UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-8908
------
PUBLIC STORAGE PROPERTIES IV, LTD.
----------------------------------
(Exact name of registrant as specified in its charter)
California 95-3192402
- -------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201
- -------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION
Condensed balance sheets at September 30, 1998
and December 31, 1997 2
Condensed statements of income for the three and
nine months ended September 30, 1998 and 1997 3
Condensed statement of partners' deficit for the
nine months ended September 30, 1998 4
Condensed statements of cash flows for the
nine months ended September 30, 1998 and 1997 5
Notes to condensed financial statements 6-7
Management's discussion and analysis of
financial condition and results of operations 8-11
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K. 12
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 640,000 $ 1,911,000
Marketable securities of affiliate (cost of $6,091,000) 10,242,000 11,220,000
Rent and other receivables 150,000 166,000
Real estate facilities, at cost:
Buildings and equipment 16,278,000 16,031,000
Land 5,244,000 5,244,000
------------------ ------------------
21,522,000 21,275,000
Less accumulated depreciation (11,589,000) (10,898,000)
------------------ ------------------
9,933,000 10,377,000
------------------ ------------------
Other assets 129,000 144,000
------------------ ------------------
Total assets $ 21,094,000 $ 23,818,000
================== ==================
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable $ 285,000 $ 65,000
Deferred revenue 236,000 230,000
Mortgage note payable - 25,405,000
Note payable to commercial bank 21,000,000 -
Partners' deficit:
Limited partners' deficit, $500 per unit, 40,000 units
authorized, issued and outstanding (3,396,000) (5,200,000)
General partners' deficit (1,182,000) (1,811,000)
Unrealized gain on marketable securities 4,151,000 5,129,000
------------------ ------------------
Total partners' deficit (427,000) (1,882,000)
------------------ ------------------
Total liabilities and partners' deficit $ 21,094,000 $ 23,818,000
================== ==================
</TABLE>
See accompanying notes.
2
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
REVENUES:
<S> <C> <C> <C> <C>
Rental income $ 2,255,000 $ 2,142,000 $ 6,559,000 $ 6,013,000
Dividends from marketable securities of affiliate 84,000 76,000 252,000 217,000
Other income 11,000 31,000 82,000 99,000
-------------- -------------- -------------- --------------
2,350,000 2,249,000 6,893,000 6,329,000
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Cost of operations 508,000 473,000 1,545,000 1,426,000
Management fees paid to affiliate 134,000 129,000 394,000 361,000
Depreciation 231,000 222,000 691,000 654,000
Administrative 15,000 18,000 56,000 49,000
Interest expense 405,000 698,000 1,774,000 2,113,000
-------------- -------------- -------------- --------------
1,293,000 1,540,000 4,460,000 4,603,000
-------------- -------------- -------------- --------------
NET INCOME $ 1,057,000 $ 709,000 $ 2,433,000 $ 1,726,000
============== ============== ============== ==============
Limited partners' share of net income ($60.15 per
unit in 1998 and $42.68 per unit in 1997) $ 2,406,000 $ 1,707,000
General partners' share of net income 27,000 19,000
-------------- --------------
$ 2,433,000 $ 1,726,000
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENT OF PARTNERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized Gain
Limited General on Marketable Total Partners'
Partners Partners Securities Deficit
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ (5,200,000) $ (1,811,000) $ 5,129,000 $ (1,882,000)
Unrealized loss on marketable securities - - (978,000) (978,000)
Net income 2,406,000 27,000 - 2,433,000
Equity transfer (602,000) 602,000 - -
------------------ ------------------ ------------------ ------------------
Balance at September 30, 1998 $ (3,396,000) $ (1,182,000) $ 4,151,000 $ (427,000)
================== ================== ================== ==================
</TABLE>
See accompanying notes.
4
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
--------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,433,000 $ 1,726,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 691,000 654,000
Decrease (increase) in rent and other receivables 16,000 (19,000)
Amortization of prepaid loan fees 69,000 69,000
(Increase) decrease in other assets (54,000) 26,000
Increase in accounts payable 220,000 158,000
Increase in deferred revenue 6,000 19,000
--------------- ----------------
Total adjustments 948,000 907,000
--------------- ----------------
Net cash provided by operating activities 3,381,000 2,633,000
--------------- ----------------
Cash flows from investing activities:
Purchase of marketable securities of affiliate - (1,289,000)
Additions to real estate facilities (247,000) (411,000)
--------------- ----------------
Net cash used in investing activities (247,000) (1,700,000)
--------------- ----------------
Cash flows from financing activities:
Principal payments on mortgage note payable (25,405,000) (691,000)
Proceeds from note payable to general partner 22,000,000 -
Principal payments on note payable to general partner (22,000,000) -
Proceeds from note payable to commercial bank 21,000,000 -
--------------- ----------------
Net cash used in financing activities (4,405,000) (691,000)
--------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,271,000) 242,000
Cash and cash equivalents at beginning of period 1,911,000 2,440,000
--------------- ----------------
Cash and cash equivalents at end of period $ 640,000 $ 2,682,000
=============== ================
Supplemental schedule of non-cash investing and financing activities:
Decrease in fair market value of marketable securities 978,000 295,000
=============== ================
Unrealized loss on marketable securities $ (978,000) $ (295,000)
=============== ================
</TABLE>
See accompanying notes.
5
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(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,
1997.
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, 1998, the results of its operations for the three and nine
months ended September 30, 1998 and 1997 and its cash flows for the nine
months then ended.
3. The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results expected for the full
year.
4. Marketable securities at September 30, 1998 consist of 381,980 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, 1998, the Partnership has recorded the
marketable securities at fair value, based upon the closing quoted prices
of the securities at September 30, 1998. Changes in market value of
marketable securities are reflected as unrealized gains or losses directly
in Partners' Equity and accordingly have no effect on net income.
5. The Partnership's mortgage note payable matures on October 1, 1998. On July
1, 1998, the Partnership paid off the mortgage note payable with cash
reserves and with the proceeds of a $22,000,000 loan from Public Storage,
Inc., a general partner of the Partnership. The loan from Public Storage,
Inc. bears interest at the fixed rate of 7.2% and matures June 30, 1999.
The loan calls for monthly payments of interest only. Principal may be paid
at any time without penalty. Public Storage, Inc. also provided the
Partnership with options to extend the loan term through June 2003. This
loan was paid off and canceled in September 1998 (see Note 6). Interest
paid during the third quarter of 1998 to Public Storage, Inc. was $341,000.
6. During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20% depending on the
Partnership's interest coverage ratio (6.017% at September 30, 1998). The
loan requires monthly payments of interest and mature September 2002.
Principal may be paid, in whole or in part, at any time without penalty or
premium.
6
<PAGE>
6. (continued)
The loan proceeds were used to pay off the Partnership's note payable to
Public Storage, Inc.
The Partnership has entered into an interest rate swap agreement to reduce
the impact of changes in interest rates on a portion of its floating rate
debt. The agreement, which covers $11,500,000 of debt through March 2000
and $4,000,000 from March 2000 through September 2000, effectively changes
the interest rate exposure from floating rate to a fixed rate of 5.22% plus
0.60% to 1.20% based on the Partnership's interest coverage ratio (5.82% as
of September 30, 1998). Market gains and losses on the value of the swap
are deferred and included in income over the life of the contract. The
Partnership records the differences paid or received on the interest rate
swap in interest expense as payments are made or received. As of September
30, 1998, the unrealized loss on the interest rate swap, if required to be
liquidated, was approximately $90,000.
7
<PAGE>
PUBLIC STORAGE PROPERTIES IV, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
- --------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains "forward looking" statements that involve risks and
uncertainties and are based upon a number of assumptions. Actual results and
trends may differ materially depending upon a number of factors. Information
regarding these factors is contained in the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and in the reports for the
quarterly periods on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998.
RESULTS OF OPERATIONS
- ---------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997:
The Partnership's net income for the nine months ended September 30, 1998
was $2,433,000 compared to $1,726,000 for the nine months ended September 30,
1997, representing an increase of $707,000 or 41%. The Partnership's net income
for the three months ended September 30, 1998 was $1,057,000 compared to
$709,000 for the three months ended September 30, 1997, representing an increase
of $348,000 or 49%. These increases are primarily a result of increased
operating results at the Partnership's mini-warehouse facilities combined with
decreased interest expense.
Rental income for the nine months ended September 30, 1998 was $6,559,000
compared to $6,013,000 for the nine months ended September 30, 1997,
representing an increase of $546,000 or 9%. Rental income for the nine months
September 30, 1998 was $2,255,000 compared to $2,142,000 for the three months
ended September 30, 1997, representing an increase of $113,000 or 5%. These
increases are primarily attributable to higher rental rates and occupancy levels
at the Partnership's mini-warehouse facilities. The weighted average occupancy
levels at the mini-warehouse facilities were 94% and 92% for the nine months
ended September 30, 1998 and 1997, respectively. Realized rent for the nine
months ended September 30, 1998 increased to $.88 per occupied square foot from
$.83 per occupied square foot for the nine months ended September 30, 1997.
Interest and other income decreased $17,000 for the nine months ended
September 30, 1998 compared to the same period in 1997. This decrease is
primarily a result of the pay off of the mortgage note payable with cash
reserves, which resulted in lower cash balances and consequently less interest
earned.
8
<PAGE>
Dividend income from marketable securities of affiliate increased $35,000
for the nine months ended September 30, 1998 compared to the same period in 1997
due to an increase in the number of shares owned in 1998 compared to the same
period in 1997.
Cost of operations (including management fees paid to affiliate) for the
nine months ended September 30, 1998 was $1,939,000 compared to $1,787,000 for
the nine months ended September 30, 1997, representing an increase of $152,000
or 9%. Cost of operations (including management fees paid to affiliate) for the
three months ended September 30, 1998 was $642,000 compared to $602,000 for the
three months ended September 30, 1997, representing an increase of $40,000 or
7%. This increase is mainly attributable to increases in management fees,
property taxes, repairs and maintenance and payroll expenses. Property taxes
increased due to an increase in property tax rates at some of the Partnership's
mini-warehouse facilities.
Interest expense decreased $339,000 to $1,774,000 in the nine months ended
September 30, 1998 from $2,113,000 in the same period in 1997. This decrease is
mainly attributable to a lower outstanding principal balances and reduced
interest rates on the Partnership's indebtedness. See Liquidity and Capital
Resources for a discussion of the refinancing of the Partnership's indebtedness
in the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operating activities ($3,381,000 for the nine months ended
September 30, 1998) have been sufficient to meet all current obligations of the
Partnership.
At September 30, 1998, the Partnership held 381,980 shares of common stock
(marketable securities) with a fair value totaling $10,242,000 (cost basis of
$6,091,000 at September 30, 1998) in Public Storage, Inc. The Partnership
recognized $252,000 in dividends for the nine months ended September 30, 1998.
The Partnership's mortgage note payable matures on October 1, 1998. On July
1, 1998, the Partnership paid off the mortgage note payable with cash reserves
and with the proceeds of a $22,000,000 loan from Public Storage, Inc., a general
partner of the Partnership. The loan from Public Storage, Inc. bears interest at
the fixed rate of 7.2% and matures June 30, 1999. The loan calls for monthly
payments of interest only. Principal may be paid at any time without penalty.
Public Storage, Inc. also provided the Partnership with options to extend the
loan term through June 2003.
During September 1998, the Partnership borrowed $21,000,000 from a
commercial bank. The loan is unsecured and bears interest at the London
Interbank Offering Rate ("LIBOR") plus 0.60% to 1.20% depending on the
Partnership's interest coverage ratio (6.017% at September 30, 1998). The loan
requires monthly payments of interest and mature September 2002. Principal may
be paid, in whole or in part, at any time without penalty or premium. The loan
proceeds were used to pay off the Partnership's note to Public Storage, Inc.
9
<PAGE>
The Partnership has entered into an interest rate swap agreement to reduce
the impact of changes in interest rates on a portion of its floating rate debt.
The agreement, which covers $11,500,000 of debt through March 2000 and
$4,000,000 from March 2000 through September 2000, effectively changes the
interest rate exposure from floating rate to a fixed rate of 5.22% plus 0.60% to
1.20% based on the Partnership's interest coverage ratio (5.82% as of September
30, 1998). Market gains and losses on the value of the swap are deferred and
included in income over the life of the contract. The Partnership records the
differences paid or received on the interest rate swap in interest expense as
payments are made or received. As of September 30, 1998, the unrealized loss on
the interest rate swap, if required to be liquidated, was approximately $90,000.
IMPACT OF THE YEAR 2000 ISSUE
- -----------------------------
Public Storage, Inc. ("PSI"), the general partner and property manager, has
completed an assessment of all of its hardware and software applications to
identify susceptibility to what is commonly referred to as the "Y2K Issue"
whereby certain computer programs have been written using two digits rather than
four to define the applicable year. Any of PSI's computer programs or hardware
with the Y2K Issue that have date-sensitive applications or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in miscalculations or system failure causing disruptions of
operations.
Many of PSI's critical applications, relative to the direct management of
properties, have recently been replaced and PSI believes they are already Year
2000 compliant. PSI has an implementation in process on the remaining critical
applications, including its general ledger and related systems, that are
believed to have Y2K Issues. PSI expects the implementation to be complete by
June 1999. Contingency plans have been developed for use in case PSI's
implementations are not completed on a timely basis. While PSI presently
believes that the impact of the Y2K Issue on its systems can be mitigated, if
the plan for ensuring Year 2000 compliance and the related contingency plans
were to fail, be insufficient, or not be implemented on a timely basis,
operations of the Partnership could be materially impacted.
Certain of PSI's other non-computer related systems that may be impacted by
the Y2K Issue, such as security systems, are currently being evaluated, and PSI
expects the evaluation to be completed by June 1999. PSI expects the
implementation of any required solutions to be complete in advance of December
31, 1999. PSI has not fully evaluated the impact of lack of Year 2000 compliance
on these systems, but has no reason to believe that lack of compliance would
materially impact the operations of the Partnership.
The Partnership exchanges electronic data with certain outside vendors in
the banking and payroll processing areas. PSI has been advised by these vendors
that their systems are or will be Year 2000 compliant, but has requested a Year
2000 compliance certification from these entities. PSI is not aware of any other
vendors, suppliers, or other external agents with a Y2K Issue that would
materially impact the Partnership's results of operations, liquidity, or capital
resources. However, PSI has no means of ensuring that external agents will be
Year 2000 compliant, and there can be no assurance that the Partnership has
10
<PAGE>
identified all such external agents. The inability of external agents to
complete their Year 2000 compliance process in a timely fashion could materially
impact the Partnership. The effect of non-compliance by external agents is not
determinable.
The total cost of PSI's Year 2000 compliance activities (which primarily
consists of the costs of new systems) will be allocated to all entities that use
the PSI computer systems. The amount to be allocated to the Partnership is
estimated at approximately $64,000. These costs are capitalized.
The costs of the projects and the date on which PSI believes that it will
be Year 2000 compliant are based upon management's best estimates, and were
derived utilizing numerous assumptions of future events. There can be no
assurance that these estimates will be achieved, and actual results could differ
materially from those anticipated. There can be no assurance that PSI has
identified all potential Y2K Issue either within PSI and the Partnership or at
external agents. In addition, the impact of the Y2K Issue on governmental
entities and utility providers and the resultant impact on the Partnership, as
well as disruptions in the general economy, may be material but cannot be
reasonably determined or quantified.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5 are inapplicable.
Item 6 Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibits are included herein:
10.1 Credit Agreement dated September 1, 1998 by and
between Public Storage Properties IV, Ltd. and Wells
Fargo Bank, National Association
10.2 Interest Rate Swap Agreement dated September 18, 1998
by and between Public Storage Properties IV, Ltd. and
Wells Fargo Bank, National Association
(27) Financial Data Schedule
(b) Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 13, 1998
PUBLIC STORAGE PROPERTIES IV, LTD.
BY: Public Storage, Inc.
General Partner
BY: /s/ John Reyes
-------------------------
John Reyes
Senior Vice President and
Chief Financial Officer
12
EXHIBIT 10.1
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of September 1, 1998, by and between
PUBLIC STORAGE PROPERTIES IV, LTD., a California limited partnership
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
-------
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
THE CREDIT
----------
SECTION 1.1. LOAN.
(a) LOAN. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make a loan to Borrower in the principal amount of Twenty-one
Million Five Hundred Thousand Dollars ($21,500,000.00) ("Loan"), the proceeds of
which shall be used to repay indebtedness of Borrower to Public Storage, Inc.
Borrower's obligation to repay the Loan shall be evidenced by a promissory note
substantially in the form of Exhibit A attached hereto ("Loan Note"), all terms
of which are incorporated herein by this reference. Bank's commitment to grant
the Loan shall terminate on September 30, 1998.
(b) REPAYMENT. The outstanding principal balance of the Loan shall be
due and payable in full on September 1, 2002.
(c) PREPAYMENT. Borrower may prepay principal on the Loan solely in
accordance with the provisions of the Loan Note.
SECTION 1.2. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Loan shall bear
interest at the rates of interest set forth in the Loan Note.
(b) 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 Loan Note.
(c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Loan equal to [Commitment Fee], which fee shall be due
and payable in full upon execution of this Agreement.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under the Loan by charging Borrower's demand
deposit account number [Account Number] 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.
13
<PAGE>
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement 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 Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a limited partnership, duly
organized and existing and in good standing under the laws of the state of
California, and 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.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Loan Note,
and each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (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.
SECTION 2.3. 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 contravene any provision of the Partnership Agreement of
Borrower, or result in any breach of or default under any contract, obligation,
indenture or other instrument to which Borrower is a party or by which Borrower
may be bound.
SECTION 2.4. 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.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated June 30, 1998, 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.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. 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 Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
14
<PAGE>
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. 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.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
-----------
CONDITIONS
----------
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Loan Note.
(ii) Partnership Authorization, Joint Venture or Association
Certificates.
(iii)Partnership Agreement.
(iv) Such other documents as Bank may require under any other
Section of this Agreement.
(c) 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.
SECTION 3.2. 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 Agreement 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
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of 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.
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ARTICLE IV
AFFIRMATIVE 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:
SECTION 4.1. PUNCTUAL PAYMENTS. 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.
SECTION 4.2. 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 to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, a 10K of Borrower, prepared by a certified public accountant acceptable to
Bank, to include all schedules and footnotes;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a 10Q of Borrower, prepared by Borrower, to include all schedules and
footnotes;
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. 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 such (a) 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 Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower which is not insured against
and which involves a claim in excess of $500,000.00 or which may have a material
adverse effect on Borrower's financial condition or operations.
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SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Interest Coverage Ratio not less than 1.5 to 1.0 as of each fiscal
quarter end, determined on a rolling four (4) quarter basis, with "Interest
Coverage" defined as EBITDA divided by Interest Expense, with "EBITDA" defined
as net profit before tax plus Interest Expense, depreciation expense and
amortization expense, and with "Interest Expense" defined as total interest
expense for any given period.
(b) Pre-tax profit not less than $1.00 on a quarterly basis, determined
as of each fiscal quarter end.
(c) Market Value Ratio at all times less than 1.0 to 1.0, determined on
a rolling four (4) quarter basis, with "Market Value Ratio" defined as Total
Liabilities divided by Gross Asset Value. "Total Liabilities" is defined as the
aggregate of current liabilities and non-current liabilities less subordinated
debt. "Gross Asset Value" is defined as EBITDA (as defined above) less dividends
paid to Borrower less capital expenditures divided by a ten percent (10%)
capitalization rate, plus cash, cash equivalents and the market value of
securities owned by Borrower which are publicly traded on the New York Stock
Exchange, American Stock Exchange or on NASDAQ.
(d) Cash Coverage Ratio not less than 1.15 to 1.00, determined on a
rolling four (4) quarter basis, with "Cash Coverage Ratio" defined as EBITDA (as
defined above) less capital expenditures less distributions divided by the prior
period current maturity of long term debt plus Interest Expense (as defined
above).
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.
SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive review
and assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms hereof
as Bank may from time to time require.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further 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 will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
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SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of $500,000.00 in the aggregate.
SECTION 5.3. OTHER INDEBTEDNESS. 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.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.5. GUARANTIES. 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, except any of the
foregoing in favor of Bank.
SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof.
SECTION 5.7. PLEDGE OF ASSETS. 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.
ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any general
partner in Borrower has incurred any debt or other liability to any person or
entity, including Bank; provided, however, that in the case of a default or
defined event of default under the terms of indebtedness to a person or entity
other than Bank, any cure period applicable thereto has expired and such
indebtedness is in excess of $2,500,000.00, individually or in the aggregate for
all such defaults by Borrower or any general partner in Borrower combined.
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(e) The filing of a notice of judgment lien against Borrower or any
general partner in Borrower; or the recording of any abstract of judgment
against Borrower or any general partner in Borrower in any county in which
Borrower or such general partner has an interest in real property; or the
service of a notice of levy and/or of a writ of attachment or execution, or
other like process, against the assets of Borrower or any general partner in
Borrower; or the entry of a judgment against Borrower or any general partner in
Borrower; provided, however, that such judgments, liens, levies, writs,
executions and other process involve debts of or claims against Borrower or any
general partner in Borrower in excess of $1,000,000.00, individually or in the
aggregate for all such judgments, liens, levies, writs, executions and other
process against Borrower and any general partner in Borrower combined, and
within twenty (20) days after the creation thereof, or at least ten (10) days
prior to the date on which any assets could be lawfully sold in satisfaction
thereof, such debt or claim is not satisfied or stayed pending appeal and
insured against in a manner satisfactory to Bank.
(f) Borrower or any general partner in Borrower shall become insolvent,
or shall suffer or consent to or apply for the appointment of a receiver,
trustee, custodian or liquidator of itself or any of its property, or shall
generally fail to pay its debts as they become due, or shall make a general
assignment for the benefit of creditors; Borrower or any general partner in
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower or any general partner in Borrower, or Borrower or any such general
partner shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or Borrower or any such
general partner shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower or any such general partner by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the prospect
of payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower or Public Storage, Inc.;
or Borrower or Public Storage, Inc., or any of their directors, stockholders or
members, shall take action seeking to effect the dissolution or liquidation of
Borrower or Public Storage, Inc. The withdrawal from Borrower of Public Storage,
Inc. as a general partner.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
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 hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) 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 accommodation from Bank subject hereto and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
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 an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1. 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
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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.
SECTION 7.2. 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
Agreement must be in writing delivered to each party at the following address:
BORROWER: Public Storage Properties IV, Ltd.
701 Western Avenue, 2nd Floor
Glendale, CA 91201
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
1000 E. Garvey Avenue South, Ste. 250
West Covina, CA 91790
Attn: John P. Manning
Vice President
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 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.
SECTION 7.3. 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), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any 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,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement 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 may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement 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 Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement 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 connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
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SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
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costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
PUBLIC STORAGE PROPERTIES IV, LTD., WELLS FARGO BANK,
a California limited partnership NATIONAL ASSOCIATION
By: Public Storage, Inc. By: /s/ John P. Manning
General Partner --------------------
John P. Manning
Vice President
By: /s/ David P. Singelyn
----------------------
David P. Singelyn
Vice President and Treasurer
23
EXHIBIT 10.2
INTEREST RATE SWAP AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of the 18th day of
September, 1998, by and between PUBLIC STORAGE PROPERTIES IV, LTD. ("Fixed Rate
Payer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Floating Rate Payer").
WHEREAS, both Fixed Rate Payer and Floating Rate Payer seek to reduce
actual or expected exposure to changes in interest rates or to lower costs of
actual or expected borrowings.
WHEREAS, the Fixed Rate Payer is willing to make the payments based on
a fixed rate of interest as provided herein; and
WHEREAS, the Floating Rate Payer is willing to make the payments based
on a floating rate of interest as provided herein;
NOW THEREFORE, in consideration of their mutual covenants, Fixed Rate
Payer and Floating Rate Payer agree as follows:
1. DEFINITIONS. The capitalized terms, "Effective Date", "Fixed Rate",
"Floating Rate", "Floating Rate Maturity", "Net Swap Settlement Payment Dates",
"Reset Dates", "Swap Amount", "Termination Date" and "Trade Date" shall each be
as specified in the Swap Confirmation. All other capitalized terms shall have
the meanings set forth below or otherwise as set forth in this Agreement:
(a) "BUSINESS DAY" means a day (other than Saturday, Sunday or
holiday) on which Bank is open and conducting its customary banking transactions
in the State of California.
(b) "BUSINESS DAY CONVENTION" means, for purposes of
determining each Calculation Period, that convention specified in the Swap
Confirmation for adjusting any relevant date if it would otherwise fall on a day
that is not a Business Day, so that:
(i) if "following" is specified, that date will be
the first following day that is a Business Day;
(ii) if "modified following" is specified, that date
will be the first following day that is a Business Day unless that day
falls in the next calendar month, in which case that date will be the
first preceding day that is a Business Day; and
(iii) if "preceding" is specified, that date will be
the first preceding day that is a Business Day.
(c) "CALCULATION PERIOD" means, subject to the Business Day
Convention, each consecutive period designated in the Swap Confirmation, the
first of which will commence on, and include, the Effective Date and extend to,
but exclude, the first Reset Date. Each subsequent Calculation Period will
commence on, and include, the Reset Date and extend to, but exclude the next
Reset Date. The final Calculation Period will end on, but exclude, the
Completion Date.
(d) "SWAP CONFIRMATION" means a document, substantially in the
form of Exhibit A hereto, with the information required in each blank space
completed.
(e) "COMPLETION DATE" shall mean the Termination Date unless
an Early Termination Date has occurred, in which case the Completion Date shall
be the Early Termination Date.
24
<PAGE>
(f) "DAY COUNT CONVENTION" means that the calculation of each
Net Swap Settlement will be based on the actual number of days in the
Calculation Period divided by a 360-day year.
(g) "EARLY TERMINATION DATE" means the date, if any, prior to
the Termination Date upon which this Agreement is terminated pursuant to
Paragraph 3(a) below.
(h) "LIBOR" means, with respect to each Calculation Period,
the rate for deposits in U.S. Dollars for a period equal to the Floating Rate
Maturity, as such rate appears on Telerate Page 3750 as of 11:00 AM, London
Time, on the Reset Date (or the Effective Date in the case of the initial
Period). If such rate does not appear on Telerate Page 3750, the rate for that
Reset Date will be the arithmetic mean of the rates quoted by major Banks in
London, selected by Floating Rate Payer, for a period equal to the Floating Rate
Maturity, as of 11:00 AM, London Time, on the Reset Date.
(i) "TELERATE PAGE 3750" means the display designated as "Page
3750" on the Dow Jones Telerate Service (or such other page as may replace Page
3750 on that service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of displaying
British Bankers' Association Interest Settlement Rates for U.S. Dollar
Deposits).
2. DETERMINATION; NET SWAP SETTLEMENT PAYMENTS.
(a) On the first Business Day following the end of each
Calculation Period, Floating Rate Payer will send Fixed Rate Payer a written
notice ("Settlement Notice") specifying:
(i) the amount of interest which would have accrued
on the Swap Amount during the Calculation Period at a rate per annum
equal to the Floating Rate ("Floating Rate Payment").
(ii) the amount of interest which would have accrued
on the Swap Amount during the Calculation Period at a rate per annum
equal to the Fixed Rate ("Fixed Rate Payment"); and
(iii) the difference, if any, between the Floating
Rate Payment and the Fixed Rate Payment ("Net Swap Settlement
Payment").
(b) All calculations under Paragraph 2(a) above will be made
on the basis of the Day Count Convention.
(c) On each Net Swap Settlement Payment Date:
(i) if the Fixed Rate Payment exceeds the Floating
Rate Payment, Fixed Rate Payer shall pay Floating Rate Payer the amount
of the Net Swap Settlement Payment by, at Floating Rate Payer's option,
Floating Rate Payer's debiting Fixed Rate Payer's demand deposit
account with Floating Rate Payer, or by wiring funds to Floating Rate
Payer; or
(ii) if the Floating Rate Payment exceeds the Fixed
Rate Payment, Floating Rate Payer shall pay Fixed Rate Payer the amount
of the Net Swap Settlement Payment by, at Floating Rate Payer's option,
crediting Fixed Rate Payer's demand deposit account with Floating Rate
Payer, or by wiring funds to a designated Fixed Rate Payer account.
3. EARLY TERMINATION.
(a) This Agreement shall expire on the Termination Date and
neither party may terminate this Agreement prior thereto; provided, however that
in the event that either Floating Rate Payer or Fixed Rate Payer fail to make
any payment when due hereunder or otherwise fail to perform any of their
obligations hereunder, unless such default is cured within five Business Days of
the defaulting party's receipt of written notice thereof, the non-defaulting
25
<PAGE>
party may, so long as such default in then continuing, upon five Business Days
written notice terminate this Agreement.
(b) In the event of an early termination of this Agreement
pursuant to Paragraph 3(a), the defaulting party shall promptly pay the
non-defaulting party, on demand, an amount equal to the Termination Amount. Each
party hereto acknowledges the Termination Amount to be a reasonable estimate of
the value, costs and loss of compensation incurred by the other party as a
result of the early termination of this Agreement.
(c) "Termination Amount" means the amount in U.S. Dollars
equal to the arithmetic mean of the respective one-time all-in fees (including
documentation costs) communicated to the non-defaulting party on the earliest
practicable Business Day following the Early Termination Date by each of three
leading commercial banks or investment banking firms in San Francisco, Los
Angeles or New York selected in good faith by the non-defaulting party as the
fee that it would charge to assume, as of the Early Termination Date, all of the
rights and obligations of the defaulting party. However, if one or more such
entities fail so to communicate such a fee, the Termination Amount shall be
determined on the basis of those fees so communicated by the other entities.
4. LIMITATIONS OF LIABILITY. In no event shall either party hereto be
liable to the other for loss of profit or indirect, special, consequential,
punitive or exemplary damages, arising out of any default under this Agreement.
5. NOTICES. All notices and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed served when
personally delivered or, if mailed, upon the first to occur of receipt or the
expiration of seventy-two hours after deposit in the United States Postal
Service, certified mail, or if sent by overnight courier service, upon the first
to occur of receipt or 3:00 p.m. (local time at place of delivery) the next
Business Day, addressed to Floating Rate Payer or Fixed Rate Payer at their
respective addresses set forth in the Swap Confirmation.
6. SUCCESSORS; ASSIGNS. This Agreement shall be binding on and inure to
the benefit of the successors and assigns of the parties; provided, however,
that Fixed Rate Payer shall not, without the prior written consent of Floating
Rate Payer, assign (whether by operation of law or otherwise) its rights and
obligations under this Agreement or any interest herein and any such attempted
assignment shall be void and without force or effect.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
any choice of law doctrine.
8. NO THIRD PARTY BENEFICIARY. This Agreement and the payments to be
made by the parties hereunder are solely for the benefit of the parties hereto
for the purposes stated herein and no other person or entity shall have any
rights hereunder or be a beneficiary of either party's obligations under this
Agreement.
9. COUNTERPARTS. This Agreement and the Swap Confirmation may be
executed in any number of counterparts and by each party hereto on separate
counterparts, each of which when executed and delivered shall constitute an
original, but all the counterparts shall together constitute but one and the
same instrument.
10. AMENDMENTS; WAIVERS. Any amendment or waiver of any right under any
provision of this Agreement shall be in writing and, in the case of an
amendment, signed by both parties hereto, or in the case of a waiver, signed by
the party waiving such right. No failure or delay by either party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof.
11. TRADE DATE; INTEREST AGREEMENT NOT CREDIT COMMITMENT. This
Agreement shall be effective at, and as of, 12:01 a.m., California time, on the
Trade Date. Nothing in this Agreement shall be construed to (i) mean that
Floating Rate Payer is committed to make a loan or extend any other credit to
Fixed Rate Payer, or (ii) amend or modify any contract, instrument or document
executed in connection with the Loan Facility.
26
<PAGE>
12. COSTS, EXPENSES AND ATTORNEYS' FEES. In the event of any dispute or
litigation between the parties hereto, the prevailing party shall be entitled to
recover from the other party, immediately upon demand, all costs and expenses,
including reasonable attorneys' fees, incurred by the prevailing party in
connection with the enforcement of its rights and/or the collection of any
amounts which become due to it under this Agreement, and the prosecution or
defense of any action in any way related to this Agreement, including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to such
other party.
13. ENTIRE AGREEMENT. This Agreement and the Swap Confirmation
constitute the entire agreement and understanding of the parties with respect to
its subject matter and supersedes all oral communications and prior writings
with respect thereto.
14. SECURITY. Unsecured.
15. NO RELIANCE. In connection with the negotiation of and entering
into this Agreement, (i) Fixed Rate Payer acknowledges that the Floating Rate
Payer is not acting as a fiduciary or a financial or investment advisor for it;
(ii) Fixed Rate Payer is not relying upon any advice, counsel or representations
(whether written or oral) of the Floating Rate Payer hereto other than the
representations expressly set forth in this Agreement, and in any Confirmation;
(iii) the Floating Rate Payer has not given Fixed Rate Payer any advice or
counsel as to the expected or projected success, return, performance, result,
consequence or benefit (either legal, regulatory, tax, financial, accounting, or
otherwise) of this Agreement; (iv) Fixed Rate Payer has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent is has deemed necessary and has made its own investment, hedging,
and trading decisions (including decisions regarding suitability of any
Transaction pursuant to this Agreement) based upon its own judgment and upon any
advice from such advisors as it has deemed necessary and not upon any view
expressed by the other party hereto; (v) Fixed Rate Payer has determined that
the rates, prices, or amounts and other terms of each Transaction in the
indicative quotations (if any) provided by Floating Rate Payer hereto reflect
those in the relevant market for similar Transactions, and all trading decisions
have been the result of arms length negotiations between the parties; (vi) Fixed
Rate Payer is entering into this Agreement with a full understanding of all of
the terms, conditions and risks thereof (economic and otherwise), and Fixed Rate
Payer is capable of assuming and willing to assume (financially and otherwise)
those risks; and (vii) Fixed Rate Payer is a sophisticated investor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
Floating Rate Payer: Fixed Rate Payer:
WELLS FARGO BANK, PUBLIC STORAGE PROPERTIES IV, LTD.
NATIONAL ASSOCIATION
By: Public Storage, Inc.,
general partner
By: /s/ Steven D. Berg By: /s/ David P. Singelyn
------------------ ---------------------
Name: Steven D. Berg Name: David P. Singelyn
Its: Vice President Its: Vice President and Treasurer
27
<PAGE>
[Wells Fargo Bank Letterhead]
September 18, 1998
David Singelyn
Public Storage Properties IV, Ltd.
701 Western Avenue
2nd Floor
Glendale, CA 91201
VIA FAX: (818) 244-9267
Dear David,
The purpose of this letter agreement is to confirm the terms and conditions
of the Swap Transaction entered into between Wells Fargo Bank, N.A. ("Floating
Rate Payer") and Public Storage Properties IV, Ltd. ("Fixed Rate Payer"). This
Swap Transaction is effective at, and as of 12:01 a.m., California time, on the
Trade Date specified below.
This confirmation supplements, forms part of, and is subject to Wells
Fargo's customary form of Swap Interest Rate Agreement, a copy of which will
follow via overnight mail. In the absence of any other such agreement, this
communication itself constitutes a binding agreement setting forth the essential
terms of the Swap Transaction.
The terms of the Swap Transaction to which this Swap Confirmation relates
are as follows:
Trade Date: September 18, 1998
Effective Date: September 18, 1998
Termination Date: September 18, 2000 (exclusive)
Swap Amount: $11,500,000 - initial notional
amount - please refer to attached
Schedule I.
Fixed Amounts:
Fixed Rate Payer: Public Storage IV, Ltd.
Fixed Rate: 5.22%
Day Count Convention: Actual/360
Business Day Convention: Following
Calculation Period: From the 18th day of each month,
beginning with September 18, 1998, up
to the 18th day of the following
month, continuing until the
Termination Date, subject to
adjustment in accordance with the
designated Business Day Convention.
Floating Amounts:
Floating Rate Payer: Wells Fargo Bank
Floating Rate: LIBOR
Floating Rate Maturity: 1-month
Reset Date: The 18th of each month, subject to
adjustment in accordance with the
designated Business Day Convention.
The first reset date is September 18,
1998.
28
<PAGE>
Day Count Convention: Actual/360
Business Day Convention: Following
Calculation Period: From the 18th day of each month,
beginning with September 18, 1998, up
to the 18th day of the following
month, continuing until the
Termination Date, subject to
adjustment in accordance with the
designated Business Day Convention.
Net Swap Settlement Payment
Dates: The 18th day of each month,
beginning with October 19, 1998,
continuing up to and including the
Termination Date, subject to
adjustment in accordance with the
designated Business Day convention.
Account Details:
Payments to Fixed Rate Payer: Credit DDA# 4648-058-048
Payments to Floating Rate Payer: Debit DDA# 4648-058-048
Addresses for Notices:
Fixed Rate Payer: Public Storage Properties IV, Ltd.
701 Western Avenue
2nd Floor
Glendale, CA 91201
Attention: David Singelyn
(818) 244-8080 ext. 385
FAX: (818) 244-9267
Floating Rate Payer: Wells Fargo Bank, National Association
420 Montgomery Street, 6th Floor
MAC: 0101-063
San Francisco, CA 94163
Attention: Steven D. Berg
(415) 394-4020
FAX: (415) 956-9581
Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing this facsimile and sending it as a return acknowledgment to
Kelly Johnson's attention (FAX: (415) 956-9581). Swap agreement documents will
follow via overnight delivery. If you have any questions, please call me at
(415) 394-4020.
Sincerely,
/s/ Steven D. Berg
CONFIRMED BY: Public Storage, Inc., general partner
BY: /s/ David P. Singelyn
---------------------
NAME: David P. Singelyn
TITLE: Vice President and Treasurer
DATE: September 18, 1998
29
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000225775
<NAME> Public Storage Properties IV, Ltd.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 640,000
<SECURITIES> 10,242,000
<RECEIVABLES> 150,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,161,000
<PP&E> 21,522,000
<DEPRECIATION> (11,589,000)
<TOTAL-ASSETS> 21,094,000
<CURRENT-LIABILITIES> 521,000
<BONDS> 21,000,000
0
0
<COMMON> 0
<OTHER-SE> (427,000)
<TOTAL-LIABILITY-AND-EQUITY> 21,094,000
<SALES> 0
<TOTAL-REVENUES> 6,893,000
<CGS> 0
<TOTAL-COSTS> 1,939,000
<OTHER-EXPENSES> 747,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,774,000
<INCOME-PRETAX> 2,433,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,433,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,433,000
<EPS-PRIMARY> 60.15
<EPS-DILUTED> 60.15
</TABLE>
