention to this matter.
Very truly yours,
/s/ B. Wayne Hughes
--------------------------------
B. Wayne Hughes
Enclosures
<PAGE>
Tender Offer for Units of Public Storage Properties IV, Ltd.
Please return to: B. Wayne Hughes
c/o Public Storage, Inc.
P.O. Box 25039
Glendale, CA 91221-9985
- ---------------------------------------------- --------------------------
Name and address of registered holder Telephone number
--------------------------
--------------------------
Convenient time to contact
- ---------------------------------------------- --------------------------
<PAGE>
[LETTERHEAD OF B. WAYNE HUGHES]
Enclosed is an Offer to Purchase for cash limited partnership units of Public
Storage Properties IV, Ltd. by B. Wayne Hughes dated March 21, 1997. If you are
a beneficial owner of units in Public Storage Properties IV, Ltd. and would like
to participate in the Offer to Purchase, please contact the registered holder of
the units.
March 21, 1997
<PAGE>
EXHIBIT 99(b)(1)
Flair Industrial Park
Regional Commercial Banking Office
9000 Flair Drive
El Monte, CA 91731
November 1, 1995
Mr. B. Wayne Hughes
600 N. Brand Blvd., Suite 300
Glendale, CA 91203
Dear Mr. Hughes:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to B. WAYNE HUGHES ("Borrower") a revolving line of credit ("Line
of Credit"), under which Bank will make advances to Borrower from time to time
up to and including November 1, 1998, not to exceed at any time the Commitment
Amount, the proceeds of which shall be used to consolidate certain indebtedness
of Borrower and Borrower's family and to purchase certain assets from Public
Storage, Inc. ("PSI") that will not be included as part of the merger of PSI and
Storage Equities, Inc. The entity resulting from such merger is referred to as
"SEI".
I. DEFINITIONS:
As used in this letter, the following terms have the following meanings:
"Bank" - the meaning ascribed to it in the introductory paragraph of this
letter.
"Borrower" - the meaning ascribed to it in the introductory paragraph of
this letter.
"Commitment Amount" - initially, the amount of $40,000,000.00, or such
reduced amount, if any, agreed to pursuant to Section VI.2 of this letter.
"Fair Market Value" - means the publicly quoted trading price of the
security in question, or if there is no publicly quoted trading price, the fair
market value of the applicable security as reasonably determined by Bank.
"Line of Credit" - the meaning ascribed to it in the introductory paragraph
of this letter.
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 2
"Line of Credit Note" - the meaning ascribed to it in Section II.1.(b)
"PSI" - the meaning ascribed to it in the introductory paragraph of this
letter.
"Pledged Stock" - 5,000,000 shares of common stock of SEI, together with
additional collateral, if any, pledged pursuant to Section VI.2 of this letter.
"SEI" - the meaning ascribed to it in the introductory paragraph of this
letter.
II. CREDIT TERMS:
1. LINE OF CREDIT:
(a) Line of Credit Note. Borrower's obligation to repay advances under the
-------------------
Line of Credit shall be evidenced by a promissory note substantially in the form
of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
2. COLLATERAL:
As security for all indebtedness of Borrower to Bank described herein,
Borrower pledges and grants to Bank a possessory security interest of first
priority in the Pledged Stock and all proceeds thereof.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing fees.
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 3
III. INTEREST/FEES:
1. Interest. The outstanding principal balance of the Line of Credit
--------
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
2. Computation and Payment. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
3. Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one
---------------------
quarter percent (0.25%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears.
4. Collection of Payments. Borrower authorizes Bank to collect all
----------------------
interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 0648281004 with Bank, or any other demand deposit account
maintained by Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such demand deposit account to pay all such sums when
due, the full amount of such deficiency shall be immediately due and payable by
Borrower.
IV. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this letter.
1. Legal Status. Borrower is qualified or licensed to do business in all
------------
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on Borrower.
2. Authorization and Validity. This letter, the Line of Credit Note, and
--------------------------
each other document, contract or instrument deemed necessary by Bank to evidence
any extension of credit to Borrower pursuant to the terms and conditions hereof,
or now or at any time hereafter required by or delivered to Bank in
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 4
connection with this letter (collectively, the "Loan Documents") have been duly
authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
3. No Violation. The execution, delivery and performance by Borrower of
------------
each of the Loan Documents do not violate any provision of any law or
regulation, or result in a breach of or constitute a default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
4. Litigation. There are no pending, or to the best of Borrower's
----------
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
5. Correctness of Financial Statement. The financial statement of
----------------------------------
Borrower dated December 31, 1994, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
6. Income Tax Returns. Borrower has no knowledge of any pending
------------------
assessments or adjustments of his income tax payable with respect to any year.
7. No Subordination. There is no agreement, indenture, contract or
----------------
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 5
8. Other Obligations. Borrower is not in default on any obligation for
-----------------
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
V. CONDITIONS:
1. Conditions of Initial Extension of Credit. The obligation of Bank to
-----------------------------------------
extend any credit contemplated by this letter is subject to fulfillment to
Bank's satisfaction of all of the following conditions:
(a) Documentation. Bank shall have received each of the Loan Documents,
-------------
duly executed and in form and substance satisfactory to Bank.
(b) Financial Condition. There shall have been no material adverse change,
-------------------
as determined by Bank, in the financial condition or business of Borrower, nor
any material decline, as determined by Bank, in the market value of any
collateral required hereunder or a substantial or material portion of the assets
of Borrower.
2. Conditions of Each Extension of Credit. The obligation of Bank to
--------------------------------------
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and in
----------
each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
-------------
may be required in connection with such extension of credit.
3. Condition Subsequent. It is a condition subsequent to Bank's
--------------------
obligations hereunder that Borrower deliver to Bank on or before January 15,
1996, stock certificate(s) evidencing the Pledged Stock, together with duly
executed stock power(s), all in form and content acceptable to Bank.
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 6
VI. COVENANTS:
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
1. Punctual Payment. Punctually pay all principal, interest, fees or
----------------
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.
2. Remargin. If, at any time and for any reason, the Commitment Amount
--------
shall exceed 45% of the Fair Market Value of the Pledged Stock, Borrower shall
within 5 calendar days after written demand by Bank, either (a) pledge and
deliver to Bank additional common stock of SEI, and/or (b) agree in writing to a
reduction of the Commitment Amount (and to the extent applicable, make a
principal payment to Bank in the amount by which the outstanding principal
balance of the Line of Credit exceeds such reduced Commitment Amount), such that
the Commitment Amount does not exceed 45% of the Fair Market Value of Pledged
Stock. Nothing in this paragraph shall restrict Bank's rights or remedies under
Section VII of this letter.
3. SEI Stock. In addition to all shares of common stock of SEI pledged
---------
by Borrower to Bank, Borrower shall at all times own, on a fully paid up basis
and free and clear of any liens or encumbrances, shares of the common stock of
SEI with a Fair Market Value equal to or greater than fifty percent (50%) of the
Commitment Amount. Upon the occurrence and during the continuance of any of the
events described in clauses VII 1.(a), (b) or (c) hereof, Borrower shall not
sell or otherwise dispose of any common stock of SEI.
4. Accounting Records. Maintain adequate books and records in accordance
------------------
with generally accepted accounting principles consistently applied, and permit
any representative of Bank, at any reasonable time, to inspect, audit and
examine such books and records, to make copies of the same, and inspect the
properties of Borrower.
5. Financial Statements. Provide to Bank all of the following, in form
--------------------
and detail satisfactory to Bank:
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 7
(a) not later than 120 days after and as of the end of each calendar year,
a financial statement of Borrower, prepared by Borrower or a certified public
accountant acceptable to Bank, to include balance sheet, income statement, and
statement of cash flow, and within 30 days after filing, but in no event later
than each May 15, copies of Borrower's filed Federal income tax returns for such
year;
(b) from time to time such other information as Bank may reasonably
request.
6. Litigation. Promptly give notice in writing to Bank of any litigation
----------
pending or threatened against Borrower with a claim in excess of $250,000.00.
7. Taxes and Other Liabilities. Pay and discharge when due any and all
---------------------------
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation Federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event that Borrower is obligated to make such payment.
8. Other Indebtedness. Not create, incur, assume or permit to exist any
------------------
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof including any extensions and refinancings thereof.
9. Guaranties. Not guarantee or become liable in any way as surety,
----------
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity.
10. Pledge of Assets. Not mortgage, pledge, grant or permit to exist a
----------------
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof.
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 8
VII. DEFAULT, REMEDIES:
1. Default, Remedies. Upon (a) the violation of any term or condition of
-----------------
any of the Loan Documents; (b) the occurrence of any default or defined event of
default under any of the Loan Documents; or (c) the Commitment Amount at any
time and for any reason exceeding sixty-five percent (65%) of the Fair Market
Value of Pledged Stock: (i) all indebtedness of Borrower under each of the Loan
Documents, any term thereof to the contrary notwithstanding, shall at Bank's
option and without notice become immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by Borrower; (ii) the obligation, if any, of Bank to extend any further
credit under any of the Loan Documents shall immediately cease and terminate;
and (iii) Bank shall have all rights, powers and remedies available under each
of the Loan Documents, or accorded by law, including without limitation the
right to resort to any or all security for any credit extended by Bank to
Borrower under any of the Loan Documents and to exercise any or all of the
rights of a beneficiary or secured party pursuant to the applicable law. All
rights, powers and remedies of Bank may be exercised at any time by Bank and
from time to time after the occurrence of any such breach or default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
2. No Waiver. No delay, failure or discontinuance of Bank in exercising
---------
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
VIII. MISCELLANEOUS:
1. Notices. All notices, requests and demands which any party is
-------
required or may desire to give to any other party under any provision of this
letter must be in writing delivered to each party at its address first set forth
above, or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed given
or made as follows: (a) if sent by hand delivery, upon
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 9
delivery; (b) if sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. mail, first class and postage prepaid; and
(c) if sent by telecopy, upon receipt.
2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
-----------------------------------
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with (a) the negotiation and preparation of this letter and
the other Loan Documents, Bank's continued administration hereof and thereof,
and the preparation of amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, and including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to
Borrower.
3. Successors, Assignment. This letter shall be binding upon and inure
----------------------
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
4. Entire Agreement; Amendment. This letter and the other Loan Documents
---------------------------
constitute the entire agreement between Borrower and Bank with respect to any
extension of credit by Bank subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This letter may be amended or modified only in writing signed by each
party hereto.
5. No Third Party Beneficiaries. This letter is made and entered into
----------------------------
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
<PAGE>
B. Wayne Hughes
November 1, 1995
Page 10
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. Governing Law. This letter shall be governed by and construed in
-------------
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms of this letter shall terminate on December 1,
1995, unless this letter is acknowledged by Borrower and returned to Bank on or
before that date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ John Manning
--------------------------
John Manning
Vice President
Acknowledged and accepted as of 11-1-95:
-------
/s/ B. Wayne Hughes
- ------------------------------
B. Wayne Hughes
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$40,000,000.00 El Monte, California
November 1, 1995
FOR VALUE RECEIVED, the undersigned B. WAYNE HUGHES ("Borrower") promises
to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at Flair Industrial Park Regional Commercial Banking Office, 9000 Flair
Drive, El Monte, California, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of Forty Million Dollars ($40,000,000.00), or
so much thereof as may be advanced and be outstanding, with interest thereon, to
be computed on each advance from the date of its disbursement (computed on the
basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate
per annum equal to the Prime Rate in effect from time to time, or (ii) at a
fixed rate per annum determined by Bank to be one and one-half percent (1.50%)
above Bank's LIBOR in effect on the first day of the applicable Fixed Rate Term.
When interest is determined in relation to the Prime Rate, each change in the
rate of interest hereunder shall become effective on the date each Prime Rate
change is announced within Bank. With respect to each LIBOR option selected
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
A. DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each:
1. "Business Day" means any day except a Saturday, Sunday or any other
day designated as a holiday under Federal or California statute or regulation.
2. "Fixed Rate Term" means a period commencing on a Business Day and
continuing for thirty (30), sixty (60) or ninety (90) days, as designated by
Borrower, during which all or a portion of the outstanding principal balance of
this Note bears interest determined in relation to Bank's LIBOR; provided
however, that no Fixed Rate Term may be selected for a principal amount less
than Five Hundred Thousand Dollars ($500,000.00); and provided further, that no
Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any
Fixed Rate Term would end on a day which is not a Business Day, then such Fixed
Rate Term shall be extended to the next succeeding Business Day.
<PAGE>
3. "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(a) "Base LIBOR" means the rate per annum for United States dollar deposits
quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding
that such rate is quoted by Bank for the purpose of calculating effective rates
of interest for loans making reference thereto, on the first day of a Fixed Rate
Term for delivery of funds on said date for a period of time approximately equal
to the number of days in such Fixed Rate Term and in an amount approximately
equal to the principal amount to which such Fixed Rate Term applies. Borrower
understands and agrees that Bank may base its quotation of the Inter-Bank Market
Offered Rate upon such offers or other market indicators of the Inter-Bank
Market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(b) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
4. "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office in San Francisco as its Prime
Rate, with the understanding that the Prime Rate is one of Bank's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Bank may
designate.
B. INTEREST:
1. Payment of Interest. Interest accrued on this Note shall be payable
-------------------
on the 1st day of each month, commencing December 1, 1995.
2. Selection of Interest Rate Options. At any time any portion of this
----------------------------------
Note bears interest determined in relation to Bank's LIBOR, it may be continued
by Borrower at the end of the Fixed Rate Term applicable thereto so that all or
a portion thereof bears interest determined in relation to the Prime Rate or in
relation to Bank's LIBOR for a new Fixed Rate Term designated by Borrower. At
any time any portion of this Note bears interest determined in relation to the
Prime Rate, Borrower may convert all or a portion thereof so that it bears
interest determined in relation to Bank's LIBOR for a Fixed Rate Term
-2-
<PAGE>
designated by Borrower. At the time each advance is requested hereunder or
Borrower wishes to select the LIBOR option for all or a portion of the
outstanding principal balance hereof, and at the end of each Fixed Rate Term,
Borrower shall give Bank notice specifying (a) the interest rate option selected
by Borrower, (b) the principal amount subject thereto, and (c) if the LIBOR
option is selected, the length of the applicable Fixed Rate Term. Any such
notice may be given by telephone so long as, with respect to each LIBOR
selection, (i) Bank receives written confirmation from Borrower not later than
three (3) Business Days after such telephone notice is given, and (ii) such
notice is given to Bank prior to 10:00 a.m., California time, on the first day
of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11:00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
3. Additional LIBOR Provisions.
---------------------------
(a) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining Bank's LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until
such notice has been withdrawn by Bank, than (i) no new LIBOR option may be
selected by Borrower, and (ii) any portion of the outstanding principal balance
hereof which bears interest determined in relation to Bank's LIBOR, subsequent
to the end of the Fixed Rate Term applicable thereto, shall bear interest
determined in relation to the Prime Rate.
(b) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(i) to make LIBOR options available hereunder, or (ii) to maintain interest
rates based on Bank's LIBOR, then in the former event, any obligation of Bank to
make available such unlawful LIBOR options shall immediately be cancelled, and
in the latter event, any such unlawful LIBOR-based interest rates then
outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect
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until the expiration of the Fixed Rate Term applicable thereto, then such
permitted LIBOR-based interest rates shall continue in effect until the
expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing
events, Borrower shall pay to Bank immediately upon demand such amounts as may
be necessary to compensate Bank for any fines, fees, charges, penalties or other
costs incurred or payable by Bank as a result thereof and which are attributable
to any LIBOR options made available to Borrower hereunder, and any reasonable
allocation made by Bank among its operations shall be conclusive and binding
upon Borrower.
(c) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(i) subject Bank to any tax, duty or other charge with respect to any LIBOR
options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder (except
for changes in the rate of tax on the overall net income of Bank); or
(ii) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits
or other liabilities in or for the account of, advances or loans by, or
any other acquisition of funds by any office of Bank; or
(iii) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
4. Default Interest. From and after the maturity date of this Note, or
----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
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<PAGE>
C. BORROWING AND REPAYMENT:
1. Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on November 1, 1998.
2. Advances. Advances hereunder, to the total amount of the principal
--------
sum stated above, may be made by the holder at the oral or written request of
(a) Regina Reed or Ronald L. Havner, Jr., any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (b) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.
3. Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
Bank's LIBOR, with such payments applied to the oldest Fixed Rate Term first.
4. Prepayment.
----------
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
-----
bears interest determined in relation to Bank's LIBOR at any time and in the
minimum amount of Two Million Dollars ($2,000,000.00); provided however, that if
the outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the
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<PAGE>
entire outstanding principal balance thereof. In consideration of Bank providing
this prepayment option to Borrower, or if any such portion of this Note shall
become due and payable at any time prior to the last day of the Fixed Rate Term
applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each month on
---------
the amount prepaid at the interest rate applicable to such amount had
it remained outstanding until the last day of the Fixed Rate Term
applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of interest
--------
which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at Bank's LIBOR in effect on
the date of prepayment for new loans made for such term and in a
principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by Bank's LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum one quarter percent
(0.25%) above the Prime Rate in effect from time to time (computed on the basis
of a 360-day year, actual days elapsed).
D. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
2. The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
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<PAGE>
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
5. Any financial statement provided by any Borrower or Third Party Obligor
to Bank proves false.
6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note.
E. MISCELLANEOUS:
1. Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
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<PAGE>
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
2. Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
3. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
/s/ B. Wayne Hughes
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B. Wayne Hughes
-8-
<PAGE>
EXHIBIT 99(b)(2)
Flair Industrial Park
Regional Commercial Banking Office
9000 Flair Drive
El Monte, CA 91731
January 13, 1997
Mr. B. Wayne Hughes
600 N. Brand Blvd., Suite 300
Glendale, CA 91203
Dear Mr. Hughes:
This letter is to confirm the changes agreed upon between Wells Fargo Bank,
National Association ("Bank") and B. WAYNE HUGHES ("Borrower") to the terms and
conditions of that certain letter agreement between Bank and Borrower dated as
of November 1, 1995, as amended from time to time (the "Agreement"). For
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree that the Agreement shall be amended
as follows to reflect said changes.
The Agreement is amended as follows:
1. A new paragraph (b) is added to Section VI.(5) which reads as follows:
"(b) not later than 60 days after and as of each calendar quarter end,
a financial statement of Borrower, prepared by Borrower, to include
balance sheet and income statement."
Existing paragraph (b) is relettered as (c).
2. Sections VI.8 (Other Indebtedness) and VI.10 (Pledge of Assets) are
deleted in their entirety. A new Section VI.8 is added which reads as follows:
"8. Financial Condition. Maintain a ratio of Total Liabilities to
-------------------
Net Worth (with such capitalized terms defined in accordance with generally
accepted accounting principles, consistently applied) not greater than 0.25
to 1.00, determined as of each calendar quarter end."
<PAGE>
B. Wayne Hughes
January 13, 1997
Page 2
3. The Letter Amendment dated December 11, 1995 is hereby replaced and
superseded by the terms of this letter. The December 11, 1995 letter is of no
force and effect.
4. Except as specifically provided herein, all terms and conditions of the
Agreement remain in full force and effect, without waiver or modification. All
terms defined in the Agreement shall have the same meaning when used herein.
This letter and the Agreement shall be read together, as one document.
5. Borrower hereby remakes all representations and warranties contained in
the Agreement and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of Borrower's acknowledgment set forth below there
exists no default or defined event of default under the Agreement or any
promissory note or other contract, instrument or document executed in connection
therewith, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute such a default or defined event of
default.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Daniel F. Maddox
--------------------
Daniel F. Maddox
Vice President
Acknowledged and accepted as of 1/30/97:
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/s/ B. Wayne Hughes
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B. Wayne Hughes
