<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1995
REGISTRATION NO. 33-64971
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3551121
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR NO.)
ORGANIZATION) HUGH W. HORNE
PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD 600 NORTH BRAND BOULEVARD
GLENDALE, CALIFORNIA 91203- GLENDALE, CALIFORNIA 91203-1241
1241 (818) 244-8080
(818) 244-8080 (NAME, ADDRESS, INCLUDING ZIP
(ADDRESS, INCLUDING ZIP CODE, CODE, AND TELEPHONE
AND NUMBER, INCLUDING AREA CODE, OF
TELEPHONE NUMBER, INCLUDING AGENT FOR SERVICE)
AREA CODE,
OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
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COPIES TO:
DAVID GOLDBERG, ESQ.
PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD, SUITE 300
GLENDALE, CALIFORNIA 91203-1241
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OR UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Preferred Stock, $.01 par value per
share.............................. (1)(3) (2) (1)(2)(3) N/A
Depositary Shares................... (1)(3) (2) (1)(2)(3) N/A
Common Stock, $.10 par value per
share.............................. (1)(4) (2) (1)(2)(4) N/A
Warrants............................ (1)(5) (2) (1)(2)(5) N/A
Total............................. $274,634,539(6) (2) $274,634,539(6) $94,702(7)
==============================================================================================================
</TABLE>
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $274,634,539. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the
Registrant of the securities registered hereunder. No separate
consideration will be received for any Depositary Shares representing
shares of Preferred Stock of the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Preferred Stock, and Depositary Shares
representing a fractional interest in a share of Preferred Stock, as may
be sold, from time to time, by the Registrant. In the event Registrant
elects to offer to the public fractional interests in shares of the
Preferred Stock registered hereunder, Depositary Receipts will be
distributed to those persons acquiring such fractional interests and the
shares of Preferred Stock will be issued to a Depositary under a Deposit
Agreement. There is also being registered hereunder an indeterminate
number of shares of Preferred Stock as shall be issuable upon exercise of
Warrants registered hereby.
(4) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time
to time, by the Registrant. There is also being registered hereunder an
indeterminate number of shares of Common Stock as shall be issuable upon
conversion of the Preferred Stock or exercise of Warrants registered
hereby.
(5) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of Warrants representing rights to purchase Preferred
Stock or Common Stock, as the case may be, registered pursuant to this
Registration Statement.
(6) An additional $25,365,461 of securities were registered by Registrant
under Registration Statement No. 33-49696 and remain unissued.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. An additional $8,747 registration fee
was paid by Registrant in conection with Registration Statement No. 33-
49696 with respect to securities registered thereunder that remain
unissued.
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PURSUANT TO RULE 429 OF THE RULES AND REGULATIONS UNDER THE SECURITIES ACT
OF 1933, THE PROSPECTUS WHICH IS A PART OF THIS REGISTRATION STATEMENT WILL
ALSO BE USED IN CONNECTION WITH SECURITIES REGISTERED BY REGISTRANT'S
REGISTRATION STATEMENT NO. 33-49696. IN THE EVENT ANY OF SUCH PREVIOUSLY
REGISTERED SECURITIES ARE OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT, THEY WILL NOT BE INCLUDED IN SUCH PROSPECTUS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PUBLIC STORAGE, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY FORM S-4
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
--------------------------- ----------------------
A. Information About the Transaction
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus........ Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back
Cover Pages
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information..................... Risk Factors and Summary--Ratio
of Earnings to Fixed Charges
4. Terms of the Transaction......... The Offering
5. Pro Forma Financial Information.. Incorporation of Certain Documents
by Reference
6. Material Contacts with the
Company Being Acquired.......... *
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................... The Offering
8. Interests of Named Experts and
Counsel.......................... Legal Opinions
9. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......
B. Information About the Registrant
10. Information with Respect to S-3
Registrants..................... Incorporation of Certain Documents
by Reference
11. Incorporation of Certain
Information By Reference........ Incorporation of Certain
Documents by Reference
12. Information with Respect to S-2
or S-3 Registrants.............. Incorporation of Certain
Documents by Reference
13. Incorporation of Certain
Information By Reference........ Incorporation of Certain
Documents by Reference
14. Information with Respect to
Registrants Other than S-2 or
S-3 Registrants................. Incorporation of Certain
Documents by Reference
C. Information About the Company
Being Acquired
15. Information with Respect to S-3
Companies....................... Incorporation of Certain Documents
by Reference
16. Information with Respect to S-2
or S-3 Companies................ Incorporation of Certain
Documents by Reference
17. Information with Respect to
Companies Other than S-2 or S-3
Companies....................... Incorporation of Certain
Documents by Reference
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited....................... Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer........................... Incorporation of Certain
Documents by Reference
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* Omitted as Inapplicable.
<PAGE>
PROSPECTUS
PUBLIC STORAGE, INC.
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
Public Storage, Inc. (the "Company") is registering an aggregate
$300,000,000 stated amount of securities (including $25,365,461 stated amount
of securities registered under a prior registration statement) consisting of
(i) shares of Preferred Stock, $.01 par value per share (the "Preferred
Stock"), and depositary shares (the "Depositary Shares") representing a
fractional interest in a share of Preferred Stock, (ii) shares of common
stock, $.10 par value per share (the "Common Stock") and (iii) warrants for
the purchase of Preferred Stock or Common Stock (the "Warrants")
(collectively, the "Securities") which are being offered and sold by the
Company in connection with the acquisition of interests in, or notes secured
by, self-service facilities offering storage space for personal and business
use ("mini-warehouses") and other real properties or interests in entities
that own mini-warehouses and other real properties (collectively, the "Real
Estate Investments"). This Prospectus will not be used in connection with
"roll-up transactions." See "The Offering--Roll-Up Transactions."
The terms under which the Securities would be issued with respect to a
particular transaction or transactions are set forth in the accompanying
Supplement to this Prospectus (the "Prospectus Supplement"). The Preferred
Stock and the Notes may be offered in one or more series on terms to be
determined at the time of issuance. The applicable Prospectus Supplement will
also contain information, where applicable, about any listing on a securities
exchange of the Securities covered by such Prospectus Supplement.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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December 27, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission in
Washington, D.C. and at the Regional Offices of the Commission at 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material can also be inspected at the New York Stock Exchange ("NYSE"), 20
Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
(File No. 1-8389), are incorporated herein by reference: (i) the Annual Report
on Form 10-K for the year ended December 31, 1994, as amended byForm 10-K/As
dated April 4, 1995 and April 21, 1995, (ii) the Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995
and (iii) the Current Reports on Form 8-K datedJanuary 24, 1995, April 25,
1995 and May 22, 1995, the Current Report on Form 8-K, as amended by aForm 8-
K/A, each dated June 30, 1995, and the Current Report on Form 8-K dated
November 16, 1995. The financial statements included in Registration Statement
No. 33-58893, filed by the Company with the Commission pursuant to the
Securities Act, are also incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such information), will be provided
without charge to any person, including any beneficial owner, to whom this
Prospectus is delivered, upon written request. Requests for such copies should
be directed to Investor Services Department, Public Storage, Inc., 600 North
Brand Boulevard, Suite 300, Glendale, California 91203-1241.
2
<PAGE>
THE COMPANY
The Company is a fully integrated, self-administered and self-managed real
estate investment trust ("REIT") that acquires, develops, owns and operates
self-service facilities offering space for personal and business use ("mini-
warehouses"). The Company is the largest owner and operator of mini-warehouses
in the United States. The Company also owns and operates, to a much smaller
extent, business parks containing commercial and industrial rental space. At
November 16, 1995, the Company had equity interests (through direct ownership,
as well as general and limited partnership and capital stock interests) in
1,044 properties located in 37 states, consisting of 1,009 mini-warehouse
facilities and 35 business parks. The Company also operates 77 properties in
which it has no equity interest.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger
of PSMI into the Company (the "Merger"), the Company became self-administered
and self-managed, acquired substantially all of PSMI's United States real
estate interests and was renamed "Public Storage, Inc."
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). To the extent that the Company
continues to qualify as a REIT, it will not be taxed, with certain limited
exceptions, on the net income that is currently distributed to its
shareholders (the "Shareholders"). See "Certain Federal Income Tax
Considerations." The Company was incorporated in California in 1980; its
principal executive offices are located at 600 North Brand Boulevard, Suite
300, Glendale, California 91203-1241. Its telephone number is (818) 244-8080.
3
<PAGE>
RISK FACTORS
In evaluating the Securities, investors should consider the following
factors, in addition to other matters set forth or incorporated in this
Prospectus (and in the applicable Prospectus Supplement) and the Registration
Statement.
CONTROL AND INFLUENCE BY THE HUGHES FAMILY
B. Wayne Hughes, the chief executive officer of the Company, and members of
his family (collectively, the "Hughes Family") beneficially own approximately
53% of the outstanding shares of Common Stock (approximately 57% upon
conversion of the Company's Class B common stock, par value $.10 per share
(the "Class B Common Stock")). Consequently, the Hughes Family has the ability
to control all matters submitted to a vote of Shareholders, including the
election of directors, amendment of the Company's restated articles of
incorporation (the "Articles of Incorporation"), dissolution and the approval
of other extraordinary transactions. In addition, this concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company.
OWNERSHIP LIMITATIONS
Public shareholders are further limited in their ability to change control
of the Company due to restrictions in the Articles of Incorporation and the
Company's bylaws (the "Bylaws") on beneficial ownership. Unless such
limitations are waived by the Company's board of directors (the "Board of
Directors"), no Shareholder may own more than (A) 2.0% of the outstanding
shares of all common stock of the Company or (B) 9.9% of the outstanding
shares of any class or series of shares of preferred stock of the Company. The
Articles of Incorporation and Bylaws provide, however, that no person shall be
deemed to exceed the ownership limit solely by reason of the beneficial
ownership of shares of any class of capital stock to the extent that such
shares of capital stock were beneficially owned by such person at the time of
the Merger, which includes the Common Stock owned by the Hughes Family. The
principal purpose of the foregoing limitations is to assist in preventing, to
the extent practicable, a concentration of ownership that might jeopardize the
ability of the Company to obtain the favorable tax benefits afforded a
qualified REIT. An incidental consequence of such provisions is to make a
change of control significantly more difficult (if not impossible) even if it
would be favorable to the interests of the public shareholders. Such
provisions will prevent future takeover attempts which the Board of Directors
has not approved even if a majority of the public shareholders deem it to be
in their best interests or in which the public shareholders may receive a
premium for their shares over the then market value. See "Description of
Common Stock and Class B Common Stock--Ownership Limitations."
TAX RISKS
Possible Treatment of the Merger as a Taxable Event. In connection with the
Merger, Hogan & Hartson L.L.P. ("Hogan & Hartson"), counsel to the Company,
has delivered an opinion that for federal income tax purposes under current
law, the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code. This opinion is based on certain representations
made by the Company and by PSMI and its shareholders and on certain
assumptions. Furthermore, this opinion is not binding on the IRS. Therefore,
the IRS may contest the qualification of the Merger as a reorganization under
Section 368(a) of the Code. If such a contest were successful, the Merger
would be a taxable transaction and PSMI would recognize gain in an amount
equal to the excess of the fair market value of the Common Stock and the Class
B Common Stock issued in the Merger over the adjusted basis of the assets
transferred to the Company. As the successor to PSMI, the Company would be
primarily liable for this resulting tax liability. In addition, the Merger may
impact the Company's ability to continue to qualify as a REIT, whether or not
the Merger qualifies as a reorganization under the Code. See "--Increase in
Nonqualifying Income," "--Elimination of Any Accumulated Earnings and
Profits," "--Increased Risk of Violation of Ownership Requirements," and
"Certain Federal Income Tax Considerations--Consequences of the Merger on the
Company's Qualification as a REIT." Subject to certain limitations, Hughes has
agreed to indemnify the Company for tax liabilities of PSMI, including any tax
liabilities arising directly or indirectly as a result of the Merger or
related transactions.
4
<PAGE>
Increased Risk of Violation of Gross Income Requirements. As a result of the
Merger, the Company performs property management services for properties in
which it has no or only a partial interest. Some or all of the gross income
received from these services will not be treated as income qualifying for
certain REIT gross income tests applicable to the Company. In 1995 and future
years, if the Company's nonqualifying income were to exceed 5% of its total
gross income, the Company's REIT status may terminate for that year and future
years unless the Company meets certain "reasonable cause" standards. Even if
the Company meets such standards, however, it would be subject to a 100%
excise tax on any excess nonqualifying net income.
If there were no change in the Company's current revenues through
acquisitions or otherwise and no other action by the Company to reduce its
percentage of nonqualifying income, the Company estimates that it would not
satisfy the 95% gross income test for 1996 because its nonqualifying income
would represent approximately 7% of its total gross income for 1996. For a
discussion of the Company's plans to reduce its percentage of nonqualifying
income in 1996 and subsequent years, see "Certain Federal Income Tax
Considerations--Consequences of the Merger on the Company's Qualification as a
REIT--Nonqualifying Income."
Increased Risk of Violation of Ownership Requirements. For the Company to
qualify as a REIT under the Code, no more than 50% in value of its outstanding
stock may be owned, directly or constructively under the applicable
attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year. The
value of the outstanding capital stock of the Company held by the Hughes
Family is currently estimated at approximately 45% (based upon the market
price at November 16, 1995 of the Common Stock and SEI's preferred stock, no
discount on the Class B Common Stock and no post-closing reduction in the
number of shares issued in the Merger). Accordingly, no four individuals other
than the Hughes Family may own directly or constructively, in the aggregate,
more than 5% of the value of outstanding capital stock of the Company. In
order to assist the Company in meeting these ownership restrictions, the
Articles of Incorporation and Bylaws contain the ownership limitations
described under "Description of Common Stock and Class B Common Stock--
Ownership Limitations." However, even with these ownership limitations, the
Company could still be in violation of the ownership restrictions if four
individuals unrelated to the Hughes Family were to own the maximum amount of
capital stock permitted under the Articles of Incorporation and Bylaws.
Therefore, to further assist the Company in meeting the ownership
restrictions, the Hughes Family has entered into an agreement with the Company
restricting the Hughes Family's acquisition of additional shares of capital
stock of the Company and providing that if, at any time, for any reason, more
than 50% in value of its outstanding capital stock otherwise would be
considered owned by five or fewer individuals, a number of shares of Common
Stock owned by Wayne Hughes necessary to prevent such violation will
automatically and irrevocably be transferred to a designated charitable
beneficiary. The provisions in the Articles of Incorporation and Bylaws and
the agreement with Wayne Hughes are modeled after certain arrangements that
the Internal Revenue Service (the "IRS") has ruled in private letter rulings
will preclude a REIT from being considered to violate the ownership
restrictions so long as such arrangements are enforceable as a matter of state
law and the REIT seeks to enforce them as and when necessary. There can be no
assurance, however, that the IRS might not seek to take a different position
with respect to the Company (a private letter ruling is legally binding only
with respect to the taxpayer to whom it was issued) or contend that the
Company failed to enforce these various arrangements and, hence, there can be
no assurance that these arrangements will necessarily preserve the Company's
REIT status. No private letter ruling has been sought by the Company from the
IRS with respect to the effect of these arrangements.
Elimination of Any Accumulated Earnings and Profits. The accumulated
earnings and profits, if any, of PSMI carried over to the Company in the
Merger. To retain its REIT status, the Company will have to distribute all of
these acquired earnings and profits, if any, on or before December 31, 1995.
Accordingly, the Company will be required to accurately determine the amount
of acquired earnings and profits and to increase its distributions to its
shareholders in 1995 if necessary to eliminate any such earnings and profits.
In connection with the Merger, a study of the earnings and profits showed that
PSMI had no earnings and profits at the time of the Merger. The determination
of earnings and profits depends on a number of factual matters related to the
activities and operation of PSMI and its predecessors in years prior to the
Merger. Accordingly, no assurances can be given that the IRS will not
challenge such conclusion. If the IRS were subsequently to determine that such
earnings and profits existed at the time of the Merger and the Company failed
to distribute such earnings
5
<PAGE>
and profits by December 31, 1995, the Company may lose its REIT qualification
for the year of the Merger and, perhaps, for subsequent years unless certain
relief provisions apply. See "Certain Federal Income Tax Considerations--
Consequences of the Merger on the Company's Qualification as a REIT--
Elimination of any Accumulated Earnings and Profits Attributable to Non-REIT
Years."
Consequences of Failure to Qualify as a REIT. The Company has elected to be
taxed as a REIT under the Code. In order for the Company to continue to
qualify as a REIT under the Code, certain detailed technical requirements must
be met (including certain income tests, certain limitations on types of assets
the Company can own, certain operational limitations, and certain stock
ownership tests). Although the Company intends to operate so that it will
continue to qualify as a REIT, the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in the circumstances of the Company preclude any
assurance that the Company will so qualify in any year. For any taxable year
that the Company fails to qualify as a REIT and certain relief provisions do
not apply, the Company would be taxed at the regular corporate rates on all of
its taxable income, whether or not it makes any distributions to its
shareholders. Those taxes would reduce the amount of cash available to the
Company for distribution to its shareholders or for reinvestment. As a result,
failure of the Company to qualify during any taxable year as a REIT could have
a material adverse effect upon the Company and its shareholders. Furthermore,
unless certain relief provisions apply, the Company would not be eligible to
elect REIT status again until the fifth taxable year that begins after the
first year for which the Company fails to qualify.
Corporate Level Tax on Sale of Certain Built-in Gain Assets. The Company
will be subject to a corporate level tax if it disposes of any of the assets
acquired in the Merger at any time during the 10-year period beginning at the
time of the Merger (the "Restriction Period"). This tax would be imposed at
the top regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value at
the time of the Merger of the assets disposed of and (b) the selling price of
such assets over (ii) the Company's adjusted basis at the time of the Merger
in such assets (such excess being referred to as the "Built-in Gain"). The
Company currently does not intend to dispose of any of the assets acquired in
the Merger during the Restriction Period, but there can be no assurance that
one or more such dispositions will not occur. See "Certain Federal Income Tax
Considerations--Tax Treatment of the Merger--Built-in Gain Rules."
OPERATING RISKS
General Risks of Real Estate Ownership. The Company is subject to the risks
generally incident to the ownership of real estate-related assets, including
lack of demand for rental spaces in a locale, changes in general economic or
local conditions, changes in supply of or demand for similar or competing
facilities in an area, the impact of environmental protection laws, changes in
interest rates and availability of permanent mortgage funds which may render
the sale or financing of a property difficult or unattractive and changes in
tax, real estate and zoning laws.
Competition Among Mini-Warehouses. Most of the Company's properties are
mini-warehouses. Competition in the market areas in which the Company operates
is significant and has affected the occupancy levels, rental rates and
operating expenses of certain of the Company's properties. Competition may be
accelerated by any increase in availability of funds for investment in real
estate. Recent increases in plans for development of mini-warehouses is
expected to further intensify competition among mini-warehouse operators in
certain market areas.
Risk of Environmental Liabilities. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an
owner or operator of real estate interests may be liable for the costs of
cleaning up, as well as certain damages resulting from, past or present
spills, disposals or other releases of hazardous or toxic substances or wastes
on, in or from a property. Certain Environmental Laws impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of hazardous or toxic substances or wastes at or from a property. An
owner or operator of real estate or real estate interests also may be liable
under certain Environmental Laws that govern activities or operations at a
property having adverse
6
<PAGE>
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous or toxic wastes. In some cases,
liability may not be limited to the value of the property. The presence of
such substances or wastes, or the failure to properly remediate any resulting
contamination, also may adversely affect the owner's or operator's ability to
sell, lease or operate its property or to borrow using its property as
collateral.
The Company has recently conducted preliminary environmental assessments of
most of its properties (and intends to conduct such assessments in connection
with property acquisitions) to evaluate the environmental condition of, and
potential environmental liabilities associated with, such properties. Such
assessments generally consist of an investigation of environmental conditions
at the subject property (not including soil or groundwater sampling or
analysis), as well as a review of available information regarding the site and
publicly available data regarding conditions at other sites in the vicinity.
In connection with these recent property assessments, the Company's operations
and recent property acquisitions, the Company has become aware that prior
operations or activities at certain facilities or from nearby locations have
or may have resulted in contamination to the soil and/or groundwater at such
facilities. In this regard, certain such facilities are or may be the subject
of federal or state environmental investigations or remedial actions. The
Company has obtained with respect to recent acquisitions, and intends to
obtain with respect to pending or future acquisitions, appropriate purchase
price adjustments or indemnifications that it believes are sufficient to cover
any such potential liabilities. Although there can be no assurance, based on
the recent preliminary environmental assessments, the Company believes it has
funds available to cover any liability from environmental contamination or
potential contamination and the Company is not aware of any environmental
contamination of its facilities material to its overall business or financial
condition.
Tenant Reinsurance. A corporation owned by the Hughes Family continues to
reinsure policies insuring against losses to goods stored by tenants in the
mini-warehouses operated by the Company. The Company believes that the
availability of insurance reduces its potential liability to tenants for
losses to their goods from theft or destruction. This corporation will
continue to receive the premiums and bear the risks associated with the
insurance. The Company has a right of first refusal to acquire the stock or
assets of this corporation if the Hughes Family or the corporation agree to
sell them, but the Company has no interest in its operations and no right to
acquire the stock or assets of the corporation in the absence of a decision to
sell. If the reinsurance business were owned directly by the Company, the
insurance premiums would be nonqualifying income to the Company. The Company
would be precluded from exercising its right of first refusal with respect to
the stock of the reinsurance corporation if such exercise would cause the
Company to violate any of the requirements for qualification as a REIT under
the Code.
Canadian Operations. The Hughes Family continues to own and operate mini-
warehouses in Canada. The Company has a right of first refusal to acquire the
stock or assets of the corporation engaged in these operations if the Hughes
Family or the corporation agree to sell them, but the Company has no interest
in its operations and no right to acquire the stock or assets in the absence
of a decision to sell.
PSCP. Prior to the Merger, Public Storage Commercial Properties Group, Inc.
("PSCP"), a subsidiary of PSMI, managed commercial properties for the Company
and others. Because certain of the revenues generated by PSCP would be
nonqualifying income to the Company, prior to the Merger, the common stock of
PSCP held by PSMI was converted into nonvoting preferred stock (representing
95% of the equity) and the voting common stock of PSCP (representing 5% of the
equity) was issued to the Hughes Family. While the Company acquired the
preferred stock of PSCP in the Merger, the Hughes Family is able to continue
to control the operations of PSCP by reason of their ownership of its voting
stock.
Merchandise Company. Prior to the Merger, PSMI sold locks, boxes and tape to
tenants to use in securing their rented spaces and moving their goods. Because
the revenues received from the sale of these items would be nonqualifying
income to the Company, immediately prior to the Merger PSMI transferred this
lock and box business to a separate corporation (the "Lock/Box Company"). In
the Merger, the Company acquired the
7
<PAGE>
nonvoting preferred stock of the Lock/Box Company (representing 95% of the
equity). The voting common stock of the Lock/Box Company (representing 5% of
the equity) was issued to the Hughes Family, who will be able to control the
operations of the Lock/Box Company by reason of their ownership of its voting
stock.
Liabilities with Respect to Acquired General Partner Interests. Upon
succeeding to substantially all of the properties and operations of PSMI in
the Merger, there may be certain liabilities and associated costs suffered by
the Company in its capacity as general partner of former PSMI limited
partnerships arising out of facts and circumstances in existence prior to the
Merger, and the Company will also have general partner liability for post-
Merger activities of these partnerships, as it does for other partnership as
to which it is a general partner. Subject to certain limitations, Hughes has
agreed to indemnify the Company for pre-Merger activities and the Class B
Common Stock will be placed in escrow to support such indemnification.
FINANCING RISKS
Dilution and Subordination. The interest of Shareholders, including persons
who acquire Securities in this offering, can be diluted through the issuance
of additional securities.
Since October 1992 the Company has issued shares of Preferred Stock and
intends to issue additional such shares. These issuances could involve certain
risks to holders of shares of Common Stock. In the event of a liquidation of
the Company, the holders of the Preferred Stock will be entitled to receive,
before any distribution of assets to holders of Common Stock, liquidating
distributions (an aggregate of approximately $538,850,000 in respect of
Preferred Stock issued to date), plus any accrued and unpaid dividends.
Holders of preferred stock are entitled to receive, when declared by the Board
of Directors, cash dividends (an aggregate of approximately $50 million per
year in respect of Preferred Stock issued to date, in preference to holders of
Common Stock. As a REIT, the Company must distribute to its Shareholders
(which include not only holders of Common Stock but also holders of Preferred
Stock) for each taxable year at least 95% of its annual taxable income.
Failure to pay full dividends on the Preferred Stock could jeopardize the
Company's qualification as a REIT. See "Description of Preferred Stock" and
"Certain Federal Income Tax Considerations--Tax Treatment of the Company."
Risk of Leverage. In making real estate investments, the Company has
incurred and may continue to incur indebtedness to the extent believed
appropriate. The incurrence of indebtedness increases the risk of loss of the
investment.
RISKS TO INVESTORS IN AFFILIATED ENTITIES
Securities may be issued under this Prospectus to investors in entities
affiliated with the Company. Because of the affiliation between the Company
and the affiliated entities, the terms of the transactions will not be
negotiated at arms' length and may not be as favorable to the investors in the
affiliated entities as could be obtained in transactions with unaffiliated
parties.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of certain
post-Merger adjustments, it is estimated that there will be approximately 72
million shares of Common Stock and seven million shares of Class B Common
Stock outstanding. Of these shares, approximately 42 million shares of Common
Stock outstanding prior to the Merger are tradeable without restriction
(except those applicable to affiliates of the Company) or further registration
under the Securities Act. The remaining approximately 36.4 million shares of
Common Stock and seven million shares of Class B Common Stock were issued in
the Merger without registration under the Securities Act in reliance on an
exemption from registration and are "restricted securities" within the meaning
of Rule 144 adopted under the Act (the "Restricted Shares"). The beneficial
owners of 15.5 million of the Restricted Shares
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<PAGE>
(including all of the Class B Common Stock) have agreed not to offer, sell or
otherwise dispose (except for gifts and pledges) of any of their shares for a
period of three years following the Merger, in the case of the Common Stock,
or for seven years following the Merger, in the case of the Class B Common
Stock. Upon expiration of such periods, each will be entitled to sell his or
her shares in the public market subject to Rule 144, which contains certain
public information, volume, holding period and manner of sale requirements.
The remaining approximately 27.9 million Restricted Shares will be available
for sale in the public market pursuant to Rule 144, subject to the foregoing
requirements that include, as the Rule is currently in effect, a two-year
holding period. Sales of substantial amounts of such Common Stock in the
public market could adversely affect the market price of the Common Stock.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends is computed by dividing earnings by the sum of fixed charges
and preferred stock dividends. Earnings consists of net income before minority
interest in income, loss on early extinguishment of debt and gain on
disposition of real estate plus fixed charges (other than preferred stock
dividends) less the portion of minority interest in income which does not
contribute to fixed charges.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------- ----------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividends............. 2.07 2.31 2.22 2.40 2.89 2.71 2.79
</TABLE>
THE OFFERING
The Securities that are being offered from time to time by this Prospectus
consist of shares of Preferred Stock, issuable in series, Depositary Shares,
shares of Common Stock, Warrants for the purchase of Preferred Stock and
Common Stock, aggregating $300,000,000 stated amount (collectively, the
"Securities").
SECURITIES TO BE ISSUED
The Company is issuing the Securities in connection with the acquisition of
Real Property Investments. The consideration for any acquisition may consist
of cash, Securities, assumption of liabilities, or a combination thereof, as
determined from time to time by negotiation.
The Preferred Stock and Depositary Shares will be issued in one or more
series with such terms, including dividend rates, maturity, security,
subordination, terms of redemption and payment and conversion rights, as the
Board of Directors of the Company determines by resolution prior to the
issuance of shares of Preferred Stock of any particular series. See
"Description of Common Stock and Class B Common Stock" and "Description of
Preferred Stock."
The terms under which the Securities would be issued with respect to a
particular transaction or transactions are set forth in the accompanying
Prospectus Supplement, other than in the transaction described below.
The Company intends to issue 30,000 shares of convertible Preferred Stock
pursuant to this Prospectus to Boston Safe Deposit and Trust Company, as
Trustee of the Kodak Retirement Income Plan, in exchange for a limited
partnership interest in Public Storage Institutional Fund, a partnership in
which the Company is also a
9
<PAGE>
general and limited partner. This convertible Preferred Stock (i) in
preference to the holders of shares of the Common Stock and any other capital
stock ranking junior to the convertible Preferred Stock, as to payment of
dividends, provides for dividends of $890,176 per quarter, (ii) is convertible
at the option of the holder at any time into Common Stock at a conversion
price computed by dividing (A) 35.088% of the "Adjusted Property Value" (as
defined) by (B) the closing price of the Common Stock for a specified period
(the "Conversion Price"), subject to the Company's right to pay cash in the
amount of the Conversion Price, in lieu of issuing Common Stock and (iii) will
automatically convert into Common Stock at the Conversion Price on the fourth
anniversary of the issuance of the convertible Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to shareholders, before any distribution of assets is made to holders of
Common Stock or any other shares of capital stock ranking as to such
distributions junior to the convertible Preferred Stock, a liquidation
preference equal to the greater of (i) $30,000,000 plus all accrued and unpaid
dividends and (ii) the Conversion Price.
The convertible Preferred Stock has the same voting rights, on a share for
share basis, as the Common Stock and the approval of a majority of the
outstanding shares of convertible Preferred Stock, voting separately as a
class, is required for any amendment to the Articles of Incorporation that
adversely affects the convertible Preferred Stock. In addition, if the
equivalent of six quarterly dividends payable on the convertible Preferred
Stock or any other series of preferred stock are in default (whether or not
declared or consecutive), holders of the convertible Preferred Stock (voting
as a class with all other series of preferred stock) will be entitled to elect
two additional directors until all dividends in default have been paid or
declared and set apart for payment.
ROLL-UP TRANSACTIONS
This Prospectus will not be used in connection with "roll-up transactions"
(as defined in item 901(c) of Commission Regulation S-K). Accordingly, this
Prospectus does not represent an offer or a solicitation in a roll-up
transaction (as defined above).
RESALE OF SECURITIES
Unless the transaction is subject to the provisions of Rule 145 under the
Securities Act as described below, a person who receives shares of Securities
in exchange for Real Property Investments may publicly resell the securities,
if he or she is not an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company. If he or she is an affiliate of the Company,
the resale of such securities must generally be accomplished only with a
prospectus included in a registration statement filed under the Securities Act
or under paragraphs (c), (e), (f), and (g) of Rule 144, as described below.
Some of the Real Property Investments will be owned by limited partnerships
and other entities. If the transfer of the Real Property Investments in
exchange for the Securities requires the approval of the limited partners (or
other holders of the entity's securities) of the selling entity, and if the
transfer is part of a plan to distribute the Securities to the limited
partners or other equity owners, the recipients of the Securities who are
affiliates of the selling entity will be subject to certain resale
restrictions under Rule 145 under the Securities Act. (Limited partners are
generally not affiliates of a limited partnership.) During the two years
following the issuance of the Securities, these affiliates may publicly resell
those securities generally only in accordance with the requirements of
paragraph (c), (e), (f) and (g) of Rule 144. These paragraphs generally
require that there be available current public information about the Company,
that aggregate sales not exceed certain volume limitations and that sales
occur in unsolicited brokerage transactions. These restrictions may
significantly limit the ability of the holder of the Securities to resell them
during the two year period. After the Securities have been held for two years
by the holder of the entity's securities (including the period during which
the Securities are held by the entity before being distributed to the entity's
holders), the Securities may be sold without limitation provided that the
seller is not an affiliate of the Company and that there is available current
public information about the Company. The holding period of any Common Stock
that is issued on conversion of Securities that are convertible is deemed to
include the period during which such Securities are held. However, the holding
period of any Common or Preferred Stock that is purchased upon exercise of the
Warrants does not include the holding period of the Warrants.
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<PAGE>
DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK
The Company is authorized to issue 200,000,000 shares of Common Stock and
7,000,000 shares of Class B Common Stock. At December 20, 1995, the Company
had outstanding 65,652,073 shares of Common Stock (exclusive of shares
issuable upon conversion of the Company's convertible preferred stock and
shares subject to options) and had agreed to issue (i) subject to certain
conditions, 7,000,00 shares of Class B Common Stock and (ii) subject to
resolution of certain post-Merger adjustments, an additional 6,412,210 shares
of Common Stock.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Stock will
be issuable upon conversion of the Preferred Stock or upon the exercise of the
Warrants. The statements below describing the Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Articles of Incorporation and the Company's Bylaws (the
"Bylaws").
Holders of Common Stock will be entitled to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available
therefor. Payment and declaration of dividends on the Common Stock and
purchases of shares thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on outstanding preferred
stock. See "Description of Preferred Stock." Upon any liquidation, dissolution
or winding up of the Company, holders of Common Stock will be entitled to
share equally and ratably in any assets available for distribution to them,
after payment or provision for payment of the debts and other liabilities of
the Company and the preferential amounts owing with respect to any outstanding
preferred stock. Holders of Common Stock have no preemptive rights, which
means they have no right to acquire any additional shares of Common Stock that
may be issued by the Company at a subsequent date.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to such holders for a vote, with the exception that they
have cumulative voting rights with respect to the election of the Board of
Directors, in accordance with California law. Cumulative voting means that
each holder of Common Stock is entitled to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in his
or her name. A holder of Common Stock may cumulate the votes for directors by
casting all of the votes for one candidate or by distributing the votes among
as many candidates as he or she chooses. The outstanding shares of Common
Stock are, and additional shares of Common Stock will be, when issued, fully
paid and nonassessable.
OWNERSHIP LIMITATIONS
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of capital stock may be owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. In order to maintain its qualification as a
REIT, the Articles of Incorporation provide certain restrictions on the shares
of capital stock that any Shareholder may own.
The Articles of Incorporation and Bylaws provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (A) 2.0% of the outstanding
shares of all Common Stock or (B) 9.9% of the outstanding shares of any class
or series of shares of Preferred Stock. The Articles of Incorporation and
Bylaws provide, however, that no person shall be deemed to exceed the
ownership limit solely by reason of the beneficial ownership of shares of any
class of capital stock to the extent that such shares of capital stock were
beneficially owned by such person (including the Hughes Family) at the time of
the Merger. However, in determining whether an acquisition of shares after the
Merger violates the Articles of Incorporation or Bylaws, Shareholders will be
subject to these ownership limitations. This ownership limitation is necessary
in order to assist in preserving the Company's REIT status in view of the
Hughes Family's substantial ownership interest in the Company. See "Risk
Factors--Ownership Limitations" and "Certain Federal Income Tax
Considerations--Tax Treatment of the Company."
11
<PAGE>
The Board of Directors, in its sole and absolute discretion, may grant an
exception to the ownership limits to any person so requesting, so long as (A)
the Board of Directors has determined that, after giving effect to (x) an
acquisition by such person of beneficial ownership (within the meaning of the
Code) of the maximum amount of capital stock of the Company permitted as a
result of the exception to be granted and (y) assuming that the four other
persons who would be treated as "individuals" for the purposes of Section
542(a)(2) of the Code and who would beneficially own the largest amounts of
capital stock of the Company (determined by value) beneficially own the
maximum amount of capital stock of the Company permitted under the ownership
limits (or any exceptions to the ownership limits granted with respect to such
persons), the Company would not be "closely held" within the meaning of
Section 856(h) of the Code and would not otherwise fail to qualify as a REIT,
and (B) such person provides to the Board of Directors such representations
and undertakings as the Board of Directors may require. Notwithstanding any of
the foregoing ownership limits, no holder may own or acquire, either directly,
indirectly or constructively under the applicable attribution rules of the
Code, any shares of any class of the Company's capital stock if such ownership
or acquisition (i) would cause more than 50% in value of the Company's
outstanding capital stock to be owned, either directly or constructively,
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain tax-exempt entities,
other than, in general, qualified domestic pension funds), (ii) would result
in the Company's capital stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution), or (iii)
would otherwise result in the Company failing to qualify as a REIT.
The Articles of Incorporation and Bylaws provide that, if any holder of the
Company's capital stock purports to transfer shares to a person or there is a
change in the capital structure of the Company or other event and either the
transfer, the change in capital structure or such other event would result in
the Company failing to qualify as a REIT, or such transfer, the change in
capital structure or such other event would cause the transferee to hold
shares in excess of the applicable ownership limit, then the stock being
transferred (or in the case of an event other than a transfer, the stock
beneficially owned) which would cause one or more of the restrictions on
ownership or transfer to be violated shall be automatically transferred to a
trust for the benefit of a designated charitable beneficiary. The purported
transferee of such shares shall have no right to receive dividends or other
distributions with respect to such shares and shall have no right to vote such
shares. Any dividends or other distributions paid to such purported transferee
prior to the discovery by the Company that the shares have been transferred to
a trust shall be paid to the trustee of the trust for the benefit of the
charitable beneficiary upon demand. The trustee of the trust will have all
rights to dividends with respect to shares of stock held in trust, which
rights will be exercised for the exclusive benefit of the charitable
beneficiary. Any dividends or distributions paid over to the trustee will be
held in trust for the charitable beneficiary. Within 20 days of receiving
notice from the Company that shares of capital stock have been transferred to
the trust, the trustee shall designate a transferee of such stock so long as
such shares of stock would not violate the restrictions on ownership or
transfer in the Articles of Incorporation or Bylaws in the hands of such
designated transferee. Upon the sale of such shares, the purported transferee
shall receive the lesser of (A)(i) the price per share such purported
transferee paid for the stock in the purported transfer that resulted in the
transfer of the shares to the trust, or (ii) if the transfer or other event
that resulted in the transfer of the shares of the trust was not a transaction
in which the purported transferee gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust and (B) the
price per share received by the trustee from the sale or other disposition of
the shares held in the trust.
In addition, the Bylaws provide the Board of Directors with the power to
prevent the transfer of shares of capital stock or to redeem shares of capital
stock if the Board of Directors determines in good faith that such action is
necessary to preserve Company's REIT status.
CLASS B COMMON STOCK
The Class B Common Stock (i) does not participate in distributions on the
Common Stock until the later to occur of (x) funds from operations ("FFO") per
Common Share (as defined below) aggregating $1.80 during any period of four
consecutive calendar quarters or (y) January 1, 2000; thereafter, the Class B
Common Stock
12
<PAGE>
will participate in distributions (other than liquidating distributions) at
the rate of 97% of the per share distributions on the Common Stock, provided
that cumulative distributions of at least $.22 per quarter (beginning with the
4th quarter of 1995) per share have been paid on the Common Stock, (ii) does
not participate in liquidating distributions, (iii) is not entitled to vote
(except as expressly required by California law) and (iv) will automatically
convert into Common Stock, on a share for share basis, upon the later to occur
of (A) FFO per Common Share aggregating $3.00 during any period of four
consecutive calendar quarters or (B) January 1, 2003.
For these purposes:
1) FFO means net income (loss) (computed in accordance with GAAP) before
(i) gain (loss) on early extinguishment of debt, (ii) minority interest in
income and (iii) gain (loss) on disposition of real estate, adjusted as
follows: (i) plus depreciation and amortization (including the Company's
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in the Merger (including
property management agreements and goodwill)), and (ii) less FFO
attributable to minority interest. FFO is a supplemental performance
measure for equity REITs as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"). The NAREIT definition does not
specifically address the treatment of minority interest in the
determination of FFO or the treatment of the amortization of property
management agreements and goodwill. In the case of the Company, FFO
represents amounts attributable to Shareholders after deducting amounts
attributable to the minority interests and before deductions for the
amortization of property management agreements and goodwill. FFO does not
take into consideration scheduled principal payments on debt, capital
improvements, distributions and other obligations of the Company.
Accordingly, FFO is not a substitute for the Company's cash flow or net
income as a measure of its liquidity or operating performance or ability to
pay distributions.
2) FFO per Common Share means FFO less Preferred Stock dividends (other
than dividends on convertible preferred stock) divided by the outstanding
weighted average shares of Common Stock assuming conversion of all
outstanding convertible securities and the Class B Common Stock.
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<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of Preferred Stock. At
December 20, 1995, the Company had outstanding 13,444,100 shares of Preferred
Stock (of which 6,900 shares of Preferred Stock are represented by 6,900,000
depositary shares). The Articles of Incorporation provide that the Preferred
Stock may be issued from time to time in one or more series and give the Board
of Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, if any, redemption provisions and liquidation
preferences of each series of Preferred Stock. Holders of Preferred Stock have
no preemptive rights. The outstanding shares of Preferred Stock are, and
additional shares of Preferred Stock will be, when issued, fully paid and
nonassessable.
The issuance of Preferred Stock with special voting rights (or Common Stock)
could be used to deter attempts by a single Shareholder or group of
Shareholders to obtain control of the Company in transactions not approved by
the Board of Directors. The Company has no intention to issue the preferred
stock (or Common Stock) for such purposes.
OUTSTANDING PREFERRED STOCK
At December 20, 1995, the Company had nine series of Preferred Stock
outstanding: seven series of senior Preferred Stock (the "Senior Preferred
Stock") and two series of convertible Preferred Stock. In all respects, each
of the series of Senior Preferred Stock ranks on a parity with each other and
is senior to both series of convertible Preferred Stock. Each of the series of
Senior Preferred Stock (i) has a stated value of $25.00 per share or
depositary share, (ii) in preference to the holders of shares of the Common
Stock and any other capital stock ranking junior to the Senior Preferred Stock
as to payment of dividends (including both series of convertible Preferred
Stock), provides for cumulative quarterly dividends calculated as a percentage
of the stated value (ranging from 8 7/8% to 10% per year in the case of the
eight series of fixed rate Preferred Stock and a rate adjustable quarterly
ranging from 6.75% to 10.75% per year in the case of a series of adjustable
rate Preferred Stock) and (iii) is subject to redemption, in whole or in part,
at the option of the Company at a cash redemption price of $25.00 per share or
depositary share, plus accrued and unpaid dividends (on and after June 30,
1999 in the case of the adjustable rate Preferred Stock and on or after
various dates between December 31, 2000 and April 30, 2005 in the case of the
series of fixed rate Preferred Stock).
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each of the series of Senior
Preferred Stock will be entitled to receive out of the Company's assets
available for distribution to shareholders, before any distribution of assets
is made to holders of Common Stock or any other shares of capital stock
ranking as to such distributions junior to the Senior Preferred Stock
(including both series of convertible Preferred Stock), liquidating
distributions in the amount of $25.00 per share or depositary share, plus all
accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Senior Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the outstanding shares of
the Senior Preferred Stock (and any other series of Preferred Stock ranking on
a parity therewith), voting as a single class, is required to authorize
another class of shares senior to such Preferred Stock.
In all respects, each of the series of convertible Preferred Stock ranks on
a parity with each other and is senior to the Common Stock. One of the series
of the convertible Preferred Stock (i) has a stated value of $25.00 per share,
(ii) in preference to the holders of shares of the Common Stock and any other
capital stock ranking junior to the convertible Preferred Stock as to payment
of dividends, provides for cumulative quarterly dividends at an annual rate of
8.25% of the stated value thereof, (iii) is convertible at the option of the
holder at any time into Common Stock at a conversion price of 1.6835 shares of
Common Stock for each share of such convertible Preferred Stock (subject to
adjustment in certain circumstances) and (iv) after July 1, 1998, under
certain circumstances, is redeemable for Common Stock at the option of the
Company, in whole or in part, at a redemption price of 1.6835 shares of Common
Stock for each share of such convertible Preferred Stock (subject to
adjustment in certain circumstances).
14
<PAGE>
The other series of convertible Preferred Stock (i) has no stated value,
(ii) in preference to the holders of shares of the Common Stock and any other
capital stock ranking junior to the convertible preferred stock as to payment
of dividends, provides for dividends at a rate adjustable quarterly with a
minimum annual rate of 5% per year of the minimum liquidation preference,
(iii) is convertible at the option of the holder at any time into Common Stock
at a conversion price adjustable quarterly and (iv) on June 30, 2002 will be
automatically converted into Common Stock at a conversion price determined as
of the time of conversion.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to shareholders, before any distribution of assets is made to holders of
Common Stock or any other shares of capital stock ranking as to such
distributions junior to the convertible Preferred Stock, liquidating
distributions (i) in the amount of $25.00 per share, plus all accrued and
unpaid dividends, in the case of one of the series of convertible Preferred
Stock and (ii) a minimum liquidation preference of $31,200,000, plus all
accrued and unpaid dividends, in the case of the other series of convertible
Preferred Stock.
Except as expressly required by law and in certain other limited
circumstances, the holders of the convertible Preferred Stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding shares
of one of the series of convertible Preferred Stock and at least 50% of the
outstanding shares of the other series is required to authorize another class
of shares senior to the convertible Preferred Stock and junior to the Senior
Preferred Stock.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to Preferred Stock,
see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
FUTURE SERIES OF PREFERRED STOCK
The following description of Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles of Incorporation (including the
applicable form of Certificate of Determination) and Bylaws.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such Preferred Stock; (2) the
number of shares of such Preferred Stock offered, the liquidation preference
per share and the offering price of such Preferred Stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Preferred Stock; (4) the date from which dividends on such
Preferred Stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such Preferred Stock; (6) the provision for
redemption, if applicable, of such Preferred Stock; (7) any listing of such
Preferred Stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into Common
Stock, including the conversion price (or manner of calculation thereof); (9)
the voting rights, if any, of such Preferred Stock; (10) any other specific
terms, preferences, rights, limitations or restrictions of such Preferred
Stock; (11) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and (12) any limitations on issuance of any series of
Preferred Stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company.
Ranking. The ranking of the Preferred Stock is set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, such Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company, rank (i) senior to the Common Stock, any additional class of common
stock and any series of Preferred Stock expressly made junior
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to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the affairs of the Company; (ii) on
a parity with all Preferred Stock previously issued by the Company the terms
of which specifically provide that such Preferred Stock rank on a parity with
the Preferred Stock offered hereby with respect to dividend rights or rights
upon liquidation, dissolution or winding up of the Company; and (iii) junior
to all Preferred Stock previously issued by the Company the terms of which
specifically provide that such Preferred Stock rank senior to the Preferred
Stock offered hereby with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
Dividends. Holders of shares of the Preferred Stock of each series offered
hereby shall be entitled to receive, when, as and if declared by the Board of
Directors, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as shall be fixed by the Board of Directors.
Dividends on any series of the Preferred Stock offered hereby may be
cumulative or non-cumulative, as provided in the applicable Prospectus
Supplement. Dividends, if cumulative, will be cumulative from and after the
date set forth in the applicable Prospectus Supplement. If the Board of
Directors fails to declare a dividend payable on a dividend payment date on
any series of the Preferred Stock for which dividends are noncumulative, then
the holders of such series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such series are declared
payable on any future dividend payment date.
No dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of any series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment, nor shall any
other distribution be declared or made upon the Common Stock, or any other
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any Common Stock or any other capital stock of the Company ranking junior to
or on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period.
Any dividend payment made on shares of a series of Cumulative Preferred
Stock offered hereby shall first be credited against the earliest accrued but
unpaid dividend due with respect to shares of such series which remains
payable.
Redemption. If so provided in the applicable Prospectus Supplement, the
shares of Preferred Stock will be subject to mandatory redemption or
redemption at the option of the Company, in whole or in part, in each case
upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such Preferred Stock that shall be redeemed by the Company in each
year commencing after a date to be specified, at a redemption price per share
to be specified, together with an amount equal to all accrued and unpaid
dividends thereon (which shall not, if such Preferred Stock does not have a
cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price
may be payable in cash, securities or other property, as specified in the
applicable Prospectus Supplement.
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Notwithstanding the foregoing, no shares of any series of Preferred Stock
offered hereby shall be redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless all outstanding shares of Preferred Stock of such series
are simultaneously redeemed unless, in each case, (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on the
Preferred Stock of such series shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Preferred Stock of such series pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or any other equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder and, upon redemption, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof. In order to facilitate the redemption of shares of Preferred Stock,
the Board of Directors may fix a record date for the determination of shares
of Preferred Stock to be redeemed, such record date to be not less than 30 or
more than 60 days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless the Company defaults in
providing funds for the payment of the redemption price on such date, all
dividends on the Preferred Stock called for redemption will cease. From and
after the redemption date, unless the Company so defaults, all rights of the
holders of the Preferred Stock as shareholders of the Company, except the
right to receive the redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when dividends on
Preferred Stock are in arrears, the Company may, at any time and from time to
time, purchase any shares of Preferred Stock in the open market, by tender or
by private agreement.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or
any other class or series of capital stock of the Company ranking junior to
any series of the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such
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Preferred Stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Stock will have no right or claim to any of the remaining
assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of any series of Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in
the distribution of assets upon liquidation, dissolution or winding up, then
the holders of such series of Preferred Stock and all other such classes or
series of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to such series of Preferred Stock upon liquidation, dissolution or
winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of the Preferred Stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable Prospectus Supplement.
If the equivalent of six quarterly dividends payable on any series of
Preferred Stock are in default (whether or not declared or consecutive), the
holders of all such series of Preferred Stock, voting as a single class with
all other series of Preferred Stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.
Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
such right to elect directors separately shall have so vested, the Company
may, and upon the written request of the holders of record of not less than
20% of the total number of preferred shares of the Company then outstanding
shall, call a special meeting of Shareholders for the election of directors.
In the case of such a written request, such special meeting shall be held
within 90 days after the delivery of such request and, in either case, at the
place and upon the notice provided by law and in the Bylaws, provided that the
Company shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing
annual meeting of Shareholders, and the holders of all classes of outstanding
preferred stock are offered the opportunity to elect such directors (or fill
any vacancy) at such annual meeting of shareholders. Directors so elected
shall serve until the next annual meeting of Shareholders or until their
respective successors are elected and qualify. If, prior to the end of the
term of any director so elected, a vacancy in the office of such director
shall occur, during the continuance of a default by reason of death,
resignation, or disability, such vacancy shall be filled for the unexpired
term of such former director by the appointment of a new director by the
remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of Preferred Stock will be required to amend
or repeal any provision of or add any provision to, the Articles of
Incorporation, including the Certificate of Determination, if such action
would materially and adversely alter or change the rights, preferences or
privileges of such series of Preferred Stock.
No consent or approval of the holders of any series of Preferred Stock
offered hereby will be required for the issuance from the Company's authorized
but unissued Preferred Stock of other shares of any series of Preferred Stock
ranking on a parity with or junior to such series of Preferred Stock, or
senior to a series of Preferred Stock expressly made junior to other series of
Preferred Stock as to payment of dividends and distribution of assets,
including other shares of such series of Preferred Stock.
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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of Preferred Stock offered hereby are convertible into Common Stock
will be set forth in the applicable Prospectus Supplement relating thereto.
Such terms will include the number of shares of Common Stock into which the
Preferred Stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at the option of the holders of the Preferred Stock or automatically upon the
occurrence of certain events, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
DESCRIPTION OF THE DEPOSITARY SHARES
The Company may, at its option, elect to offer Depositary Shares rather than
full shares of Preferred Stock. In the event such option is exercised, each of
the Depositary Shares will represent ownership of and entitlement to all
rights and preferences of a fraction of a share of Preferred Stock of a
specified series (including dividend, voting, redemption and liquidation
rights). The applicable fraction will be specified in the Prospectus
Supplement. The shares of Preferred Stock represented by the Depositary Shares
will be deposited with a Depositary (the "Depositary") named in the applicable
Prospectus Supplement, under a Deposit Agreement (the "Deposit Agreement"),
among the Company, the Depositary and the holders of the Depositary Receipts.
Certificates evidencing Depositary Shares ("Depositary Receipts") will be
delivered to those persons purchasing Depositary Shares in the offering. The
Depositary will be the transfer agent, registrar and dividend disbursing agent
for the Depositary Shares. Holders of Depositary Receipts agree to be bound by
the Deposit Agreement, which requires holders to take certain actions such as
filing proof of residence and paying certain charges.
The summary of terms of the Depositary Shares contained in this Prospectus
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Deposit Agreement, the Articles of
Incorporation and the form of Certificate of Determination for the applicable
series of Preferred Stock.
DIVIDENDS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the series of Preferred Stock represented
by the Depositary Shares to the record holders of Depositary Receipts in
proportion to the number of Depositary Shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
the Company for the applicable series of Preferred Stock. The Depositary,
however, will distribute only such amount as can be distributed without
attributing to any Depositary Share a fraction of one cent, and any balance
not so distributed will be added to and treated as part of the next sum
received by the Depositary for distribution to record holders of Depositary
Receipts then outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Receipts entitled thereto, in proportion, as nearly as may be practicable, to
the number of Depositary Shares owned by such holders on the relevant record
date, unless the Depositary determines (after consultation with the Company)
that it is not feasible to make such distribution, in which case the
Depositary may (with the approval of the Company) adopt any other method for
such distribution as it deems equitable and appropriate, including the sale of
such property (at such place or places and upon such terms as it may deem
equitable and appropriate) and distribution of the net proceeds from such sale
to such holders.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or involuntary, the holders of each Depositary
Share will be entitled to the fraction of the liquidation preference accorded
each share of the applicable series of Preferred Stock, as set forth in the
Prospectus Supplement.
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REDEMPTION
If the series of Preferred Stock represented by the applicable series of
Depositary Shares is redeemable, such Depositary Shares will be redeemed from
the proceeds received by the Depositary resulting from the redemption, in
whole or in part, of Preferred Stock held by the Depositary. Whenever the
Company redeems any Preferred Stock held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing the Preferred Stock so redeemed. The Depositary will mail the
notice of redemption promptly upon receipt of such notice from the Company and
not less than 30 nor more than 60 days prior to the date fixed for redemption
of the Preferred Stock and the Depositary Shares to the record holders of the
Depositary Receipts.
VOTING
Promptly upon receipt of notice of any meeting at which the holders of the
series of Preferred Stock represented by the applicable series of Depositary
Shares are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts as of the record date for such meeting. Each such record holder of
Depositary Receipts will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the number of shares of Preferred
Stock represented by such record holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote such Preferred Stock
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all action which may be deemed necessary by
the Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting any of the Preferred Stock to the extent that it does not
receive specific instructions from the holders of Depositary Receipts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Depositary, upon payment of any unpaid amount due the Depositary, and subject
to the terms of the Deposit Agreement, the owner of the Depositary Shares
evidenced thereby is entitled to delivery of the number of whole shares of
Preferred Stock and all money and other property, if any, represented by such
Depositary Shares. Partial shares of Preferred Stock will not be issued. If
the Depositary Receipts delivered by the holder evidence a number of
Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of Preferred Stock to be withdrawn, the Depositary
will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares. Holders of Preferred Stock
thus withdrawn will not thereafter be entitled to deposit such shares under
the Deposit Agreement or to receive Depositary Receipts evidencing Depositary
Shares therefor.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary. However, any
amendment which materially and adversely alters the rights of the holders
(other than any change in fees) of Depositary Shares will not be effective
unless such amendment has been approved by at least a majority of the
Depositary Shares then outstanding. No such amendment may impair the right,
subject to the terms of the Deposit Agreement, of any owner of any Depositary
Shares to surrender the Depositary Receipt evidencing such Depositary Shares
with instructions to the Depositary to deliver to the holder the Preferred
Stock and all money and other property, if any, represented thereby, except in
order to comply with mandatory provisions of applicable law. The Deposit
Agreement may be terminated by the Company or the Depositary only if (i) all
outstanding Depositary Shares have been redeemed or (ii) there has been a
final distribution in respect of the Preferred Stock in connection with any
dissolution of the Company and such distribution has been made to all the
holders of Depositary Shares.
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CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and the initial issuance of the Depositary Shares, and
redemption of the Preferred Stock and all withdrawals of Preferred Stock by
owners of Depositary Shares. Holders of Depositary Receipts will pay transfer,
income and other taxes and governmental charges and certain other charges as
are provided in the Deposit Agreement to be for their accounts. In certain
circumstances, the Depositary may refuse to transfer Depositary Shares, may
withhold dividends and distributions and sell the Depositary Shares evidenced
by such Depositary Receipt if such charges are not paid.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Receipts all
reports and communications from the Company which are delivered to the
Depositary and which the Company is required to furnish to the holders of the
Preferred Stock. In addition, the Depositary will make available for
inspection by holders of Depositary Receipts at the principal office of the
Depositary, and at such other places as it may from time to time deem
advisable, any reports and communications received from the Company which are
received by the Depositary as the holder of Preferred Stock.
Neither the Depositary nor the Company assumes any obligation or will be
subject to any liability under the Depositary Agreement to holders of
Depositary Receipts other than for its negligence or willful misconduct.
Neither the Depositary nor the Company will liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder, and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. The Company and
the Depositary may rely on written advice of counsel or accountants, on
information provided by holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information and on
documents believed to be genuine and to have been signed or presented by the
proper party or parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSEQUENCES
Owners of the Depositary Shares will be treated for Federal income tax
purposes as if they were owners of the Preferred Stock represented by such
Depositary Shares. Accordingly, such owners will be entitled to take into
account, for Federal income tax purposes, income and deductions to which they
would be entitled if they were holders of such Preferred Stock. In addition,
(i) no gain or loss will be recognized for Federal income tax purposes upon
the withdrawal of Preferred Stock in exchange for Depositary Shares, (ii) the
tax basis of each share of Preferred Stock to an exchanging owner of
Depositary Shares will, upon such exchange, be the same as the aggregate tax
basis of the Depositary Shares exchanged therefor, and (iii) the holding
period for Preferred Stock in the hands of an exchanging owner of Depositary
Shares will include the period during which such person owned such Depositary
Shares.
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DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's stock option plans). The Company may issue Warrants for the purchase
of Preferred Stock or Common Stock. Warrants may be issued independently or
together with any other Securities offered by any Prospectus Supplement and
may be attached to or separate from such Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with
the Warrants of such series and will not assume any obligation or relationship
of agency or trust for or with any holders or beneficial owners of Warrants.
The following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will
be issued; (4) the designation, number and terms of the shares of Preferred
Stock or Common Stock purchasable upon exercise of such Warrants; (5) the
designation and terms of the other Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Security; (6) the date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock, if any, will be separately
transferable; (7) the price at which each share of Preferred Stock or Common
Stock purchasable upon exercise of such Warrants may be purchased; (8) the
date on which the right to exercise such Warrants shall commence and the date
on which such right shall expire; (9) the minimum or maximum amount of such
Warrants which may be exercised at any one time; and (10) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific securities acquired by such holder,
as well as his or her particular situation, and this discussion does not
attempt to address any aspects of federal income taxation relating to holders
of Securities, except as discussed under "--Taxation of Shareholders." Certain
federal income tax considerations relevant to holders of the Securities may be
provided in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OR HER TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR HER
OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX TREATMENT OF THE COMPANY
If certain detailed conditions imposed by the Code and the related Treasury
regulations are met, an entity, such as the Company, that invests principally
in real estate and that otherwise would be taxed as a corporation may elect to
be treated as a REIT. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that this enables the
Company to deduct dividend distributions to its shareholders, thus effectively
eliminating the "double taxation" (at the corporate and shareholder levels)
that typically results when a corporation earns income and distributes that
income to shareholders in the form of dividends.
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The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, beginning with its fiscal year ending December 31,
1981. That election will continue in effect until it is revoked or terminated.
The Company believes that it has qualified during each of the fiscal years for
which an election has been in effect, and currently qualifies, as a REIT, and
the Company expects to continue to be taxed as a REIT for federal income tax
purposes. While the Company intends to operate so that it will continue to
qualify as a REIT, given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility
of future changes in the circumstances of the Company, no assurance can be
given by the Company that the Company will qualify as a REIT in any particular
year.
Technical Requirements for Taxation as a REIT. The following is a very brief
overview of certain of the technical requirements that the Company must meet
on an ongoing basis in order to continue to qualify as a REIT. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
regulations and administrative and judicial interpretations thereof.
1. The capital stock must be widely-held and not more than 50% of the value
of the capital stock may be held by five or fewer individuals (determined
after giving effect to various ownership attribution rules). See "--
Consequences of Merger on the Company's Qualification as a REIT--Violation of
Ownership Requirements."
2. The Company's gross income must meet three income tests:
(a) at least 75% of the gross income must be derived from specified real
estate sources (including "rents from real property" and, in certain
circumstances, interest);
(b) at least 95% of the gross income must be from the real estate sources
includable in the 75% income test, and/or from dividends, interest, or
gains from the sale or disposition of stock or securities not held for sale
in the ordinary course of business; and
(c) less than 30% of the gross income may be derived from the sale of
real estate assets held for less than four years, from the sale of certain
"dealer" property, or from the sale of stock or securities held for less
than one year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts of sales. The Company anticipates that none of its gross annual
income will be attributable to rents that are based in whole or in part on the
income of any person (excluding rents based on a percentage of receipts or
sales, which, as described above, are permitted). Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
The Company does not anticipate that it will receive income from Related Party
Tenants. Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." The Company
does not anticipate deriving rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. Finally,
for rents received to qualify as "rents from real property," the Company
generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" which is
adequately compensated and from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." Any services with respect to certain
Properties that the Company believes may not be provided by the Company
directly without jeopardizing the qualification of rent as "rents from real
property" will be performed by "independent contractors."
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See "--Consequences of the Merger on the Company's Qualification as a REIT--
The Company's Assumption of Management Activities With Respect to its
Properties," "--Consequences of the Merger on the Company's Qualification as a
REIT--Nonqualifying Income," and "--Consequences of the Merger on the
Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger" for a discussion of specific aspects of the Merger
that may impact upon the Company's ability to satisfy the 95% gross income
test.
3. Generally, 75% of the value of the Company's total assets must be
represented by real estate, mortgages secured by real estate, cash, or
government securities (including its allocable share of real estate assets
held by any partnerships in which the Company owns an interest). Not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class. Of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities. The 5%
test generally must be met for any quarter in which the Company acquires
securities of an issuer. The Company believes that it satisfies these tests.
In this regard, however, the 10% voting stock prohibition will preclude the
Company from controlling the operations of PSCP and the Lock/Box Company (in
which the Company will own 95% of the equity in the form of non-voting stock
and the Hughes Family will own 5% of the equity but 100% of the voting stock)
or PSCC (in which the Company will own a less than 10% equity interest) and
may preclude the Company from exercising its rights of first refusal with
respect to the corporations owning the Canadian operations and the reinsurance
business.
4. The Company must distribute to its shareholders in each taxable year an
amount at least equal to 95% of the Company's "REIT Taxable Income" (which is
generally equivalent to net taxable ordinary income). Under certain
circumstances, the Company can rectify a failure to meet the 95% distribution
test by paying dividends after the close of a particular taxable year.
In years prior to 1990, the Company made distributions in excess of its REIT
Taxable Income. During 1990, the Company reduced its distribution to its
shareholders to permit the Company to make an optional reduction in short-term
borrowings (which previously had been used to fund distributions to its
shareholders). As a result, distributions paid by the Company in 1990 were
less than 95% of the Company's REIT Taxable Income for 1990. The Company has
satisfied the REIT distribution requirements for 1990, 1991, 1992, 1993 and
1994 by attributing distributions in 1991, 1992, 1993, 1994 and 1995 to the
prior year's taxable income. The Company may be required, over each of the
next several years, to make distributions after the close of a taxable year
and to attribute those distributions to the prior year, but shareholders will
be treated for federal income tax purposes as having received such
distributions in the taxable years in which they were actually made. The
extent to which the Company will be required to attribute distributions to the
prior year will depend on the Company's operating results and the level of
distributions as determined by the Board of Directors. Reliance on subsequent
year distributions could cause the Company to be subject to certain penalty
taxes. In that regard, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
calendar year, (ii) 95% of its REIT capital gain net income for such calendar
year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed during such calendar year
(not taking into account distributions made in subsequent years but attributed
to such calendar year). The Company intends to comply with this 85%
distribution requirement in an effort to minimize any excise tax. Any
distributions required to be made by the Company in order to eliminate any
accumulated earnings and profits of PSMI would not be counted in determining
whether the Company satisfies the 95% distribution test and could adversely
impact upon the Company's ability to satisfy the 95% distribution test. See
"--Consequences of the Merger on the Company's Qualification as a REIT--
Elimination of Any Accumulated Earnings and Profits Attributable to Non-REIT
Years."
For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest. See "--Consequences of the Merger on
the Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger".
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Applicable Federal Income Tax. If the Company qualifies for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on
net income that it distributes currently to shareholders. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on default of a lease
or a loan secured by the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed above), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% gross income test.
Under the "Built-in Gain Rules" of IRS Notice 88-19, 1988-1 C.B. 486, the
Company will be subject to a corporate level tax if it disposes of any of the
assets acquired in the Merger at any time during the 10-year period beginning
on the closing date of the Merger (the "Restriction Period"), assuming the
Company makes the election pursuant to the Built-in Gain Rules (or applicable
future administrative rules or Treasury regulations) to have the 10-year rule
apply. This tax would be imposed on the Company at the top regular corporate
rate (currently 35%) in effect at the time of the disposition on the excess of
(i) the lesser of (a) the fair market value at the time of the Merger of the
assets disposed of and (b) the selling price of such assets over (ii) the
Company's adjusted basis in such assets at the time of the Merger (such excess
being referred to as the "Built-in Gain"). The Company currently does not
intend to dispose of any of the assets acquired in the Merger during the
Restriction Period, but there can be no assurance that one or more such
dispositions will not occur. If the Company does not make the election to have
the 10-year rule apply, PSMI would be taxed on the Built-in Gain at the time
of the Merger at regular corporate tax rates and the Company, as the successor
to PSMI in the Merger, would succeed to the liability for that tax.
Failure to Qualify as a REIT. For any taxable year that the Company fails to
qualify as a REIT and the relief provisions do not apply, the Company would be
taxed at the regular corporate rates on all of its taxable income, whether or
not it makes any distribution to its shareholders. Those taxes would reduce
the amount of cash available to the Company for distributions to its
shareholders or for reinvestment. As a result, failure of the Company to
qualify during any taxable year as a REIT could have a material adverse effect
upon the Company and its shareholders.
Termination of REIT Election. The Company's election to be treated as a REIT
will terminate automatically if the Company fails to meet the REIT
qualification requirements described above. If a termination (or a voluntary
revocation) occurs, unless certain relief provisions apply, the Company would
not be eligible to elect REIT status again until the fifth taxable year that
begins after the first year for which the Company's election was terminated
(or revoked). If the Company loses its REIT status, but later qualifies and
elects to be taxed as a REIT again, the Company may face significant adverse
tax consequences. Immediately prior to the effectiveness of the election to
return to REIT status, the Company would be treated as if its disposed of all
of its assets in a taxable transaction, triggering taxable gain with respect
to the Company's appreciated assets. (The Company would, however, be permitted
to elect an alternative treatment under which the gains would be taken into
account only as and when they actually are recognized upon sales of the
appreciated property occurring within the 10-year period after return to REIT
status. The Company would not receive the benefit of a dividends paid
deduction to reduce any such taxable gains. Thus, any such gains on
appreciated assets would be subject to double taxation, at the corporate as
well as the shareholder level.
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CONSEQUENCES OF THE MERGER ON THE COMPANY'S QUALIFICATION AS A REIT
In light of the complex federal income tax requirements applicable to REITs,
the Merger could have adverse consequences on the Company's continued
qualification as a REIT, as discussed in greater detail below. Hogan & Hartson
L.L.P. ("Hogan & Hartson"), counsel to the Company, is of the opinion that the
Company will continue to qualify as a REIT following the Merger so long as (A)
the Company has met at all times since the Merger and continues to meet the
stock ownership and gross income requirements applicable to REITs and
(B) either PSMI at the time of (and giving effect to) the Merger was not
considered to have any current or accumulated earnings and profits for tax
purposes or the Company makes distributions prior to the end of 1995 in an
amount sufficient to eliminate such earnings and profits. See "--Nonqualifying
Income", "--Violation of Ownership Requirements," and "--Elimination of Any
Accumulated Earnings and Profits Attributable to Non-REIT Years." Hogan &
Hartson, however, has not opined that the Company will continue to meet the
stock ownership and gross income requirements applicable to REITs following
the Merger or that PSMI did not have current or accumulated earnings and
profits at the time of the Merger, due to the numerous factual determinations
and future events that bear on those conclusions.
The Company's Assumption of Management Activities With Respect to its
Properties. Because of the complex federal income tax requirements
attributable to REITs, a number of federal income tax issues must be addressed
in connection with the Merger that are unique to the Company's status as a
REIT. One issue is whether the Company is permitted to perform property
management functions internally with respect to the mini-warehouse and
business park properties ("Properties") it owns. Generally, a REIT is
permitted to perform services with respect to properties it rents to tenants
so long as such services are usually and customarily rendered in connection
with the rental of space for occupancy only and are not considered to be
"rendered to the occupant." If a REIT performs services beyond this extent,
the rental income received for the use of its property will not qualify as
"rental income" for purposes of the REIT gross income tests. See "--Tax
Treatment of the Company--Technical Requirements for Taxation as a REIT."
Failure of the rental income received for properties that the Company owns to
qualify as "rental income" would result in the disqualification of the Company
as a REIT. See "--Tax Treatment of the Company--Termination of REIT Election."
As a result of the Merger, the Company "self-manages" the Properties it
owns. The Company received a private letter ruling from the IRS to the effect
that, should the Company acquire PSMI and assume and perform the management
activities of its Properties, such property management activities by the
Company would not adversely affect the characterization of the Company's rents
from the Properties as rents from real property. The ruling is based on the
Company's description of those management activities to be performed in
connection with Properties it owns, including maintenance, repair, lease
administration and accounting, and security. The ruling also considers the
ancillary activities to be directly performed by the Lock/Box Company, such as
the sale of inventory products such as locks, boxes, and packing materials.
Nonqualifying Income. The Company must meet several annual gross income
tests to retain its REIT qualification. See "--Tax Treatment of the Company--
Technical Requirements for Taxation as a REIT." Under the 95% gross income
test, the Company must derive at least 95% of its total gross income from
specified classes of income related to real property, dividends, interest or
gains from the sale or other disposition of stock or other securities that do
not constitute "dealer property." Income related to real property includes:
(i) proceeds from the rental of mini-warehouse facilities; (ii) interest on
obligations secured by mortgages on real property; and (iii) gains from the
sale or other disposition of real property (other than real property held by
the Company as a dealer).
After the Merger, the Company assumed and performs property management
activities for the various partnerships and REITs in which the Company has an
interest that own Properties, as well as for various other entities that own
mini-warehouse properties and/or business parks. The Company will receive
management fees from such partnerships, REITs, and other owners in exchange
for the performance of such management activities. The gross income received
by the Company from these property management activities with respect to
Properties owned by other entities (including the REITs in which the Company
has an ownership interest) and advisory
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services rendered to such other entities will be treated as income not
qualifying under the 95% gross income test ("Nonqualifying Income"). See "--
Acquisition of Affiliated Partnership Interests in the Merger." If there were
no change in current revenues of the Company through acquisitions or otherwise
and no other action by the Company to reduce its nonqualifying income (for
example, through the prepayment of management fees described below), the
Company estimates that it would not satisfy the 95% gross income test for 1996
because its nonqualifying income would represent approximately 7% of its total
gross income for 1996. However, the percentage of Nonqualifying Income may be
reduced in a variety of ways. First, the Company could reduce the actual
dollar amount of its Nonqualifying Income. Second, because the income tests
are based on a percentage of total gross income, increases in overall gross
income that result from increases in qualifying rents will reduce the
percentage of Nonqualifying Income. Pursuant to the Company's existing
acquisition program, the Company believes that additional assets that are
expected to be acquired by it during 1995 and 1996 would generate additional
qualifying income, thereby lowering the percentage of total Nonqualifying
Income recognized by it. Finally, to the extent that the Company acquires
properties following the Merger for which it assumed management
responsibilities in connection with the Merger, the management fees received
with respect to such properties would cease to be Nonqualifying Income.
Nevertheless, there can be no assurance that future acquisitions will be made
in amounts or at such times to permit the Company to satisfy these gross
income requirements. Moreover, increases in other Nonqualifying Income may
similarly affect these calculations.
If the Company determines at any time during the year that the receipt of
third-party management fees could adversely affect its ability to satisfy the
95% gross income test, it will notify the third-party property owners to which
it provides property management services and request that management fees be
paid at reduced rates for the remainder of the year. The Company will, to the
extent possible under existing tax guidelines, defer receipt of such fees to a
succeeding year in which recognition of the Nonqualifying Income would not
jeopardize its qualification as a REIT. If such deferral is not possible,
however, the Company would reduce the fees without condition or deferral.
Although this measure would reduce the Company's gross income (and
correspondingly its net profits), it would effectively reduce the Company's
overall Nonqualifying Income in order to preserve its REIT status. The Company
anticipates that this measure will be taken only as necessary and intends to
pursue less costly alternatives when appropriate.
In addition, in order to reduce the amount of Nonqualifying Income, before
December 31, 1995 the Company expects to have certain Properties pre-pay to
the Company all or a portion of the management fees that the Company otherwise
would be expected to receive for 1996, discounted to compensate for early
payment (payment estimated at approximately $4.5 million). Pre-payment of
management fees will reduce the percentage of Nonqualifying Income received by
the Company in taxable years subsequent to such prepayment. Hogan & Hartson is
of the opinion that it is more likely than not that the IRS would respect the
inclusion of the prepaid management fees in the gross income of the Company
when they are received. Hogan & Hartson's opinion is based on numerous cases
where courts have upheld the IRS's position that fees should be included in
income when they are received, rather than when the services to which such
fees relate are performed. There are, however, several contrary authorities
where courts, over the IRS's objections, have held that prepaid amounts are
not included in income in advance of performance. Because of these contrary
authorities, there can be no assurance that the IRS might not assert that such
management fees should be included in the gross income of the Company as the
related management services are provided, rather than being included in the
gross income when they are received. If the IRS were to successfully challenge
the treatment of such management fees and the inclusion of such fees in the
Company's gross income resulted in it failing the 95% gross income test for a
taxable year ending after the Merger, the Company's REIT status may terminate
for such year and future years unless it meets the "good cause" exception
described above. For years subsequent to 1996, assuming that there were no
changes in current revenues of the Company and assuming no acquisition or
development of additional assets, the Company estimates that it would not be
able to satisfy the 95% gross income test unless it were to take further steps
to reduce its percentage of Nonqualifying Income for those years (for example
by deferring the payment of management fees until later years or by disposing
of a portion of its management business, including possibly to a taxable
corporation in which the Company would own substantially all of the economic
interests but none of the voting stock).
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Finally, the Company and the various other owners of mini-warehouses and
business parks for which the Company performs management activities (the
"Owners") have entered into an agreement (the "Administrative and Cost-Sharing
Agreement") with PSCC, Inc. ("PSCC") pursuant to which PSCC provides the
Owners and the Company certain administrative and cost-sharing services in
connection with the operation of the Properties and the performance of certain
administrative functions. Each of the Owners and the Company pay the PSCC
directly for services rendered by PSCC in connection with the Administrative
and Cost Sharing Agreement. That payment is separate from and in addition to
the compensation paid to the Company under the management agreement for the
management of the Properties owned by the Owners. The Company has received a
private letter ruling from the IRS to the effect that the reimbursements and
other payments made to PSCC by the Owners will not be treated as revenues of
the Company for purposes of the 95% gross income test.
If the Company fails to meet the 95% gross income test during any taxable
year, its REIT status would terminate for that year and future years unless it
qualifies for the "good cause" exception. In order to qualify for the "good
cause" exception, the Company would have to satisfy each of the following: (i)
it reported the source and nature of each item of its gross income in its
federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return is not due to fraud with intent to evade tax; and
(iii) the failure to meet such test is due to a reasonable cause and not to
willful neglect. The Company intends to conduct its operations and affairs so
that it meets the 95% gross income test for each taxable year. The Company
also intends to operate so that, in the event it were to fail to meet the 95%
gross income test, it would satisfy the "reasonable cause" requirement of the
"good cause" exception because it exercised ordinary business care and
prudence in attempting to satisfy the 95% gross income test (including by
receiving opinions of counsel where appropriate). There can be no assurance,
however, that if the Company were unable to satisfy the 95% gross income test,
the IRS would necessarily agree that the Company had operated in a manner that
qualifies for the "good cause" exception. Furthermore, even if the Company's
REIT status were not terminated because of the "good cause" exception, the
Company still would be subject to an excise tax on any excess nonqualifying
income. Generally, if the Company fails the 95% gross income test but still
retains its qualification as a REIT under the "good cause" exception, it would
be subject to a 100% excise tax on the amount of the excess nonqualifying
income multiplied by a fraction, the numerator of which would be the Company's
taxable income (computed without its distribution deduction) and the
denominator of which would be the Company's gross income from all sources.
This excise tax would have the general effect of causing the Company to pay
all net profits generated from this excess nonqualifying income to the IRS.
Acquisition of Affiliated Partnership Interests in the Merger. In the
Merger, the Company acquired interests in various partnerships that own and
operate Properties. The Company, for purposes of satisfying the REIT asset and
gross income tests, will be treated as if it directly owns a proportionate
share of each of the assets of these partnerships. For these purposes, under
current Treasury regulations the Company's interest in each of the
partnerships must be determined in accordance with its "capital interest" in
such partnership. The character of the various assets in the hands of the
partnership and the items of gross income of the partnership will retain their
same character in the hands of the Company for these purposes. Accordingly, to
the extent the partnership receives real estate rentals and holds real
property, a proportionate share of such qualified income and assets will be
treated as qualified rental income and real estate assets of the Company for
purposes of determining its REIT qualification. The Company expects that
substantially all of the properties of the partnerships will constitute real
estate assets and will generate qualifying rental income for purposes of the
REIT gross income tests.
The acquisition of these partnership interests in the Merger creates several
issues regarding the Company's satisfaction of the 95% gross income test.
First, the Company will earn property management fees from these partnerships.
Existing Treasury regulations do not address the treatment of management fees
derived by a REIT from a partnership in which the REIT holds a partnership
interest, but the IRS has issued a number of private letter rulings holding
that the portion of the management fee that corresponds to the REIT interest
in the partnership in effect is disregarded in applying the 95% gross income
test where the REIT holds a "substantial" interest in the partnership. The
Company expects to disregard the portion of management fees derived from
partnerships in which it is a partner that corresponds to its interest in
these partnerships in determining the amount of its Nonqualifying Income, and
the estimate of the Company's prepayment of management fees set
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forth above was computed based upon this approach. There can be no assurance,
however, that the IRS would not take a contrary position with respect to the
Company, either rejecting the approach set forth in the private letter rulings
mentioned above or contending that the Company's situation is distinguishable
from those addressed in the private letter rulings (for example, because the
Company does not have a "substantial" interest in the partnerships).
Second, the Company will acquire interests in certain of these partnerships
that entitles the Company to a percentage of profits (either from operations,
or upon a sale, or both) in excess of the percentage of total capital
originally contributed to the partnership with respect to such interest.
Existing Treasury Regulations do not specifically address this situation, and
it is uncertain, based on existing authority, how the Company's "capital
interest" in these partnerships will be determined. This determination is
relevant because it affects both the percentage of the gross rental income of
the partnership that is considered gross rental income (or qualifying income)
to the Company and the percentage of the management fees paid to the Company
that are disregarded in determining the Company's Nonqualifying Income. For
example, if the Company takes the position that it has a 25% "capital
interest" in a partnership (because it would receive 25% of the partnership's
assets upon a sale and liquidation) but the IRS determines it only has a 1%
"capital interest" (because the original holder of the Company's interest only
contributed 1% of the total capital contributed to the partnership), the
Company's share of the qualifying income from the partnership would be reduced
and the portion of the management fee from the partnership that would be
treated as Nonqualifying Income would be increased, thereby adversely
affecting the Company's ability to satisfy the 95% gross income test. In
determining its "capital interest" in the various partnerships in which the
Company acquired an interest in the Merger, the Company will determine the
percentage of the partnership's assets that would be distributed to it if
those assets were sold and distributed among the partners in accordance with
the applicable provisions of the partnership agreements. There can be no
assurance, however, that the IRS will agree with this methodology and not
contend that another, perhaps less favorable, method must be used for purposes
of determining the Company "capital interests." If that were to occur, it
could adversely affect the Company's ability to satisfy the 95% gross income
test following the Merger.
Violation of Ownership Requirements. For the Company to qualify as a REIT
under the Code, no more than 50% in value of its outstanding stock may be
owned, directly or constructively under certain attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. The value of the outstanding
capital stock held by the Hughes Family is currently estimated to be
approximately 45%. Accordingly, no four individuals other than the Hughes
Family may own directly or constructively, in the aggregate, more than 5% of
the value of outstanding stock of the Company. In order to assist the Company
in meeting these ownership restrictions, the Articles of Incorporation and
Bylaws prohibit the actual or constructive ownership of more than 2.0% of the
outstanding shares of all common stock of the Company or more than 9.9% of the
outstanding shares of each class or series of shares of preferred stock of the
Company. (The Articles of Incorporation and Bylaws provide, however, that no
person is deemed to exceed this ownership limitation solely by reason of the
beneficial ownership of shares of any class of stock to the extent that such
shares of stock were beneficially owned by such person at the time of the
Merger.) However, even with these ownership limitations, the Company could
still be in violation of the ownership restrictions if four individuals
unrelated to the Hughes Family were to own the maximum amount of capital stock
permitted under the Articles of Incorporation and Bylaws. Therefore, to
further assist the Company in meeting the ownership restrictions, the Hughes
Family entered into an agreement with the Company for the benefit of the
Company and certain designated charitable beneficiaries restricting their
acquisition of additional shares of the Company's capital stock and providing
that if, at any time, for any reason, more than 50% in value of the Company's
outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of Common Stock of the Company owned by
Wayne Hughes necessary to cure such violation will automatically and
irrevocably be transferred to a designated charitable beneficiary. These
provisions are modeled after certain arrangements that the IRS has ruled in
private letter rulings will preclude a REIT from being considered to violate
the ownership restrictions so long as such arrangements are enforceable as a
matter of state law and the REIT seeks to enforce them as and when necessary.
There can be no assurance, however, that the IRS might not seek to take a
different position with respect to the Company (a private letter ruling is
legally binding only with
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respect to the taxpayer to whom it was issued) or contend that the Company
failed to enforce these various arrangements and, hence, there can be no
assurance that these arrangements will necessarily preserve the Company's REIT
status. No private letter ruling has been sought by the Company from the IRS
with respect to the effect of these arrangements.
Elimination of Any Accumulated Earnings and Profits Attributable to Non-
REIT Years. A REIT is not allowed to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of its first
taxable year in which it has non-REIT earnings and profits to distribute any
such accumulated earnings and profits. In a corporate reorganization
qualifying as a tax free statutory merger, the acquired corporation's current
and accumulated earnings and profits are carried over to the surviving
corporation. Any earnings and profits treated as having been acquired by a
REIT through such a merger will be treated as accumulated earnings and profits
of a REIT attributable to non- REIT years. Accordingly, the accumulated
earnings and profits, if any, of PSMI and its predecessors (including earnings
and profits resulting from transactions undertaken in contemplation of the
Merger or from the Merger itself) carried over to the Company in the Merger
and the Company is required to distribute any such accumulated earnings and
profits prior to the close of 1995 (the year in which the Merger occurred).
Failure to do so would result in disqualification of the Company as a REIT
(unless the "deficiency dividend" procedures described below apply and the
Company complies with those procedures).
The amount of the accumulated earnings and profits of PSMI acquired by the
Company will be based on the consolidated earnings and profits of PSMI
(including each of its predecessors) through and including the date of the
Merger ("Consolidated Accumulated Earnings"). In connection with the Merger,
the Company received a study prepared by PSMI of the earnings and profits of
PSMI and its subsidiaries, taking into account projected income of PSMI and
its predecessors to and including the time of the Merger and distributions to
the PSMI shareholders made at or prior to the time of the Merger, that showed
that PSMI had no Consolidated Accumulated Earnings at the time of the Merger.
The determination of accumulated earnings and profits acquired by the Company
in the Merger ("Acquired Earnings") depends upon a number of factual matters
related to the activities and operations of PSMI and its predecessors during
their entire corporate existence and is subject to review and challenge by the
IRS. There can be no assurance that the IRS will not examine the tax returns
of PSMI and its predecessors for years prior to and including the Merger and
propose adjustments to increase their taxable income. Because the earnings and
profits study used to calculate the amount of Acquired Earnings is based on
these returns, any such adjustments could increase the amount of the Acquired
Earnings. In this regard, the IRS can consider all taxable years of PSMI and
its predecessors as open for review for purposes of determining the amount of
earnings and profits.
Although not free from doubt, "deficiency dividend" procedures may be
available for the Company to distribute any Acquired Earnings that were
subsequently determined to exist as a result of an IRS audit. In order to use
this "deficiency dividend" procedure, the Company would have to make an
additional dividend distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements), in the form of cash, notes, other property, or stock in a
taxable stock dividend, within 90 days of the IRS determination. In addition,
the Company would have to pay to the IRS an interest charge on 50% of the
Acquired Earnings that were not distributed prior to December 31, 1995, from
the date on which its 1995 tax return was due to the date the IRS
determination was made. The statute and Treasury regulations related to the
application of the "earnings and profits distribution" requirement to a REIT
that acquires a "non-REIT" in a reorganization and the availability of the
"deficiency dividend" procedure in those circumstances are not entirely clear,
and there can be no assurance that the IRS would not take the position either
that the "deficiency dividend" procedure is not available (in which case, the
Company would cease to qualify as a REIT effective for its taxable year in
which the Merger occurred) or, alternatively, that even if the procedure is
available, the Company cannot qualify as a REIT for the taxable year in which
the Merger occurred (but it could qualify as a REIT for subsequent years).
30
<PAGE>
TAXATION OF SHAREHOLDERS
Distributions will generally be taxable to Shareholders as ordinary income
to the extent of the Company's earnings and profits. For this purpose,
earnings and profits of the Company will first be allocated to distributions
paid on preferred stock until an amount equal to such distributions has been
allocated thereto. As a result, it is likely that any distributions paid on
preferred stock will be taxable in full as dividends to the holders of
preferred stock. Dividends declared during the last quarter of a calendar year
and actually paid during January of the immediately following calendar year
generally are treated as if received by the shareholders on December 31 of the
calendar year during which they were declared. Distributions paid to
Shareholders will not constitute passive activity income and as a result,
generally cannot be offset by losses from passive activities of Shareholders
subject to the passive activity rules. Distributions designated by the Company
as capital gain dividends generally will be taxed as long-term capital gain to
Shareholders, to the extent that the distributions do not exceed the Company's
actual net capital gain for the taxable year. Corporate Shareholders may be
required to treat up to 20% of any such capital gain dividends as ordinary
income. Distributions by the Company, whether characterized as ordinary income
or as capital gain, are not eligible for the 70% dividends received deduction
for corporations. If the Company should realize a loss, Shareholders will not
be permitted to deduct any share of that loss. Future regulations may require
that Shareholders take into account, for purposes of computing their
individual alternative minimum tax liability, certain tax preference items of
the Company.
The Company may distribute cash in excess of its net taxable income. Upon
distribution of such cash by the Company to Shareholders (other than as a
capital gain dividend), if all of the Company's current and accumulated
earnings and profits have been distributed, the excess cash will be deemed to
be a non-taxable return of capital to each Shareholder to the extent of the
adjusted tax basis of the Shareholder's capital stock. Distributions in excess
of the adjusted tax basis will be treated as gain from the sale or exchange of
the capital stock. A Shareholder who has received a distribution in excess of
current and accumulated earnings and profits of the Company may, upon the sale
of the capital stock, realize a higher taxable gain or a smaller loss because
the basis of the Common Stock as reduced will be used for purposes of
computing the amount of the gain or loss. Generally, gain or loss realized by
a Shareholder upon the sale of capital stock will be reportable as capital
gain or loss. If a Shareholder receives a long-term capital gain dividend from
the Company and has held the capital stock for six months or less, any loss
incurred on the sale or exchange of the capital stock is treated as a long-
term capital loss, to the extent of the corresponding long-term capital gain
dividend received.
If a Shareholder is subject to "backup withholding," the Company will be
required to deduct and withhold from any dividends payable to such Shareholder
a tax of 31%. These rules may apply when a Shareholder fails to supply a
correct taxpayer identification number, or when the IRS notifies the Company
that a Shareholder is subject to the rules or has furnished an incorrect
taxpayer identification number.
The Company is required to demand annual written statements from the record
holders of designated percentages of its capital stock disclosing the actual
owners of the capital stock and to maintain permanent records showing the
information it has received as to the actual ownership of such capital stock
and a list of those persons failing or refusing to comply with such demand.
In any year in which the Company does not qualify as a REIT, distributions
by the Company to Shareholders will be taxable in the same manner discussed
above, except that no distributions can be designated as capital gain
dividends, distributions will be eligible for the corporate dividends received
deduction, and Shareholders will not receive any share of the Company's tax
preference items.
Tax Exempt Investors. In general, a tax exempt entity that is a Shareholder
is not subject to tax on distributions from the Company or gain realized on
the sale of capital stock, provided that the tax exempt entity has not
financed the acquisition of its capital stock with "acquisition indebtedness"
within the meaning of the Code. Special rules apply to organizations exempt
under Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), and such
prospective investors should consult their own tax advisors concerning the
applicable "set aside" and reserve requirements. In addition, certain
distributions by a REIT to a tax-exempt employee's pension trust that owns
more than 10% of the REIT will, in certain circumstances, be treated as
"unrelated business taxable income."
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<PAGE>
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing U.S. Federal income taxation of non-U.S. stockholders
(as defined below) are complex, and the following discussion is intended only
as a summary of such rules. Prospective non-U.S. stockholders should consult
with their tax advisors to determine the impact of U.S. Federal, state, and
local income tax laws on an investment in the REIT, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. For purposes of this discussion, a non-U.S. stockholder is
a holder of Securities that, for U.S. Federal income tax purposes, is not a
"United States person." A "United States person," in turn, means a citizen or
resident of the United States; a corporation, partnership, or other entity
created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; or an estate or trust whose
income is includible in gross income for U.S. Federal income tax purposes
regardless of its source. The following discussion assumes that the Securities
are held as "capital assets" under the Code.
Distributions to a non-U.S. stockholder will generally be subject to tax as
ordinary income to the extent of the Company's current and accumulated
earnings and profits as determined for U.S. Federal income tax purposes. Such
distributions will generally be subject to withholding of such income tax at a
30% rate, unless reduced by an applicable tax treaty or unless such dividends
are treated as effectively connected with a United States trade or business.
If the amount distributed exceeds a non-U.S. stockholder's allocable share of
such earnings and profits, the excess will be treated as a tax-free return of
capital to the extent of such stockholder's adjusted basis in the Securities.
To the extent that such distributions exceed the adjusted basis of a non-U.S.
stockholder's Securities, such distributions will generally be subject to tax
if such stockholder would otherwise be subject to tax on any gain from the
sale or disposition of its Securities, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profits, the
distribution will be subject to withholding at the same rate as dividends.
Amounts so withheld, however, are refundable or creditable against U.S.
Federal tax liability if it is subsequently determined that such distribution
was, in fact, in excess of current and accumulated earnings and profits of the
Company, unless the non-U.S. stockholder is otherwise subject to U.S. Federal
income tax.
For any year in which the Company qualifies as a REIT, distributions to a
non-U.S. stockholder that are attributable to gain from the sales or exchanges
by the Company of "United States real property interests" will be treated as
if such gain were effectively connected with a United States trade or business
and will thus be subject to tax at the normal capital gain rates applicable to
U.S. stockholders (subject to applicable alternative minimum tax) under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder not
entitled to a treaty exemption. The Company is required to withhold 35% of any
distribution that could be designated by the Company as a capital gains
dividend. This amount may be credited against the non-U.S. stockholder's
FIRPTA tax liability.
Gain recognized by a non-U.S. stockholder upon a sale of its Securities will
generally not be subject to tax under FIRPTA if the Company is a "domestically
controlled REIT," which is defined generally as a REIT in which at all times
during a specified testing period less than 50% in value of its shares were
held directly or indirectly by non-U.S. persons. Because only a minority of
the Shareholders are non-U.S. stockholders, the Company expects to qualify as
a "domestically controlled REIT." Accordingly, a non-U.S. stockholder should
not be subject to U.S. tax from gains recognized upon disposition of the
Securities, provided that such gain is not effectively connected with the
conduct of a United States trade or business and, in the case of an individual
stockholder, such holder is not present in the United States for 183 days or
more during the year of sale and certain other requirements are met.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Securities to a non-U.S. stockholder at an
address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of the Securities is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
32
<PAGE>
certifies its non-U.S. stockholder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements (but
not backup withholding) will also apply to payments of the proceeds of sales
of the Securities by foreign offices of United States brokers, or foreign
brokers with certain types of relationships to the United States, unless the
broker has documentary evidence in its records that the holder is a non-U.S.
stockholder and certain other conditions are met, or the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the non-U.S.
stockholder's U.S. Federal income tax liability, provided that the required
information is furnished to the IRS.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Securities could be
changed by future regulations.
STATE AND LOCAL TAXES
The tax treatment of the Company and the Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status
of the Company in such states. All investors should consult their tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
LEGAL OPINIONS
David Goldberg, senior vice president and general counsel of the Company,
has delivered an opinion to the effect that the securities offered by this
Prospectus will be validly issued, fully paid and nonassessable. Hogan &
Hartson L.L.P., Washington, D.C., has delivered an opinion as to the status of
the Company as a REIT. Mr. Goldberg owns 67,229 shares of Common Stock, 1,000
shares of convertible preferred stock and 500 shares of Senior Preferred
Stock, and has options to acquire an additional 62,500 shares of Common Stock.
See "Certain Federal Income Tax Considerations."
EXPERTS
The consolidated financial statements of the Company for the year ended
December 31, 1994 incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report with respect thereto. The following have also been audited by Ernst &
Young LLP as set forth in their reports with respect thereto: (i) the
financial statements of Public Storage Properties VII, Inc. which is included
in the Registration Statement on Form S-4 (No. 33-58893) of Storage Equities,
Inc., (ii) the combined statements of assets, liabilities and deficit of the
property management and advisory businesses of Public Storage, Inc. as of
December 31, 1994 and 1993 and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1994, and our report dated July 10, 1995 on the combined summaries of
historical information relating to real estate interests to be acquired for
each of the three years in the period ended December 31, 1994 which are
included in the Current Report on Form 8-K, as amended by a Form 8-K/A, each
dated June 30, 1995, of Storage Equities, Inc., and (iii) the combined
statements of assets, liabilities and equity of the property management and
advisory businesses and real estate assets of Public Storage, Inc. as of
December 31, 1994 and 1993 and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1994 which are included in the Current Report on Form 8-K dated November 16,
1995, of Public Storage, Inc. Such financial statements are incorporated
herein in reliance upon such reports given upon the authority of such form as
experts in accounting and auditing.
33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS, OFFICERS AND AGENTS.
In August 1988, the Company's Articles of Incorporation were amended (as
approved by the shareholders in August 1988) to provide that the Company may
indemnify the agents of the Company to the maximum extent permitted under
California law. See Section V of the Certificate of Amendment of Articles of
Incorporation (Exhibit 3.11) and Article VII of the By-Laws (Exhibit 3.13)
which are incorporated herein by this reference. In October 1988, the Company
also entered into indemnity agreements (in the form approved by the
shareholders in August 1988) with its management and non-management directors
and executive officers. The agreements permit the Company to indemnify
directors and executive officers to the maximum extent permitted under
California law and prohibit the Company from terminating its indemnification
obligations as to acts or omissions of any director or executive officer
occurring before the termination. The indemnification and limitations on
liability permitted by the amendment to the Articles of Incorporation and the
agreements are subject to the limitations set forth by California law. The
Company believes the indemnification agreements will assist it in attracting
and retaining qualified individuals to serve as directors and executive
officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits: See Exhibit Index contained herein.
(b) Financial Statement Schedules:
See Index to Financial Statement Schedules in registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
All other financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
II-1
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remains unsold at the termination of
the offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(7) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(8) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective data of the registration statement through
the date of responding to the request.
(9) Except as permitted by General Instruction H to Form S-4 (in a
transaction not covered by General Instruction I), the undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glendale, State of
California, on the 21st day of December, 1995.
PUBLIC STORAGE, INC.
By: /s/ B. WAYNE HUGHES
__________________________________
B. Wayne Hughes, Chairman of the
Board
Each person whose signature appears below hereby authorizes B. Wayne Hughes
and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his
behalf, individually and in each capacity stated below, any amendment,
including post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ B. WAYNE HUGHES Chairman of the Board, Chief December 21, 1995
____________________________________ Executive Officer and
B. Wayne Hughes Director (principal
executive officer)
/s/ HARVEY LENKIN President and Director December 21, 1995
____________________________________
Harvey Lenkin
/s/ RONALD L. HAVNER, JR. Senior Vice President and December 21, 1995
____________________________________ Chief Financial Officer
Ronald L. Havner, Jr. (principal financial officer
and principal accounting
officer)
/s/ ROBERT J. ABERNETHY Director December 21, 1995
____________________________________
Robert J. Abernethy
/s/ DANN V. ANGELOFF Director December 21, 1995
____________________________________
Dann V. Angeloff
/s/ WILLIAM C. BAKER Director December 21, 1995
____________________________________
William C. Baker
/s/ URI P. HARKHAM Director December 21, 1995
____________________________________
Uri P. Harkham
/s/ BERRY HOLMES Director December 21, 1995
____________________________________
Berry Holmes
/s/ MICHAEL M. SACHS Director December 21, 1995
____________________________________
Michael M. Sachs
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Agreement and Plan of Reorganization by and among Public Storage,
Inc., Public Storage Management, Inc. and the registrant dated as of
June 30, 1995.(2)
2.2 Amendment to Agreement and Plan of Reorganization by and among Public
Storage, Inc., Public Storage Management, Inc. and the registrant
dated as of November 13, 1995.(3)
3.1 Restated Articles of Incorporation.(4)
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A.(4)
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B.(4)
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock,
Series B.(5)
3.5 Certificate of Determination for the 8.25% Convertible Preferred
Stock.(4)
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C.(4)
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D.(6)
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E.(7)
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F.(8)
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock.(9)
3.11 Certificate of Amendment of Articles of Incorporation.(9)
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred
Stock, Series G.(10)
3.13 Bylaws, as amended.
4.1 Form of Certificate of Determination for additional series of
Preferred Stock.(1)
4.2 Form of Deposit Agreement.(1)
4.3 Form of Warrant Agreement.(1)
5.1 Opinion of David Goldberg as to the legality of the securities being
registered.
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.
10.1 Loan Agreement between the registrant and Aetna Life Insurance Company
dated as of July 11, 1988.(11)
10.2 Amendment to Loan Agreement between the registrant and Aetna Life
Insurance Company dated as of September 1, 1993.(12)
10.3 Credit Agreement by and among the registrant, Wells Fargo Bank
National Association, as agent, and the financial institutions party
thereto dated as of May 22, 1995.(13)
10.4 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., the registrant and the holders
of the notes dated as of November 13, 1995.
*10.5 Registrant's 1990 Stock Option Plan.(14)
*10.6 Registrant's 1994 Stock Option Plan.(14)
12.1 Statement on computation of ratio of earnings to fixed charges.(15)
23.1 Consent of Independent Auditors.
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
</TABLE>
II-4
<PAGE>
- --------
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Filed as Appendix A to the registrant's Proxy Statement dated October 11,
1995 (filed October 13, 1995) and incorporated herein by reference.
(3) Filed with the Registrant's Current Report on Form 8-K dated November 16,
1995 and incorporated herein by reference.
(4) Filed with the registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
(5) Filed with the registrant's Registration Statement No. 33-56925 and
incorporated herein by reference.
(6) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 9.50% Cumulative Preferred Stock, Series D and incorporated herein by
reference.
(7) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 10% Cumulative Preferred Stock, Series E and incorporated herein by
reference.
(8) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 9.75% Cumulative Preferred Stock, Series F and incorporated herein by
reference.
(9) Filed with registrant's Registration Statement No. 33-63947 and
incorporated herein by reference.
(10) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 8 7/8% Cumulative Preferred Stock, Series G and incorporated herein
by reference.
(11) Filed with the registrant's Current Report on Form 8-K dated July 14,
1988 and incorporated herein by reference.
(12) Filed with the registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(13) Filed with the registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 and incorporated herein by
reference.
(14) Filed with the registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
(15) Filed with registrant's Form 10-Q for the quarterly period ended
September 30, 1995 and incorporated herein by reference.
*Compensatory Benefit Plan.
II-5
<PAGE>
EXHIBIT 3.13
REVISED BYLAWS OF STORAGE EQUITIES, INC.
----------------------------------------
ARTICLE I
Definitions
-----------
For the purpose of these Bylaws:
Section 1. "Adviser" shall mean Public Storage Advisers, Inc. or any other
entity entering into an agreement to provide Investment advice to and to
administer the day-to-day affairs of the corporation.
Section 2. "Advisory Contract" shall mean the contract with the Adviser.
Section 3. "Affiliate" shall mean (a) any person directly or indirectly
controlling, controlled by or under common control with another person, (b) any
person owning or controlling 10% or more of the outstanding voting securities of
such other person, (c) any officer, director or partner of such person, and (d)
if such person is an officer, director or partner, any company for which such
person acts in any such capacity.
Section 4. "Asset Coverage" shall mean the ratio (expressed as a
percentage) which the value of the Total Assets of the corporation less the
corporation's liabilities (except liabilities for unsecured borrowings),
determined in accordance with generally accepted accounting principles, bears to
the aggregate amount of all unsecured borrowings of the corporation.
Section 5. "Bylaws" shall mean these bylaws as amended, restated or
modified from time to time. References in these bylaws to "hereof", "herein"
and "hereunder" shall be deemed to refer to these bylaws and shall not be
limited to the particular article or section in which such words appear.
Section 6. "Corporation Property" shall mean as of any particular time any
and all property, real, personal or otherwise, tangible or intangible, which is
owned by, or on behalf of, the corporation.
Section 7. "Initial Shareholders" shall mean B. Wayne Hughes and Kenneth
Q. Volk, Jr.
Section 8. "Mortgages" shall mean mortgages, deeds of trusts or other
instruments creating liens on or security interests in real property or on
rights or interests, including leasehold interests, in real property.
Section 9. "Property Management Fee" shall mean that percentage of gross
revenues from properties which is payable as compensation for managing some or
all of the properties in which the corporation invests.
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Section 10. "REIT Provisions of the Internal Revenue Code" shall mean
Sections 856 through 860 of the Internal Revenue Code of 1954, as now enacted or
hereafter amended, or successor statutes and regulations promulgated thereunder.
Section 11. "Securities" shall mean any stock, shares, voting trust
certificates, warrants, bonds, debentures, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or otherwise,
interest or participation in a profit-sharing agreement, investment contract, or
in general any instruments commonly known as "securities", or any certificates
of interest, shares or participations in, temporary or interim certificates for,
or any option, warrant or right to subscribe to, purchase or acquire any of the
foregoing.
Section 12. "securities of the corporation" shall mean any securities
issued by the corporation.
Section 13. "shareholders" shall mean, as of any particular time, all
holders of record of outstanding shares at such time.
Section 14. "shares" shall mean shares of the common stock of the
corporation.
Section 15. "Total Assets" of the corporation shall mean the value of the
Corporation Property appearing on the most recent balance sheet of the
corporation, prepared in accordance with generally accepted accounting
practices, without deduction for Mortgages or other security interests to which
such assets are subject, or liabilities of the corporation (as shown on such
balance sheet) and without deduction for accumulated depreciation, depletion,
and amortization, but after provision for bad debt loss and any other similar
reserves.
Section 16. General. Whenever a term is defined in these bylaws in the
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singular, the plural of such term may also be used in these bylaws as a defined
term and, similarly, whenever a term is defined in the plural, the singular of
such term may also be used as a defined term hereunder.
ARTICLE II
Offices
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Section 1. Principal Executive Office. The principal executive office for
--------------------------
the transaction of the business of the corporation is hereby fixed and located
at 94 South Los Robles Avenue, in the City of Pasadena, County of Los Angeles,
State of California. The board of directors may change the principal executive
office from one location to another. Any such change shall be noted on the
bylaws opposite this section, or this section may be amended to state the new
location.
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Section 2. Other Offices. The board of directors may at time establish
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branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE III
Meetings of Shareholders
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Section 1. Place of Meetings. Meetings of shareholders shall be held at
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any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meeting. The annual meeting of shareholders shall be
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held each year on a date and at a time designated by the board of directors.
The date so designated shall be within five (5) months after the end of the
fiscal year of the corporation and within fifteen (15) months after the last
annual meeting. At each annual meeting directors shall be elected and any other
proper business may be transacted.
Section 3. Special Meeting. A special meeting of the shareholders may be
---------------
called at any time by the board of directors, or by the chairman of the board,
or by the president, or by one or more shareholder holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article III,
that a meeting will be held at the time requested by the person or persons
calling the meeting but not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
Section 4. Notice of Shareholders' Meetings. All notices of meetings of
--------------------------------
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article III not less than ten (10) (or thirty (30) if given by third class
mail) nor more than sixty (60) days before the date of the meeting. The
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notice shall specify the place, date and hour of the meeting and (i) in the case
of a special meeting, the general nature of the business to be transacted, or
(ii) in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the shareholders. The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees whom, at the time of
the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect material
financial interest within the meaning of Section 310 of the California General
Corporation Law, (ii) an amendment of the articles of incorporation pursuant to
Section 902 of that Law, (iii) a reorganization of the corporation pursuant to
Section 1201 of that Law, (iv) a voluntary dissolution of the corporation
pursuant to Section 1900 of that Law, or (v) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares pursuant to
Section 2007 of that Law, the notice shall also state the general nature of that
proposal.
Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any
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meeting of shareholders shall be given either personally or by first-class mail,
or if the corporation has outstanding shares held of record by five hundred
(500) or more persons (determined as provided in Section 605 of the California
General Corporation Law) on the record date for the shareholders' meeting, it
may be given by third class mail, or such notice may be given by telegraphic or
other written communication, charges prepaid, addressed to the shareholder at
the address of that shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice. If no
such address appears on the corporation's books or is so given, notice shall be
deemed to have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written demand
of the shareholder
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at the principal executive office of the corporation for a period of one (1)
year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving the notice, and shall be filed and
maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders of a
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majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting; Notice. Any shareholders' meeting, annual
-------------------------
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the shares represented at that meeting,
either in person or by proxy, but in the absence of a quorum, no other business
may be transacted at that meeting, except as provided in Section 6 of this
Article III.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article III. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting.
Section 8. Voting. Unless a record date set for voting purposes be fixed
------
as provided in Section 11 of this Article III, then subject to the provisions of
Section 702 to Section 704, inclusive, of the California General Corporation Law
(relating to voting shares held by a fiduciary, in the name of a corporation or
in joint ownership), only persons in whose names shares entitled to vote stand
on the stock records of the corporation at the close of business on the business
day next preceding the day on which notice is given (or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held) shall be entitled to vote at such meeting. Each outstanding
share of common stock entitles the holder to one vote on all matters presented
to shareholders for a vote with the exception that shareholders have
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cumulative voting rights with respect to the election of the corporation's board
of directors in accordance with the California General Corporation Law, as
described in the following paragraph of this Section 8. The shareholders' vote
may be by voice vote or by ballot; provided, however, that any election of
directors must be by ballot if demanded by any shareholder before the voting has
begun. On any matter other than elections of directors, any shareholder may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the shareholder
fails to specify the number of shares which the shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares that the shareholder is entitled to vote. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by the California General
Corporation Law or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) unless the candidates' names have been
placed in nomination prior to commencement of the voting and a shareholder has
given notice prior to commencement of the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 9. Waiver of Notice or Consent by Absent Shareholders. The
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transactions of any meeting of shareholders, either annual or special, however
called and noticed and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote who was not present in person or by proxy, or who, though
present, has at the beginning of the meeting properly objected to the
transaction of any business because the meeting was not lawfully called or
convened, or to particular matters of business legally required to be included
in the notice but not so included, signs a written waiver of notice or a consent
to a holding of the meeting or an approval of the minutes. The waiver of notice
or consent need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
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or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 4 of this Article III, the waiver of notice or
consent shall state the general nature of the proposal. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 10. Shareholder Action by Written Consent Without a Meeting. Any
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action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice if a consent, in writing,
setting forth the action so taken is signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take that action at a meeting at which all shares entitled to vote
on that action were present and voted. In the case of election of directors,
such a consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares, or a personal representative of the shareholder or
their respective proxy holders may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
III. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect material financial interest pursuant to
Section 310 of the California General Corporation Law, (ii) indemnification of
agents of the corporation pursuant to Section 317 of that Law, (iii) a
reorganization of the corporation pursuant to Section 1201 of that Law, and (iv)
a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares pursuant to Section 2007 of that Law, the notice
shall be given at least ten (10) days before the consummation of any action
authorized by that approval.
Section 11. Record Date for Shareholder Notice, Voting, and Giving
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Consents. For purposes of determining the shareholders entitled to notice of
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any meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date which
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shall not be more than sixty (60) days nor less than ten (10) days before the
date of any such meeting nor more than sixty (60) days before any such action
without a meeting, and in this event only shareholders of record on the date so
fixed are entitled to notice and to vote or to give consents, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting (i) when no prior action by the
board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
to that action, or the sixtieth (60th) day before the date of such other action,
whichever is later.
Section 12. Proxies. Every person entitled to vote for directors or on
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any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the California General Corporation Law.
Section 13. Inspectors of Election. Before any meeting of shareholders,
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the board of directors may appoint any
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persons other than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may, and upon the request of any shareholder or a
shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE IV
Directors
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Section 1. Powers. Subject to the provisions of the California General
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Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Without prejudice to these general powers and subject to the same
limitations, the directors shall have the power to:
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(a) select and remove all officers, agents and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation and with these bylaws; fix their
compensation; and require from them security for faithful service;
(b) change the principal executive office or the principal business office
in the State of California from one location to another; cause the corporation
to be qualified to do business in any other state, territory, dependency or
country and conduct business within or without the State of California; and
designate any place within or without the State of California for the holding of
any shareholders' meeting or meetings, including annual meetings;
(c) adopt, make and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates;
(d) authorize the issuance of securities of the corporation on any lawful
terms, in consideration of money paid, labor done, services actually rendered,
debts or securities cancelled, or tangible or intangible property actually
received;
(e) subject to Section 2, borrow money and incur indebtedness on behalf of
the corporation and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, Mortgages,
pledges, hypothecations and other evidences of debt and securities;
(f) enter into any Property Management Agreements necessary in the sole
judgment of the directors; and
(g) enter into an Advisory Contract, which must be terminable by the
corporation upon 60 days' written notice, with an Adviser for an initial term of
not to exceed two years, which term may be extended for successive one year
terms.
So long as it is in the best interests of the corporation and the
shareholders, the directors shall endeavor to cause investments to be made in
such a manner as to comply with the REIT provisions of the Internal Revenue Code
with respect to composition of the corporation's investments, derivation of its
income, and method of its operations.
In the exercise of their powers, the directors shall have full authority
and power (without liability for loss) to authorize any and all investments
within the limitations of these bylaws, that they, in their absolute discretion,
shall determine.
Section 2. Limitation on Directors' Authority. The directors shall not
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authorize or permit the incurrence of any
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obligation by the corporation which would cause the corporation's Asset Coverage
to become less than three hundred percent (300%).
Section 3. Number and Qualification of Directors. The number of directors
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of the corporation shall be not less than five (5) nor more than nine (9). The
exact number of directors shall be seven (7) until changed, within the limits
specified above, by a bylaw amending this Section 3, duly adopted by the board
of directors or by the shareholders. The indefinite number of directors may be
changed, or a definite number fixed without provision for an indefinite number,
by a duly adopted amendment to the articles of incorporation or by an amendment
to this bylaw duly adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; subject, however, to such
additional voting requirement or limitation as is imposed under applicable law
in the case of an amendment reducing the number of directors to a number less
than five (5).
Section 4. Election and Term of Office of Directors. Directors shall be
----------------------------------------
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 5. Vacancies. Vacancies in the board of directors may be filled
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by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that the directors may not fill a vacancy
created by the removal of a director. Each director elected to fill a vacancy
shall hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation or removal of any director, or if the
authorized number of directors is increased, or if the shareholders fail, at any
meeting of shareholders at which any director or directors are elected, to elect
the number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of a majority of the outstanding shares entitled to vote. Any such
election by written consent to fill a vacancy created by removal requires
unanimous consent of the shareholders.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the
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board of directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
Section 6. Place of Meetings and Meetings by Telephone. Regular meetings
-------------------------------------------
of the board of directors may be held at any place within or outside the State
of California that has been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or outside the State of California that
has been designated in the notice of the meeting or, if not stated in the notice
or, if there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
Section 7. Annual Meeting. Immediately following each annual meeting of
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shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Notice of this meeting shall not be required.
Section 8. Other Regular Meetings. Other regular meetings of the board of
----------------------
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
Section 9. Special Meetings. Special meetings of the board of directors
----------------
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the
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meeting is to be held at the principal executive office of the corporation.
Section 10. Quorum. A majority of the authorized number of directors
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shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 12 of this Article IV. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the California General Corporation Law (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Law (as to
appointment of committees), and Section 317(e) of that Law (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting.
Section 11. Waiver of Notice. The transactions of any meeting of the
----------------
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present or who though present has prior to the meeting or at its
commencement protested the lack of proper notice to him, signs a written waiver
of notice, a consent to holding the meeting or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Section 12. Adjournment. A majority of the directors present, whether or
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not constituting a quorum, may adjourn any meeting to another time and place.
Section 13. Notice of Adjournment. Notice of the time and place of
---------------------
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting in the manner specified
in Section 9 of this Article IV to the directors who were not present at the
time of the adjournment.
Section 14. Action Without Meeting. Any action required or permitted to
----------------------
be taken by the board of directors may be taken without a meeting if all members
of the board shall individually or collectively consent in writing to that
action. Such action by written consent shall have the same force and effect as
a unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
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Section 15. Fees and Compensation of Directors. Directors and members of
----------------------------------
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. The compensation for directors other than the Initial
Shareholders during the first fiscal year shall be $6,000 per year plus $200 per
meeting per director. This Section 15 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation for those services.
All directors will be reimbursed for reasonable expenses.
Section 16. Relation of Directors to the Adviser. No more than 49% of the
------------------------------------
total number of directors may be Affiliates of the Adviser; provided, however,
that if at any time the percentage of the directors who are Affiliates of the
Adviser becomes, by reason of one or more vacancies in the office of director or
otherwise, more than 49% of the total number of directors then in office, then
within 60 days of the occurrence of such event the remaining director or
directors in office shall appoint, pursuant to Section 5 of this Article IV, a
sufficient number of other individuals as directors so that there is again no
more than 49% of the total number of directors then in office who are Affiliates
of the Adviser.
ARTICLE V
Committees
----------
Section 1. Committees of Directors. The board of directors may, by
-----------------------
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided
in the resolution of the board, shall have all the authority of the board,
except with respect to:
(a) the approval of any action which, under the General Corporation Law of
California, also requires shareholders' approval or approval of the outstanding
shares;
(b) the filling of vacancies on the board of directors or in any committee;
(c) the fixing of compensation of the directors for serving on the board or
on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
14
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(e) the amendment or repeal of any resolution of the board of directors
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a rate
or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors or
the members of these committees.
Section 2. Meetings and Action of Committees. Meetings and action of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article IV of these bylaws, Sections 6 (place of meetings), 8
(regular meetings), 9 (special meetings and notice), 10 (quorum), 11 (waiver of
notice), 12 (adjournment), 13 (notice of adjournment), and 14 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the board of directors; and notice of special meetings of committees shall
also be given to all alternate members who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE VI
Officers
--------
Section 1. Officers. The officers of the corporation shall include a
--------
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, a treasurer, one or more assistant secretaries, one or
more assistant treasurers and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article VI. If there is a
treasurer, he shall be the chief financial officer unless some other person is
so appointed by the board of directors. Any number of offices may be held by
the same person.
Section 2. Election of Officers. The officers of the corporation, except
--------------------
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article VI, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment.
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Section 3. Subordinate Officers. The board of directors may appoint, and
--------------------
may empower the chairman of the board or president to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the bylaws or as the board of directors may from time to time
determine.
Section 4. Removal and Resignation of Officer. Subject to the rights, if
----------------------------------
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
special meeting of the board or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors. Any officer may resign at any time by
giving written notice to the corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
Section 6. Chairman of the Board. The chairman of the board, if such an
---------------------
officer be elected, shall, if present, preside at meetings of the board of
directors and meetings of the shareholders and shall exercise such other powers
and perform such other duties as may be from time to time assigned to him by the
board of directors or prescribed by the bylaws. If there is no president, the
chairman of the board shall in addition be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 7 of this
Article VI. The chairman of the board may be the chief executive officer of the
corporation, notwithstanding that there is a president, if the board of
directors so determines.
Section 7. President. Subject to such supervisory powers, if any, as may
---------
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall, subject to the control of the board of
directors, have the powers of general supervision, direction and control of the
business and the officers of the corporation. In the absence of the chairman of
the board, or if there be none, he shall preside at all meetings of the
shareholders and at all meetings of the board of directors. He shall have the
general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or the bylaws. The
16
<PAGE>
president shall be the chief executive officer of the corporation unless the
chairman of the board, if any, is so designated.
Section 8. Vice Presidents. In the absence or disability of the
---------------
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws and the president or the chairman of the board,
if any.
Section 9. Secretary. The secretary shall keep or cause to be kept, at
---------
the principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders, with the time and place of holding, whether
regular or special and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings and the proceedings.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by the bylaws or by law
to be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 10. Chief Financial Officer. The chief financial officer shall
-----------------------
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the
17
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board of directors. He shall disburse the funds of the corporation as may be
ordered by the board of directors, shall render to the president and directors,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
board of directors or the bylaws.
ARTICLE VII
Indemnification of Directors,
Officers, Employees and Other Agents
------------------------------------
Section 1. Agents, Proceedings and Expenses. For the purposes of this
--------------------------------
Article, "agent" means any person who is or was a director, officer, employee or
other agent of this corporation, or is or was serving at the request of this
corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5(c) of this Article.
Section 2. Actions Other Than by the Corporation. This corporation shall
-------------------------------------
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceedings (other than an action by or in the right of this corporation)
by reason of the fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that person reasonably believed to be in the best
interests of this corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 3. Actions by the Corporation. This corporation shall indemnify
--------------------------
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of this corporation
to procure a judgment in its favor by reason of the fact that that person is or
was an agent of this corporation, against expenses
18
<PAGE>
actually and reasonably incurred by that person in connection with the defense
or settlement of that action if that person acted in good faith, in a manner
that person believed to be in the best interests of this corporation and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. No indemnification shall
be made under this Section 3:
(a) in respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable to this corporation in the performance of that
person's duty to this corporation, unless and only to the extent that the court
in which that action is or was pending shall determine upon application that, in
view of all the circumstances of the case, that person is fairly and reasonably
entitled to indemnity for the expenses which the court shall determine;
(b) of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval; or
(c) of expenses incurred in defending threatened or pending action which is
settled or otherwise disposed of without court approval.
Section 4. Successful Defense by Agent. To the extent that an agent of
---------------------------
this corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. Required Approval. Except as provided in Section 4 of this
-----------------
Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by:
(a) a majority vote of a quorum consisting of directors who are not parties
to the proceeding;
(b) approval by the affirmative vote of a majority of the shares of this
corporation entitled to vote represented at a duly held meeting at which a
quorum is present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
(c) the court in which the proceeding is or was pending, on application
made by this corporation or the agent or the attorney or other person rendering
services in connection
19
<PAGE>
with the defense, whether or not such application by the agent, attorney or
other person is opposed by this corporation.
Section 6. Advances of Expenses. Expenses incurred in defending any
--------------------
proceeding may be advanced by this corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. Other Contractual Rights. Nothing contained in this Article
------------------------
shall affect any right to indemnification to which persons other than directors
and officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
Section 8. Limitations. No indemnification or advance shall be made under
-----------
this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) that it would be inconsistent with a provision of the articles, a
resolution of the shareholders or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(b) that it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
Section 9. Insurance. Upon and in the event of a determination by the
---------
board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the obligation to indemnify the agent against that
liability under the provisions of this Article.
Section 10. Fiduciaries of Corporate Employee Benefit Plan. This Article
----------------------------------------------
does not apply to any proceeding against any trustee, investment manager or
other fiduciary of an employee benefit plan in that person's capacity as such,
even though that person may also be an agent of the corporation as defined in
Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager or other
fiduciary may be entitled by contract or otherwise, which shall be enforceable
to the extent permitted by applicable law.
20
<PAGE>
ARTICLE VIII
Investment Policy
-----------------
Section 1. Statement of Investment Policy. Subject to the
------------------------------
prohibitions contained in Section 2 of this Article, the general investment
policy of the corporation shall be to invest the assets of the corporation in
existing mini-warehouses. Up to ten percent (10%) of the net assets of the
corporation may also be invested in improved property used for other commercial
or industrial purposes.
Section 2. Investment Prohibitions. The corporation may not:
-----------------------
(a) Invest in commodities;
(b) Invest in non-income-producing property, provided that the
corporation is not limited in the extent to which it may invest in (i) property
being developed, (ii) property scheduled to be developed within one year, or
(iii) property which is incidental to income-producing real property owned by,
or securing a Mortgage held by, the corporation;
(c) Make loans secured by junior Mortgages unless (i) the indebtedness
is convertible into, or accompanied by a right to convert it into, an equity
interest in the property at a conversion rate based upon its fair market value
at the time the loan is made as determined by an independent appraisal, and (ii)
the total indebtedness on the property, including the corporation's junior loan,
does not exceed 85% of the fair market value of the property at the time the
junior Mortgage loan is made by the corporation, as determined by an independent
appraisal;
(d) Engage in short sales or trading activities in securities, except
for purposes of hedging the corporation's short-term investments;
(e) Engage in underwriting or agency distribution of securities issued
by others;
(f) Acquire securities in any company whose primary business is
holding investments or engaging in activities prohibited by this Section 2;
(g) Acquire investments in any property in which the Initial
Shareholders, their Affiliates, or any of the corporation's officers and
directors have an interest or sell property to any of such persons unless the
transaction (i) is approved by a majority of disinterested directors, and (ii)
is fair to the corporation, based on an independent appraisal; provided that
either of the Initial Shareholders or any of their Affiliates may purchase an
interest in its own name and
21
<PAGE>
temporarily hold title thereto for purposes of facilitating the acquisition of
such interest for the corporation. If the Adviser or any of its Affiliates has
an interest in a property, any director of the corporation who is an Affiliate
of the Adviser shall not be deemed to be disinterested;
(h) Issue debt securities in a public offering unless the Company's
"cash flow" (which for this purpose shall mean net income, exclusive of
extraordinary items, plus depreciation) for the most recent twelve months for
which financial statements are available, adjusted to give effect to the
anticipated use of the proceeds from the proposed sale of debt securities would
be sufficient to service the interest on such securities;
(i) Issue "redeemable securities" as defined in the Investment Company
Act of 1940 or assessable securities, provided that the corporation's right to
recover the unpaid purchase price of securities or the remainder of the
consideration to be paid therefor shall not be limited; or
(j) Issue warrants, options or similar evidences of a right to
purchase the corporation's securities (i) to the Adviser or any of its
Affiliates, (ii) at exercise prices less than the fair market value of such
securities on the date of the grant of the option or other right; provided that
the foregoing shall not apply to options granted under an employee stock option
or similar plan if (A) the plan is approved by the vote of the holders of a
majority of the shares, (B) the number of shares subject to options under such a
plan shall not exceed 10% of the then outstanding shares and (C) any such option
will have an exercise price of not less than 85% of the fair market value of the
share on the date of grant of the option or other right.
Section 3. Fees. The Initial Shareholders and their Affiliates shall
----
not be paid by the corporation or by any person or entity acting on its behalf,
any finder's fees or real estate commissions in connection with the acquisition
or disposition of the corporation's real property investments.
ARTICLE IX
Independent Activities
----------------------
Section 1. Statement re Independent Activities.
-----------------------------------
(a) Except as otherwise prohibited or limited by this Section, the
Initial Shareholders, any director, officer, employee or agent of the
corporation, and any Affiliate of the foregoing, may have business interests and
engage in business activities in addition to those relating to the corporation,
which interests and activities may be similar to, or in competition with, those
of the corporation, provided that so
22
<PAGE>
long as the Initial Shareholders are affiliated with the corporation, neither
they nor any of their Affiliates will invest, or offer to others the opportunity
to invest, in any improved mini-warehouses unless the opportunity to invest in
such property has been presented to, and rejected by (or not accepted within a
reasonable period of time), the corporation. This restriction is not applicable
to any properties as to which any of the Initial Shareholders or their
Affiliates have entered into before November 18, 1980, a contract, agreement in
principle or letter of intent. The Initial Shareholders, any director, officer,
or agent of the corporation, and any Affiliate of the foregoing, may invest in
other types of improved property, and in unimproved property acquired for mini-
warehouse construction, without obligation to make such opportunities available
to the corporation.
(b) Subject to the other provisions of these bylaws, any director,
officer, employee or agent of the corporation may be interested as an officer,
director, stockholder, partner, trustee, member, adviser or employee of, or
otherwise have a direct or indirect interest in, any entity which may be engaged
to render advice or services to the corporation of every nature, kind and
description, including but not limited to real estate brokerage, mortgage
brokerage, property management, mortgage or property investigation or appraisal,
investment selection, administrative, managerial, record keeping and agency
services of all kinds and may receive compensation from any or all of the
entities referred to, as well as compensation as a director, officer, employee
or agent of the corporation. None of the activities referred to in this
paragraph shall be deemed to conflict with the duties or powers of a director,
officer, employee or agent of the corporation in such capacity.
(c) Any director, officer, employee or agent of the corporation may
acquire, own, hold and dispose of securities of the corporation, for his
individual account, and may exercise all rights of a holder of such securities
to the same extent and in the same manner as if he were not such a director,
officer, employee or agent.
ARTICLE X
Records and Reports
-------------------
Section 1. Maintenance and Inspection of Share Register. The
--------------------------------------------
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate
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of the outstanding voting shares of the corporation may (i) inspect and copy the
records of shareholders' names and addresses and shareholdings during usual
business hours on five (5) days prior written demand on the corporation, and
(ii) obtain from the transfer agent of the corporation, on written demand and on
the tender of such transfer agent's usual charges for such list, a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings as of the most recent record date for which
that list has been compiled or as of a date specified by the shareholder after
the date of demand. This list shall be made available to any such shareholder
by the transfer agent on or before the later of five (5) days after the demand
is received or the date specified in the demand as the date as of which the list
is to be compiled. The record of shareholders shall also be open to inspection
on the written demand of any shareholder or holder of a voting trust
certificate, at any time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. Any inspection and copying under this Section 1 may be made
in person or by an agent or attorney of the shareholder or holder of a voting
trust certificate making the demand.
Section 2. Maintenance and Inspection of Bylaws. The corporation
------------------------------------
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the
State of California and the corporation has no principal business office in this
state, the secretary shall, upon the written request of any shareholder, furnish
to that shareholder a copy of the bylaws as amended to date.
Section 3. Maintenance and Inspection of Other Corporate Records.
-----------------------------------------------------
The accounting books and records and minutes of proceedings of the shareholders
and the board of directors and any committee or committees of the board of
directors shall be kept at such place or places designated by the board of
directors or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney
and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation, if any.
24
<PAGE>
Section 4. Inspection by Director. Every director shall have the
----------------------
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. Annual Report to Shareholders. The board of directors
-----------------------------
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal year adopted by the
corporation. This report shall be sent at least fifteen (15) (or if sent by
third-class mail, thirty-five (35)) days before the annual meeting of
shareholders to be held during the next fiscal year and in the manner specified
in Section 5 of Article III of these bylaws for giving notice to shareholders of
the corporation. The annual report shall contain a balance sheet as of the end
of the fiscal year and an income statement and statement of changes in financial
position for the fiscal year, prepared in accordance with generally accepted
accounting principles applied on a consistent basis and accompanied by any
report of independent accountants.
Section 6. Disclosure on Distribution. Any distribution of income or
--------------------------
capital assets of the corporation to holders of securities of the corporation
other than its promissory notes shall be accompanied by a written statement
disclosing the source of the funds distributed. If, at the time of
distribution, this information is not available, a written explanation of the
relevant circumstances shall accompany the distribution and the written
statement disclosing the source of the funds distributed shall be sent to such
holders not later than sixty (60) days after the close of the fiscal year in
which the distribution was made.
Section 7. Financial Statements. If the holder or holders of at
--------------------
least five percent (5%) of the outstanding shares of any class of stock of the
corporation make a written request to the corporation for an income statement of
the corporation for the three-month, six-month or nine-month period of the then
current fiscal year ended more than thirty (30) days before the date of the
request, and a balance sheet of the corporation as of the end of that period,
the chief financial officer shall cause that statement to be prepared, if not
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request. If the corporation has not sent to the shareholders its
annual report for the last fiscal year within one hundred twenty (120) days
after the close of such fiscal year, the statements which were to be contained
in such annual report shall likewise be delivered or mailed to any shareholder
or shareholders requesting such statements within thirty (30) days after receipt
by the corporation of a written request for such statements. A copy of such
statements shall be kept on file
25
<PAGE>
in the principal executive office of the corporation for twelve (12) months, and
each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 8. Annual Statement of General Information. The corporation
---------------------------------------
shall, during the period commencing on March 1st and ending on August 31st in
each year, file with the Secretary of State of the State of California, on the
prescribed form, a statement setting forth the number of vacancies, if any, on
the board of directors, the names and complete business or residence addresses
of all incumbent directors, the names and complete business or residence
addresses of the chief executive officer, secretary and chief financial officer,
the street address of its principal executive office or, if the principal
executive office is not in California, its principal business office in
California, and the general type of business constituting the principal business
activity of the corporation, together with a designation of the agent of the
corporation for the purpose of service of process, all in compliance with
Section 1502 of the Corporations Code of California.
ARTICLE XI
General Corporate Matters
-------------------------
Section 1. Record Date for Purposes Other than Notice and Voting.
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
26
<PAGE>
Section 2. Checks, Drafts, Evidence of Indebtedness. All checks,
----------------------------------------
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as from time to
time shall be determined by resolution of the board of directors.
Section 3. Corporate Contracts and Instruments; How Executed. The
-------------------------------------------------
board of directors, except as otherwise provided in these bylaws, may authorize
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power of
an officer, no officer, agent or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
Section 4. Certificates for Shares. A certificate or certificates
-----------------------
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates for shares which are partly paid
provided that these certificates shall state the amount of the consideration to
be paid for them and the amount paid. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board, or the president or vice president, and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed on a certificate shall have ceased to be that officer, transfer
agent or registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an officer, transfer
agent or registrar at the date of issue.
Section 5. Lost Certificates. Except as provided in this Section 5,
-----------------
no new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The board of directors may, in case any share certificate or certificate
for any other security is lost, stolen, or destroyed, authorize the issuance of
a replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
27
<PAGE>
Section 6. Representation of Shares of Other Corporations. The
----------------------------------------------
chairman of the board, the president or any vice president, or any other person
authorized by resolution of the board of directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by a proxy duly executed by these officers.
Section 7. Redemption and Stop Transfer for Tax Purposes. If the
---------------------------------------------
directors shall, at any time and in good faith, be of the opinion that ownership
of securities of the corporation has or may become concentrated to an extent
that may prevent the corporation from qualifying as a real estate investment
trust under the REIT Provisions of the Internal Revenue Code, then the directors
shall have the power, by lot or other means deemed equitable by them to prevent
the transfer of and/or to call for redemption a number of securities of the
corporation sufficient, in the opinion of the directors, to maintain or bring
the direct or indirect ownership thereof into conformity with the requirements
of such a real estate investment trust under the REIT Provisions of the Internal
Revenue Code. The redemption price to be paid for securities of the corporation
so called for redemption, on the date fixed for redemption, shall be the average
of the highest bid and the lowest asked quotations on the last business day
prior to the redemption date as reported by the National Quotation Bureau,
Incorporated or a similar organization selected from time to time by the
corporation or if there be no such bid and asked quotations, as determined by
the board of directors in good faith. From and after the date fixed for
redemption by the directors, the holder of any securities of the corporation so
called for redemption shall cease to be entitled to any distributions, voting
rights and other benefits with respect to such securities of the corporation,
other than the right to payment of the redemption price determined as aforesaid.
Section 8. Provisions in Conflict with Law or Regulations. The
----------------------------------------------
provisions of these bylaws are severable, and if the directors shall determine,
with the advice of counsel, that any one or more of such provisions (the
"Conflicting Provisions") are in conflict with the REIT Provisions of the
Internal Revenue Code or with other applicable federal or California laws and
regulations, the Conflicting Provisions shall be deemed never to have
constituted a part of these bylaws; provided, however, that such determination
by the directors shall not affect or impair any of the remaining provisions of
these bylaws or render invalid or improper any action taken or omitted
(including but not limited to the election of directors) prior to such
determination. Such determination shall become effective when a certificate
signed by a majority of the directors setting forth any such determination and
reciting that it was duly
28
<PAGE>
adopted by the directors, shall be filed with the books and records of the
corporation. The directors shall not be liable for failure to make any
determination under this Section. Nothing in this Section shall in any way
limit or affect the right of the directors or the shareholders to amend these
bylaws.
Section 9. Construction. Unless the context requires otherwise, the
------------
general provisions, rules of construction and definitions in the California
General Corporation Law shall govern the construction of these bylaws.
ARTICLE XII
Amendments
----------
Section 1. Amendment by Shareholders. New bylaws may be adopted or
-------------------------
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation.
Section 2. Amendment by Directors. Subject to the rights of the
----------------------
shareholders as provided in Section 1 of this Article XII, to adopt, amend or
repeal bylaws, bylaws may be adopted, amended or repealed by the board of
directors, provided, however, that the board of directors may adopt a bylaw or
amend a bylaw changing the authorized number of directors only for the purpose
of fixing the exact number of directors within the limits specified in the
articles of incorporation or in Section 3 of Article IV of these bylaws, and
provided further that bylaws relating to the corporation's permissible Asset
Coverage (Article IV, Section 2), to the corporation's investment policy
(Article VIII), to the independent activities of the Initial Shareholders,
directors, officers, employees and agents of the corporation and of Affiliates
of the foregoing, (Article IX, Section 1), and to the corporation's
qualification as a real estate investment trust (Article XI, Section 7), may not
be amended or repealed without the vote or written consent of holders of a
majority of the outstanding shares entitled to vote.
29
<PAGE>
Amendment to Section 2 of Article III of the Bylaws of Storage Equities, Inc.
Adopted by the Board of Directors of Storage Equities, Inc. on May 31, 1983:
Section 2. Annual Meeting. The annual meeting of shareholders shall
--------------
be held each year on a date and at a time designated by the Board of
Directors. The date so designated shall be within fifteen (15) months
after the last annual meeting. At each annual meeting directors shall
be elected and any other business may be transacted.
30
<PAGE>
Amendment to Bylaws of Storage Equities, Inc. Adopted by the Shareholders of
Storage Equities, Inc. on August 19, 1983:
RESOLVED: That Section 1 of Article VIII of the corporation's bylaws
is hereby amended to read as follows:
"Section 1. Statement of Investment Policy. Subject to the
------------------------------
prohibitions contained in Section 2 of this Article, the general
investment policy of the corporation shall be to invest the
assets of the corporation in existing miniwarehouses. The
corporation may also invest in improved property to be used for
other purposes provided, however, that no investment shall be
made in any such non-miniwarehouse property if it would cause the
corporation's total investment in all non-miniwarehouse
properties, as of the time of acquisition, to equal more than 40%
of the corporation's total assets."
RESOLVED FURTHER: That paragraph (c) of Section 2 of Article VIII of
the bylaws of this corporation is hereby deleted in its entirety.
RESOLVED FURTHER: That Section 1 of Article IX of the bylaws of this
corporation is hereby amended to read as follows:
"Section 1. Statement re Independent Activities.
-----------------------------------
(a) Except as otherwise prohibited or limited by law or by
contract, the Initial Shareholders, any director, officer,
employee or agent of the corporation, and any Affiliate of the
foregoing, may have business interests and engage in business
activities in addition to those relating to the corporation,
which interests and activities may be similar to, or in
competition with, those of the corporation."
31
<PAGE>
RESOLVED FURTHER: That Section 2 of Article XII of the bylaws of this
corporation is hereby amended to read as follows:
"Section 2. Amendment by Directors. Subject to the rights of
----------------------
the shareholders as provided in Section 1 of this Article XII, to
adopt, amend or repeal bylaws, bylaws may be adopted, amended or
repealed by the board of directors, provided, however, that the
board of directors may adopt a bylaw or amend a bylaw changing
the authorized number of directors only for the purpose of fixing
the exact number of directors within the limits specified in the
articles of incorporation or in Section 3 of Article IV of these
bylaws, and provided further that bylaws relating to the
corporation's permissible Asset Coverage (Article IV, Section 2),
to the corporation's investment policy (Article VIII), and to the
corporation's qualification as a real estate investment trust
(Article XI, Section 7) may not be amended or repealed without
the vote or written consent of holders of a majority of the
outstanding shares entitled to vote."
32
<PAGE>
Amendments to Bylaws of Storage Equities, Inc. Adopted by the Board of
Directors on October 7, 1983.
WHEREAS: The Board of Directors of this corporation considers it to be
in the best interests of the corporation to increase the authorized
number of directors of the corporation from seven (7) to eight (8);
and
WHEREAS: The corporation's bylaws permit the Board of Directors to
designate the number of directors of the corporation provided that
such number is within the range of not less than five (5) nor more
than nine (9).
NOW, THEREFORE, BE IT RESOLVED: That the second sentence of Section 3
of Article IV of the corporation's bylaws is hereby amended to read as
follows:
"The exact number of directors shall be eight (8) until changed
within the limits specified above, by a bylaw amending this
Section 3, duly adopted by the board of directors or by the
shareholders."
33
<PAGE>
Amendment to Bylaws of Storage Equities, Inc. Adopted by the Shareholders of
Storage Equities, Inc. on May 15, 1985:
RESOLVED: That Article VI of the corporation's bylaws is hereby
amended to add Section 11 which shall read as follows:
"Section 11. Officer Loans and Guaranties. Without limiting any
----------------------------
other powers of the corporation or the board of directors with
respect to loans, guaranties or employee benefit plans, if the
corporation has outstanding shares held of record by 100 or more
persons (determined as provided in the California General
Corporation Law) on the date of approval by the board of
directors, the corporation may make loans to limited partnerships
or other entities affiliated with any officer of the corporation,
whether or not the officer is also a director, upon the approval
of the board of directors alone (by a vote sufficient without
counting the vote of any interested director or directors) if the
board of directors determines that such a loan may reasonably be
expected to benefit the corporation and considers that the loan
is a favorable investment opportunity for the corporation."
34
<PAGE>
Amendment to Bylaws of Storage Equities, Inc. Adopted by the Shareholders of
Storage Equities, Inc. on July 11, 1989.
RESOLVED: That Section I of Article VIII of the corporation's bylaws
is hereby amended to read as follows:
"Section 1. Statement of Investment Policy. Subject to the
------------------------------
prohibitions contained in Section 2 of this Article, the general
investment policy of the corporation shall be to engage in any
lawful activity for which a corporation may be organized under
applicable law."
35
<PAGE>
Amendment to Bylaws of Storage Equities, Inc. Adopted by the Board of
Directors on May 14, 1992
WHEREAS: The Board of Directors of this corporation considers it to
be in the best interests of the corporation to decrease the authorized
number of directors of the corporation from eight (8) to seven (7); and
WHEREAS: The corporation's Bylaws permit the Board of Directors to
designate the number of directors of the corporation provided that such
number is within the range of not less than five (5) or more than nine (9).
NOW, THEREFORE, BE IT RESOLVED: That the second sentence of Section 3
of Article IV of the corporation's Bylaws is hereby amended to read as
follows:
"The exact number of directors shall be seven (7) until changed within
the limits specified above, by a bylaw amending this section 3, duly
adopted by the board of directors or by the shareholders."
36
<PAGE>
AMENDMENT TO BYLAWS OF STORAGE EQUITIES, INC.
ADOPTED BY THE BOARD OF DIRECTORS ON MARCH 31, 1993
WHEREAS: The Board of Directors of this corporation considers it to
be in the best interests of the corporation to increase the authorized
number of directors of the corporation from seven (7) to eight (8); and
WHEREAS: The corporation's Bylaws permit the Board of Directors to
designate the number of directors of the corporation provided that such
number is within the range of not less than five (5) or more than nine (9).
NOW, THEREFORE, BE IT RESOLVED: That the second sentence of Section 3
of Article IV of the corporation's Bylaws is hereby amended to read as
follows:
"The exact number of directors shall be eight (8) until changed within
the limits specified above, by a bylaw amending this section 3, duly
adopted by the board of directors or by the shareholders."
37
<PAGE>
AMENDMENT TO BYLAWS OF PUBLIC STORAGE, INC.
(FORMERLY KNOWN AS STORAGE EQUITIES, INC.)
ADOPTED BY BOARD OF DIRECTORS ON DECEMBER 7, 1995
Resolved: That Section 7 of Article XI of the corporation's bylaws is
hereby amended to add the following at the end of such Section 7:
"[subsections (a) through (k) are deliberately omitted]
(l) OWNERSHIP LIMITATIONS - PREFERRED STOCK
---------------------------------------
(i) Except as provided in subparagraph (n) of this Section 7 of Article XI
and the last sentence of this subparagraph (l), no Person shall Acquire or
Beneficially Own shares of any series of Preferred Stock in excess of the
Ownership Limit set forth in this subparagraph (l)(i). In the case of any
series of Preferred Stock, the Ownership Limit is 9.9% of the outstanding shares
of such series of Preferred Stock.
The limitation set forth in this subparagraph (l)(i) of this Section 7 of
Article XI shall apply only to an Acquisition or Transfer of Stock or other
event with respect to Stock occurring subsequent to the effective date of the
merger of Public Storage Management, Inc. with and into this corporation.
Notwithstanding anything to the contrary in this Section 7 of Article XI, no
Person shall be deemed to exceed the Ownership Limit set forth in this
subparagraph (l)(i) solely by reason of the Beneficial Ownership of shares of
any class of Stock to the extent such shares of Stock were Beneficially Owned by
such Person on the effective date of the merger of Public Storage Management,
Inc. with and into this corporation (but the Beneficial Ownership of any such
shares of Stock shall be taken into account in determining whether any
subsequent Transfer, Acquisition or other event violates this subparagraph
(l)(i)).
(ii) Notwithstanding any other provisions contained in the corporation's
Articles of Incorporation or bylaws, no Person shall Acquire or Beneficially Own
shares of any class of Stock of this corporation to the extent that, if
effective, such Acquisition or Beneficial Ownership would result in this
corporation being "closely held" within the meaning of Section 856(h) of the
Code (without regard to whether the purported Acquisition, Transfer or other
event takes place during the second half of a taxable year) or otherwise would
result in this corporation failing to qualify as a REIT.
(m) REMEDIES
--------
(i) If, notwithstanding the other provisions contained in this Section 7 of
Article XI, at any time after the effective date of the merger of Public Storage
Management, Inc. with and into this corporation, there is a purported Transfer,
Acquisition, change in the capital structure of this corporation
38
<PAGE>
or other event (including, without limitation, a change in the relationship
between two or more Persons that causes the application of Section 544 of the
Code, as modified by Section 856(h)), that, if effective, would result in the
violation of one or more of the restrictions on ownership and transfer described
in subparagraph (l) of the Section 7 of Article XI, then (1) in the case of a
Transfer or Acquisition, that number of shares of Stock purported to be
Transferred or Acquired that otherwise would cause such Person to violate
subparagraph (l) (rounded up to the next whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as described
in subparagraph (t) of this Section 7 of Article XI, effective as of the close
of business on the day immediately prior to the date of such purported Transfer
or Acquisition, and such Person shall acquire no rights in such shares of Stock;
(2) in the case of any event other than a Transfer or Acquisition ("Beneficial
Ownership Event"), that number of shares of Stock that would be owned by Persons
(the "Affected Persons") as a result of such Beneficial Ownership Event that
otherwise would violate subparagraph (l) of this Section 7 of Article XI
(rounded up to the next whole share) shall be automatically transferred to a
Trust for the benefit of a Charitable Beneficiary, as described in subparagraph
(t) of this Section 7 of Article XI, effective as of the close of business on
the day immediately prior to such Beneficial Ownership Event, and such Affected
Persons shall acquire no rights (or have no continuing rights) in such shares of
Stock; or (3) if the transfer to the Trust described in either clause (1) or
clause (2) hereof would not be effective for any reason to prevent any Person
from Beneficially Owning Stock in violations of subparagraph (l) of this Section
7 of Article XI, then the Transfer, Acquisition, or other Beneficial Ownership
Event that would otherwise cause such Person to violate subparagraph (l) of this
Section 7 of Article XI shall be void ab initio.
(ii) Notwithstanding the other provisions hereof, any Transfer or
Acquisition of shares of Stock that, if effective, would result in the Stock
being beneficially owned by less than 100 persons (determined without reference
to any rules of attribution) shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Stock.
(iii) In addition to, and without limitation by, subparagraphs (m)(i)
and (m)(ii) above, if the Board of Directors or its designees shall at any time
determine in good faith that a Transfer, Acquisition or other event has taken
place in violation of subparagraph (l) of this Section 7 of Article XI or that a
Person intends to Acquire, has attempted to Acquire, or may Acquire direct
ownership, beneficial ownership (determined without reference to any rules of
attribution) or Beneficial Ownership of any Stock in violation of subparagraph
(l) of this Section 7 of Article XI, the Board of Directors or its designees
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, but not limited to, causing
this corporation to refuse to give effect to such Transfer or other event on the
books of this
39
<PAGE>
corporation or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfer or Acquisition (or, in the case of events
- -------- -------
other than a Transfer or Acquisition, ownership or Beneficial Ownership) in
violation of subparagraph (l) of this Section 7 of Article XI shall
automatically result in the transfer to the Trust described in subparagraph
(m)(i), irrespective of any action (or non-action) by the Board of Directors.
(iv) Nothing contained in this subparagraph (m) shall limit the authority
of the Board of Directors to take such other action as it deems necessary or
advisable to protect this corporation and the interests of its stockholders by
preservation of this corporation's status as a REIT.
(n) WAIVERS AND EXCEPTIONS
----------------------
(i) Subject to subparagraph (l)(ii) of this Section 7 of Article XI, the
Board of Directors, in its sole and absolute discretion, may grant to any Person
who makes a request therefor an exception to the Ownership Limit with respect to
any series of Preferred Stock set forth in subparagraph (l)(i), subject to the
following conditions and limitations: (A) the Board of Directors shall have
determined that, after giving effect to (x) an acquisition by such Person of
Beneficial Ownership of the maximum amount of Preferred Stock permitted as a
result of the exception to be granted and (y) assuming that the four other
Persons who would be treated as "individuals" for purposes of Section 542(a)(2)
for of the Code and who would Beneficially Own the largest amounts of the Stock
of this corporation (determined by value) Beneficially Own the maximum amount of
Preferred Stock permitted under subparagraph (l) of this Section 7 of Article XI
(or if greater, any exception granted under this subparagraph (n)(i) to (or with
respect to) such Persons), this corporation would not be "closely held" within
the meaning of Section 856(h) of the Code (without regard to whether the
purported Acquisition, Transfer or other event takes place during the second
half of a taxable year) and would not otherwise fail to qualify as a REIT; and
(B) such Person provides to the Board of Directors such representations and
undertakings as the Board of Directors may, in its sole and absolute discretion,
require (including, without limitation, an agreement as to a reduced Ownership
Limit for such Person with respect to the Beneficial Ownership of one or more
other classes of Stock not subject to the exception), and such Person agrees
that any violation of such representations and undertakings or attempted
violation thereof will result in the application of the remedies set forth in
subparagraph (m)(i) with respect to shares of Stock held in excess of the
Ownership Limit with respect to such Person (determined without regard to the
exception granted such Person under this subparagraph (n)(i)). If a member of
the Board of Directors requests that the Board of Directors grant an exception
to the Ownership Limit with respect to such member or with respect to any other
Person if such Board member would be considered to be the Beneficial Owner of
shares of Stock owned by such Person, such member of the Board of
40
<PAGE>
Directors shall not participate in the decision of the Board of Directors as to
whether to grant any such exception.
(ii) Subject to subparagraph (l)(ii) of this Section 7 of Article XI, in
addition to exceptions permitted under subparagraph (n)(i) above, the Board of
Directors, in its sole and absolute discretion, may exempt a Person from the
Ownership Limit if such Person is not an individual for purposes of Section
542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of
the Code) and such Person provides to the Board of Directors such
representations and undertakings as the Board of Directors may, in its sole and
absolute discretion, require, and such Person agrees that any violation of such
representations and undertakings or attempted violation thereof will result in
the application of the remedies set forth in subparagraph (m)(i) with respect to
shares of Stock held in excess of the Ownership Limit with respect to such
Person (determined without regard to the exemption granted under this
subparagraph (n)(ii)).
(iii) Prior to granting any exception or exemption pursuant to
subparagraph (n)(i) or (n)(ii), the Board of Directors may require a ruling from
the IRS or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors, in its sole and absolute discretion as
it may deem necessary or advisable in order to determine or ensure this
corporation's status as a REIT, provided, however, that obtaining a favorable
-------- -------
ruling or opinion shall not be required for the Board of Directors to grant an
exception hereunder.
(o) CERTAIN DEFINITIONS
-------------------
Unless the context otherwise requires, the terms defined in this
subparagraph (o) shall have, for all purposes of subparagraphs (l) through (v)
of this Section 7 of Article XI, the meaning specified herein (with terms
defined in the singular having comparable meanings when used in the plural).
Acquire. The term "Acquire" shall mean the acquisition of Beneficial
-------
Ownership of shares of Stock by any means, including, without limitation, a
Transfer, the exercise of or right to exercise any rights under any option,
warrant, convertible security, pledge or other security interest or similar
right to acquire shares, but shall not include the acquisition of any such
rights unless, as a result, the acquiror would be considered a Beneficial Owner
(if the acquisition would have been effective), as defined below. The term
"Acquisition" shall have the correlative meaning.
Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership
--------------------
of Preferred Stock by a Person who is or would be treated as an owner of such
Stock either directly, indirectly or constructively through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns," and "Beneficially Owned" shall
have correlative meanings.
41
<PAGE>
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one
-----------------------
or more beneficiaries of the Trust as determined pursuant to subparagraph (t) of
this Section 7 of Article XI, each of which shall be an organization described
in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
----
amended from time to time.
IRS. The term "IRS" shall mean the United States Internal Revenue Service.
---
Market Price. The term "Market Price" shall mean, with respect to any
------------
class of Stock, the last reported sales price on the NYSE of shares of such
class of Stock on the day immediately preceding the relevant date, or if such
class of Stock is not then traded on the NYSE, the last reported sales price of
shares of such class of Stock on the day immediately preceding the relevant date
as reported on any exchange or quotation system or for which such class of Stock
may be traded, provided, however, that if the Board of Directors determines in
-------- -------
good faith that a lower price is appropriate, then the Market Price shall be
such lower price as determined in good faith by the Board of Directors, or if
such class of Stock is not then traded over any exchange or quotation system,
the Market Price shall be the price determined in good faith by the Board of
Directors of this corporation as the fair market value of shares of such class
of Stock on the relevant date.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
----
Ownership Limit. The term "Ownership Limit" shall mean the maximum amount
---------------
of Preferred Stock that may be Beneficially Owned by a Person under subparagraph
(l)(i) of this Section 7 of Article XI, determined without regard to any
exception or waiver that may be granted under subparagraph (n) of this Section 7
of Article XI (but taking into account the last sentence of subparagraph (l)(i)
of this Section 7 of Article XI).
Person. The term "Person" shall mean an individual, corporation,
------
partnership, estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity; but does not include an underwriter
which participates in a public offering of Stock provided that the ownership of
Stock by such underwriter would not result in this corporation being "closely
held" within the meaning of Section 856(h) of the Code and would not otherwise
result in this corporation failing to qualify as a REIT.
42
<PAGE>
Purported Beneficial Transferee. The term "Purported Beneficial
-------------------------------
Transferee" shall mean, with respect to any purported Transfer which would
result in a violation of the limitations in subparagraph (l) of this Section 7
of Article XI, the Purported Beneficial Transferee or owner for whom the
Purported Record Transferee would have acquired or owned shares of Stock if such
Transfer had been valid under subparagraph (l) of this Section 7 of Article XI.
Purported Record Transferee. The term "Purported Record Transferee" shall
---------------------------
mean with respect to any Purported Transfer which would result in a violation of
the limitations in subparagraph (l) of this Section 7 of Article XI, the record
holder of the Stock if such Transfer had been valid under subparagraph (l) of
this Section 7 of Article XI.
REIT. The term "REIT" shall mean a Real Estate Investment Trust under
----
Section 856 of the Code.
Stock. The term "Stock" shall mean shares of stock of this corporation
-----
that are Preferred Stock.
Transfer. The term "Transfer" shall mean any sale, transfer, gift,
--------
assignment, devise or other disposition of Stock, including (i) the granting of
any option or entering into any agreement or the sale, transfer or other
disposition of Stock or (ii) the sale, transfer, assignment or other disposition
of any securities (or rights convertible into exchangeable Stock), whether
voluntarily or involuntarily, whether of record or beneficially or Beneficially
(including, but not limited to, transfers of interests in other entities which
result in changes in Beneficial Ownership of Stock), and whether by operation of
law or otherwise.
Trust. The term "Trust" shall mean the trust created pursuant to
-----
subparagraph (t)(i) of this Section 7 of Article XI.
Trustee. The term "Trustee" shall mean the Person unaffiliated with this
-------
corporation, or the Purported Beneficial Transferee, or the Purported Record
Transferee, that is appointed by this corporation to serve as trustee of the
Trust.
(p) NOTICE OF RESTRICTED TRANSFER
-----------------------------
Any Person who Acquires or attempts to Acquire Stock or other securities in
violation of subparagraph (l) of this Section 7 of Article XI or any Person who
is a transferee in a Transfer or is otherwise affected by an event other than a
Transfer that results in a violation of subparagraph (l) of this Section 7 of
Article XI, shall immediately give written notice to this corporation of such
Acquisition, Transfer or other event and shall provide to this corporation such
other information as this corporation may request in order to determine the
effect, if any, of such Acquisition, Transfer or other event on this
corporation's status as a REIT.
43
<PAGE>
(q) OWNERS REQUIRED TO PROVIDE INFORMATION
--------------------------------------
From and after the effective date of the merger of Public Storage
Management, Inc. with and into this corporation, each Person who is a beneficial
owner or Beneficial Owner of Stock and each Person (including the stockholder of
record) who is holding Stock for a Beneficial Owner shall provide to this
corporation such information as this corporation may request, in good faith, in
order to determine this corporation's status as a REIT.
(r) AMBIGUITY
---------
In the case of an ambiguity in the application of any of the provisions of
this Section 7 of Article XI, including any definition contained in subparagraph
(o) of this Section 7 of Article XI, the Board of Directors shall have the power
to determine the application of the provisions of this Section 7 of Article XI
with respect to any situation based on the facts known to it.
(s) LEGEND
------
Each certificate for shares of any class of Stock shall bear the following
legend: "The shares of Stock represented by this certificate are subject to
restrictions on ownership and transfer for the purpose of this corporation's
maintenance of its status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended. Except as set forth in Section 7 of Article
XI of this corporation's bylaws, no person may Beneficially Own more than 9.9%
of the outstanding shares of any series of Preferred Stock of this corporation,
with certain further restrictions and exceptions as are set forth in this
corporation's Articles of Incorporation and bylaws. Any Person who attempts to
own or Beneficially Own Stock in excess of the above limitations must
immediately notify this corporation. All capitalized terms in this legend have
the meanings defined in Section 7 of Article XI of this corporation's bylaws.
If any of the restrictions on transfer or ownership set forth in Section 7 of
Article XI of the bylaws or this corporation are violated, the Stock represented
hereby will be automatically transferred to the Trustee of a Trust for the
benefit of a Charitable Beneficiary pursuant to the terms of Section 7 of
Article XI of the bylaws of this corporation. In addition, attempted transfers
of Stock in violation of the limitations described above (as modified or
expanded upon in Section 7 of Article XI of this corporation's bylaws), may be
void ab initio. This corporation will furnish to the holder hereof, upon
-- ------
request and without charge, a complete written statement of the terms and
conditions of Section 7 of Article XI of the corporation's bylaws. Requests for
such documents may be directed to the corporate secretary."
(t) TRANSFER OF STOCK IN TRUST
---------------------------
(i) Ownership in Trust; Status of Shares Held in Trust. Upon any purported
--------------------------------------------------
Transfer (whether or not such Transfer is
44
<PAGE>
the result of a transaction engaged in through the facilities of the NYSE),
Acquisition or other event that results in the transfer of Stock to a Trust
pursuant to subparagraph (m) of this Article IV, such shares of Stock shall
be deemed to have been transferred to the Trustee in its capacity as
Trustee for the exclusive benefit one or more Charitable Beneficiaries. The
Trustee shall be appointed by this corporation and shall be a Person
unaffiliated with this corporation, any Purported Beneficial Transferee or
Purported Record Transferee. Each Charitable Beneficiary shall be
designated by this corporation as provided in subparagraph (v) of this
Section 7 of Article XI. Shares of Stock so held in Trust shall be issued
and outstanding stock of this corporation. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically
from ownership of any shares of Stock held in Trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or
other rights attributable to the shares held in Trust. The Purported Record
Transferee and the Purported Beneficial Transferee of shares of Stock in
violation of subparagraph (l) of this Section 7 of Article XI shall have no
claim, cause of action, or any other recourse whatsoever against the
purported transferor of such shares.
(ii) Dividend Rights. The Trustee shall have all rights to dividends with
---------------
respect to shares of Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or distribution paid prior to the discovery by this corporation
that the shares of Stock have been transferred to the Trustee with respect
to such shares shall be paid over to the Trustee by the recipient thereof
upon demand, and any dividend declared but unpaid shall be paid when due to
the Trustee. Any dividends or distributions so paid over to the Trustee
shall be held in trust for the Charitable Beneficiary.
(iii) Rights upon Liquidation. In the event of any voluntary or
-----------------------
involuntary liquidation, dissolution or winding up of or any distribution
of the assets of this corporation, the Trustee shall be entitled to
receive, ratably with each other holder of Stock of the class of Stock that
is held in the Trust, that portion of the assets of this corporation
available for distribution to the holders of such class (determined based
upon the ratio that the number of shares of such class of Stock held by the
Trustee bears to the total number of shares of such class of Stock then
outstanding). The Trustee shall distribute any such assets received in
respect of the Stock held in the Trust in any liquidation, dissolution or
winding up of, or distribution of the assets of the Corporation in
accordance with subparagraph (t)(iv) of this Section 7 of Article XI.
(iv) Sale of Shares by Trustee. Within twenty days of receiving notice
-------------------------
from this corporation that shares of Stock
45
<PAGE>
have been transferred to the Trust, the Trustee of the Trust shall sell the
shares held in Trust to a Person, designated by the Trustee, whose
ownership of the shares of Stock held in the Trust would not violate the
ownership limitations set forth in subparagraph (l) of this Section 7 of
Article XI. Upon such sale, the interest of the Charitable Beneficiary in
the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Purported Record Transferee and to the
Charitable Beneficiary as provided in this subparagraph (t)(iv). The
Purported Record Transferee shall receive the lesser of (1) (x) the price
per share such Purported Record Transferee paid for the Stock in the
purported Transfer that resulted in the transfer of shares of Stock to the
Trust, or (y) if the Transfer or other event that resulted in the transfer
of shares of Stock to the Trust was not a transaction in which the
Purported Record Transferee gave full value for such shares of Stock, a
price per share equal to the Market Price on the date of the purported
Transfer or other event that resulted in the transfer of such shares of
Stock to the Trust and (2) the price per share received by the Trustee from
the sale or other disposition of the shares held in the Trust. Any net
sales proceeds in excess of the amount payable to the Purported Record
Transferee shall be immediately paid to the Charitable Beneficiary. If,
prior to the discovery by this corporation that shares of Stock have been
transferred to the Trustee, such shares are sold by the Purported Record
Transferee, then (i) such shares shall be deemed to have been sold on
behalf of the Trust and (ii) to the extent that the Purported Record
Transferee received an amount for such shares that exceeds the amount such
Purported Record Transferee was entitled to receive pursuant to this
subparagraph (t)(iv), such excess shall be paid to the Trustee upon demand.
The Trustee should have the right and power (but not the obligation) to
offer any share of Stock held in the Trust for sale to this corporation on
such terms and conditions as the Trustee shall determine appropriate.
(v) Voting and Notice Rights. The Trustee shall have all voting rights and
------------------------
rights to receive any notice of any meetings, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. The
Purported Record Transferee shall have no voting rights with respect to
shares held in Trust.
(u) SETTLEMENT
----------
Nothing in this Section 7 of Article XI shall preclude the settlement of
any transaction entered into through the facilities of the NYSE (but the fact
that settlement of a transaction is permitted shall not negate the effect of any
other provision of this Section 7 of Article XI and all of the provisions of
this Section 7 of Article XI shall apply to the purported transferee of the
shares of Stock in such transaction).
46
<PAGE>
(v) DESIGNATION OF CHARITABLE BENEFICIARY
-------------------------------------
By written notice to the Trustee, this corporation shall designate one or
more nonprofit organizations to be the Charitable Beneficiary of the interest in
the Trust such that (i) the shares of Stock held in the Trust would not violate
the restrictions set forth in subparagraph (l) of this Section 7 of Article XI
in the hands of such Charitable Beneficiary and (ii) each Charitable Beneficiary
is an organization described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3)
of the Code."
47
<PAGE>
Exhibit 5.1
David Goldberg
Senior Vice President and General Counsel
Public Storage, Inc.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
December 21, 1995
Public Storage, Inc.
600 North Brand Boulevard, Suite 300
Glendale, California 91203-1241
Gentlemen:
As Senior Vice President and General Counsel of Public Storage, Inc. (the
"Company"), I have examined (A) the Registration Statement on Form S-4 filed by
the Company with the Securities and Exchange Commission (the "Commission") on or
about July 16, 1992 (File No. 33-49696) and (B) the Registration Statement on
Form S-4, filed by the Company with the Commission on or about December 13,
1995, as amended through the date hereof (File No. 33-64971) (collectively, the
"Registration Statements"), which includes a Prospectus to be used in connection
with securities registered under the Registration Statements (the "Prospectus").
The Prospectus relates to the offer and sale of up to $300,000,000 stated amount
of (i) shares of preferred stock, par value $.01 per share (the "Preferred
Shares"), (ii) depositary shares (the "Depositary Shares") representing a
fractional interest in a Preferred Share, (iii) shares of common stock, par
value $.10 per share (the "Common Shares") and (iv) warrants (the "Warrants").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Preferred Shares, the
Depositary Shares, the Common Shares and the Warrants in the manner set forth in
the Registration Statements. I have also examined the Company's Restated
Articles of Incorporation and Revised Bylaws and have made such other
investigation as I have deemed necessary in order to express the opinions
contained herein.
It is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of California.
2. The Preferred Shares, the Depositary Shares, the Common Shares and the
Warrants, when issued and delivered in the manner and on the terms described in
the Registration Statements and payment of the agreed consideration therefor has
been received by the Company, will be legally issued, fully paid and
nonassessable.
I hereby consent to the reference to me under the caption "Legal Opinions"
in the Registration Statements and to the filing of this opinion as an exhibit
to each of the Registration Statements or amendments thereto.
Very truly yours,
/s/ DAVID GOLDBERG
DAVID GOLDBERG
<PAGE>
EXHIBIT 8.1
December 21, 1995
Public Storage, Inc.
600 N. Brand Boulevard
Glendale, California 91203-1241
Ladies and Gentlemen:
In connection with the registration by Public Storage, Inc., a
California corporation (the "Company"), of shares of preferred stock, par value
$.01 per share, depositary shares representing a fractional interest in a share
of such preferred stock, shares of common stock, par value $.10 per share, and
warrants to purchase shares of such preferred or common stock, as more fully
described in the Company's Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on December 13, 1995, as amended through the
date hereof, of which the prospectus is a part (the "Prospectus"), we have been
requested to provide you with our opinion as to whether the Company will
continue to qualify as a REIT under sections 856 through 860 of the Internal
Revenue Code (the "Code") following the Merger of Public Storage Management,
Inc. ("PSMI") into the Company (the "Merger").
All capitalized terms used herein have the same meaning as set forth
in the Prospectus unless otherwise defined herein.
BASIS FOR OPINIONS AND ASSUMPTIONS MADE IN CONNECTION THEREWITH
Our opinion is based on (i) existing law as contained in the Code,
regulations issued thereunder by the U.S. Treasury Department ("Regulations"),
administrative pronouncements of the Internal Revenue Service ("IRS"), and court
decisions as of the date hereof, (ii) our understanding of the relevant facts
related to the Company, its past, current, and contemplated operation, as
reflected in the Prospectus and as represented to us in the certificate of the
Company of even date herewith, and (iii) our assumption that the Company will
continue to be operated in accordance with the representations contained in the
certificate of the Company of even date herewith. Any of the statutes,
regulations, administrative
<PAGE>
Public Storage, Inc.
December 21, 1995
Page 2
pronouncements, or judicial decisions upon which this opinion is based could be
changed at any time, perhaps with retroactive effect. Furthermore, some of the
issues under existing law that could significantly affect our opinion have not
yet been authoritatively addressed by the IRS or the courts.
In rendering our opinion, we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the following: (1) the
Agreement and Plan of Reorganization by and among Public Storage, Inc., PSMI and
the Company dated June 30, 1995; (2) the Prospectus (including the exhibits
thereto and all amendments thereto made through the date hereof); (3) the
Amendment to the Company's Restated Articles of Incorporation, as adopted in
connection with the Merger; (4) the Shareholders' Agreement dated November 16,
1995 ("Shareholders' Agreement") entered into by B. Wayne Hughes, Tamara L.
Hughes, B. Wayne Hughes, Jr. and Parker Hughes Trust No. 2; (5) the articles of
incorporation, by-laws and stock ownership information for PS Orange Co., Inc.
("Lock/Box Company"), Public Storage Commercial Properties Group, Inc. ("PSCP"),
and PSCC, Inc. ("PSCC"); (6) the ruling request letters, dated March 19, 1995
and June 7, 1995, submitted to the Internal Revenue Service on behalf of the
Company (the "Ruling Request Letters"), and the ruling letter dated October 4,
1995, issued by the Internal Revenue Service in response thereto; (7) the
Amendment to the Amended Management Agreement dated August 8, 1995 (the
"Management Agreement Amendment"); and (8) such other instruments and documents
related to the organization and operation of the Company as we have deemed
necessary or appropriate.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct in all material respects, and that all of the obligations imposed by
any such documents on the parties thereto have been and will be performed or
satisfied substantially in accordance with their terms. Moreover, we have
assumed that the Company has been, and each of the Company, the Lock/Box
Company, PSCP and PSCC will be, operated substantially in the manner described
in the Prospectus, the Ruling Requests, and the relevant articles of
incorporation and other organizational documents. We also have assumed the
genuineness of all signatures, the proper execution of all documents that are
executed, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals from which any copies were made.
<PAGE>
Public Storage, Inc.
December 21, 1995
Page 3
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in documents we reviewed or of
representations made by the Company. We consequently have assumed that the
information presented in such documents or otherwise furnished to us accurately
and completely describes all material facts relevant to our opinion. We also
have assumed for the purposes of this opinion that the Company is a validly
organized and duly incorporated corporation under the laws of the State of
California and that the provisions of the Shareholders' Agreement and Article IV
of the Amendment to the Company's Restated Articles of Incorporation are fully
enforceable in the manner set forth therein under the laws of the State of
California. In the event any of the statements, representations, or assumptions
upon which we have relied in rendering this opinion is incorrect or incomplete,
our opinion could be adversely affected and may not be relied upon.
OPINION
Based upon the foregoing, and subject to the various assumptions,
limitations, and qualifications set forth in this letter, we are of the opinion
that:
The Company will continue to qualify as a REIT under sections 856
through 860 of the Code following the Merger SO LONG AS (A) the
Company has met at all times since the Merger and continues to meet
the stock ownership and gross income requirements applicable to REITs
and (B) either PSMI at the time of (and after giving effect to) the
Merger was not considered to have any current or accumulated earnings
and profits for tax purposes or the Company makes distributions prior
to the end of 1995 in an amount sufficient to eliminate such earnings
and profits.
We are expressing our opinion only as to the specific matters set
forth in the preceding numbered paragraphs. With regard to whether the Company
will continue to qualify as a REIT following the Merger, we specifically are not
rendering an opinion as to whether the Company has satisfied or will continue to
satisfy the stock ownership and gross income requirements applicable to REITs
following the Merger or whether PSMI had current or accumulated earnings and
profits at the time of the Merger. For a discussion of certain of the
considerations associated with these issues, we direct your attention
specifically to the discussions of these matters contained in the Prospectus
under the caption "Certain Federal
<PAGE>
Public Storage, Inc.
December 21, 1995
Page 4
Income Tax Considerations--Consequences of the Merger on the Company's
Qualification as a REIT."
* * * * * * * * * *
This opinion only represents and is based upon our best judgment
regarding the application of relevant current provisions of the Code and
interpretations of the foregoing as expressed in existing judicial decisions,
administrative regulations and published rulings and procedures. Our opinion,
however, is not binding upon the IRS or the courts, and there can be no
assurance that the IRS would not seek to assert a contrary position or that a
court would not agree with that contrary position. Furthermore, no assurance
can be given that future legislative, judicial or administrative changes, on
either a prospective or retroactive basis, would not adversely affect the
accuracy of the opinion expressed herein. We undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws. We undertake no obligation to update this opinion, or
to ascertain after the date hereof whether circumstances occurring after such
date may affect the conclusions set forth herein.
We hereby consent to the filing of our opinion, together with the
attachments thereto, as Exhibit 8.1 to the Prospectus and to the use of the name
of our firm in the Prospectus. In giving this consent, however, we do not
thereby admit that we are an "expert" within the meaning of the Securities Act
of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
--------------------------
Hogan & Hartson L.L.P.
<PAGE>
EXHIBIT 10.4
================================================================================
STORAGE EQUITIES, INC.
NOTE ASSUMPTION AND EXCHANGE AGREEMENT
Dated as of November 13, 1995
Re: Assumption and Modification of
$68,000,000 Remaining Principal Amount of
7.08% Senior Secured Notes
of Public Storage Management, Inc.
Due November 22, 2003
================================================================================
Schedules to this Agreement will be furnished to the
Securities and Exchange Commission upon request.
<PAGE>
ATTACHMENTS TO NOTE ASSUMPTION AND EXCHANGE AGREEMENT:
<TABLE>
<CAPTION>
<C> <C> <S>
Schedule I -- Names and Addresses of Purchasers and
Principal Amounts of Notes
Schedule II -- Accountants, Investment Banks and Appraisers
Schedule 5.1(a) -- Liens
Schedule 5.1(d) -- Indebtedness
Schedule 5.1(f) -- Litigation
Schedule 5.1(g) -- Title to Properties
Schedule 5.1(r) -- Environmental
Schedule 7.2 -- Insurance
Annex I -- Subsidiaries and Restricted Subsidiaries
Exhibit A -- Form of Senior Note
Exhibit B -- Description of Special Counsel's
Closing Opinion
Exhibit C -- Description of Closing Opinion of In-
House Counsel to the Company, PSI and
PSMI
Exhibit D -- Consent Agreement
</TABLE>
2
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1. EXCHANGE OF PSMI NOTES.............................. 3
SECTION 2. EXCHANGE PROCEDURE AND RELEASE
OF SECURITY......................................... 3
SECTION 3. DESCRIPTION OF NOTES AND EXCHANGE................... 3
3.1 Description of Notes.................... 3
3.2 Exchange, Closing Date.................. 4
3.3 Other Agreements........................ 5
SECTION 4. PREPAYMENT OF NOTES................................. 5
4.1 Required Prepayments.................... 5
4.2 Optional Prepayment with
Premium................................. 6
4.3 Notice of Prepayments................... 7
4.4 Application of Prepayments.............. 8
4.5 Direct Payment.......................... 8
SECTION 5. REPRESENTATIONS..................................... 8
5.1 Representations of the
Company................................. 8
5.2 Representations of the
Purchaser............................... 22
SECTION 6. CLOSING CONDITIONS.................................. 23
6.1 Conditions.............................. 23
6.2 Occurrence of PSMI Merger............... 26
6.3 Waiver of Conditions ................... 26
SECTION 7. COVENANTS........................................... 26
7.1 Corporate Existence, Etc................ 26
7.2 Insurance............................... 26
7.3 Taxes, Claims for Labor and
Materials; Compliance with Laws......... 27
7.4 Maintenance, Etc........................ 28
7.5 Nature of Business...................... 28
7.6 REIT Status............................. 29
7.7 Continuation of Existing
Arrangements with the Company........... 29
7.8 Financial Tests......................... 30
7.9 Unencumbered Assets..................... 31
7.10 Limitation on Incurrences of
Additional Indebtedness................. 31
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
7.11 Management Fees......................... 32
7.12 Limitation on Liens..................... 33
7.13 Mergers, Consolidations
and Sales of Assets..................... 33
7.14 Repurchase of Notes..................... 34
7.15 Transactions with Affiliates............ 35
7.16 Limitation on Restricted
Investments............................. 36
7.17 ERISA................................... 37
7.18 Reports and Rights of
Inspection.............................. 39
7.19 [Intentionally Omitted]................. 43
7.20 Facilities.............................. 43
7.21 Restrictive Agreements.................. 43
7.22 Rating for the Notes.................... 43
SECTION 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR............. 44
8.1 Events of Default........................ 44
8.2 Notice to Holders........................ 48
8.3 Acceleration of Maturities............... 48
8.4 Rescission of Acceleration............... 49
8.5 Valuable Rights.......................... 50
8.6 Other Remedies........................... 50
SECTION 9. SECURITY............................................ 50
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS.................... 51
10.1 Consent Required........................ 51
10.2 Solicitation of Holders................. 51
10.3 Effect of Amendment or
Waiver.................................. 51
SECTION 11. INTERPRETATION OF AGREEMENT; DEFINITIONS............ 52
11.1 Definitions............................. 52
11.2 Accounting Principles................... 73
11.3 Directly or Indirectly.................. 73
SECTION 12. INDEMNIFICATION..................................... 73
12.1 Indemnified Parties..................... 73
12.2 Environmental Indemnification........... 75
12.3 Notification of Proceeding.............. 75
12.4 Rights of Subrogation................... 77
SECTION 13. CONTRIBUTION........................................ 77
13.1 Relative Fault........................... 77
13.2 Allocation of Fault...................... 78
13.3 Survival of Obligations.................. 78
</TABLE>
ii
<PAGE>
<TABLE>
<C> <C> <C>
SECTION 14. MISCELLANEOUS....................................... 78
14.1 Registered Notes......................... 78
14.2 Exchange of Notes........................ 79
14.3 Loss, Theft, Etc. of Notes............... 79
14.4 Expenses, Stamp Tax
Indemnity................................ 80
14.5 Powers and Rights Not Waived;
Remedies Cumulative...................... 81
14.6 Notices.................................. 81
14.7 Successors and Assigns................... 81
14.8 Survival of Covenants
and Representations...................... 82
14.9 Jurisdiction and Process................. 82
14.10 Severability............................. 82
14.11 Entire Agreement......................... 83
14.12 Governing Law............................ 83
14.13 Captions................................. 83
14.14 Reproduction of Documents................ 83
SECTION 15. PURCHASE OF PSMI NOTES BY THE COMPANY............... 83
</TABLE>
iii
<PAGE>
STORAGE EQUITIES, INC.
PUBLIC STORAGE MANAGEMENT, INC.
PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD, SUITE 300
GLENDALE, CALIFORNIA 91203
NOTE ASSUMPTION AND EXCHANGE AGREEMENT
DATED AS OF NOVEMBER 13, 1995
TO EACH PURCHASER NAMED IN SCHEDULE I
HERETO WHICH IS A SIGNATORY OF THIS AGREEMENT
LADIES AND GENTLEMEN:
THE UNDERSIGNED AGREE WITH YOU AS FOLLOWS:
THIS NOTE ASSUMPTION AND EXCHANGE AGREEMENT (the "Exchange Agreement")
is made and entered into as of November 13, 1995, by and between Public Storage
Management, Inc., a California corporation ("PSMI"), Public Storage, Inc., a
California corporation ("PSI"), Storage Equities, Inc., a California corporation
(the "Company"), and the holder of a PSMI Note (as defined below) named on
Schedule I hereto (all holders named on such schedule are collectively referred
to as the "Purchasers").
RECITALS
--------
PSMI and PSI entered into a Note Agreement dated as of November 22,
1993 (the "PSMI Note Agreement") pursuant to which $75,000,000 of PSMI's 7.08%
Senior Secured Notes (the "PSMI Notes") were issued and sold to the Purchasers.
$68,000,000 aggregate principal amount of PSMI Notes is outstanding. In
conjunction therewith, PSI entered into a Note Agreement dated as of November
22, 1993 (the "PSI Note Agreement") with PSMI whereby PSMI delivered
substantially all of the proceeds from the sale of the PSMI Notes to PSI in
exchange for a note (the "PSI Note"). PSI and PSMI entered into a Pledge and
Security Agreement with Bank of America National Trust and Savings Association
as collateral agent, dated as of November 22, 1993 (the "Pledge and Security
Agreement") for the purpose, among other things, of securing and providing for
the repayment of the PSMI Notes.
1
<PAGE>
The Company, PSMI and PSI have entered into an Agreement and Plan of
Reorganization dated as of June 30, 1995, as amended to date (the
"Reorganization Agreement"), providing for the Reorganization (as defined below)
and the subsequent merger of PSMI into the Company pursuant to the PSMI Merger
Agreement, with the Company surviving (the "PSMI Merger"). Pursuant to the
Reorganization Agreement and the PSMI Merger Agreement, in connection with the
PSMI Merger, the Company will assume and become liable for the debt and other
obligations represented by the then outstanding PSMI Notes (the "Assumption")
and consummate the Exchange (as defined below). In preparation for the PSMI
Merger, PSI, PSMI and certain related persons are entering into a series of
transactions more fully described in the Consent Agreement (as defined below).
Such transactions are defined in the Consent Agreement as the "Reorganization."
Each of the Purchasers has consented to the Reorganization and has
among other things waived any and all rights or claims each of them had or may
have against PSI or PSMI for any violations of the PSMI Note Agreement, the PSI
Note Agreement or the Pledge and Security Agreement caused by the Reorganization
by executing a consent agreement in substantially the same form as Exhibit D
attached hereto (the "Consent Agreement").
In connection with the Assumption and pursuant to the Reorganization
Agreement, the Purchasers and the Company have agreed to modify and restate the
terms of the PSMI Notes, and to exchange the PSMI Notes for new notes to be
issued by the Company pursuant to the terms and conditions of this Exchange
Agreement (the "Exchange").
In consideration of the premises and of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
AGREEMENT
SECTION 1. EXCHANGE OF PSMI NOTES
The Company and each of the Purchasers hereby agree that the Company will
assume the PSMI Notes and all obligations represented thereby. In order to
effect such Assumption, the Company shall, at the Closing (as defined
2
<PAGE>
herein), exchange $1,000 principal amount, or appropriate portion thereof, of
its 7.08% Senior Notes due November 22, 2003 (the "Notes" and individually a
"Note") for each $1,000 outstanding principal amount, or portion thereof, of
PSMI Notes tendered by each Purchaser. Whether or not a Purchaser tenders its
PSMI Notes at the Closing, from and after the Closing, each PSMI Note will
represent only the right to receive a Note in like principal amount, with the
terms thereof and the covenants set forth in the PSMI Note Agreement being
amended and restated as set forth herein. The aggregate principal amount of
Notes to be issued to each Purchaser in the Exchange is listed on Schedule I
hereto.
SECTION 2. EXCHANGE PROCEDURE AND RELEASE OF SECURITY
At the Closing, each Purchaser will deliver all of its PSMI Notes to the
Company in proper form for transfer and the Company will deliver the Notes to
each Purchaser. After the Exchange is completed and the Notes have been issued
to each of the Purchasers in the amounts listed on Schedule I hereto, the PSMI
Notes, the PSMI Note Agreement, the PSI Note, the PSI Note Agreement and the
Pledge and Security Agreement shall be of no further force and effect except to
the extent the Purchasers had or may have had any claim against any of the
parties to such notes and agreements had they known of the existence of such
claim prior to executing this Exchange Agreement and the Consent Agreement. In
connection with the Closing, the Purchasers agree to take such further actions
as shall be reasonably necessary to facilitate the release of the liens on the
assets securing the PSMI Notes and the PSI Note.
SECTION 3. DESCRIPTION OF NOTES AND EXCHANGE
3.1 Description of Notes. The Company has authorized the issuance of
$68,000,000 aggregate principal amount of its Notes to be dated the date of
issuance, to bear interest from the last date with respect to which interest was
paid on the PSMI Notes at the rate of 7.08% per annum, payable semiannually in
arrears on the 22nd day of each May and November in each year (commencing
November 22, 1995) and at maturity and to bear interest on overdue principal
(including any overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any overdue
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<PAGE>
installment of interest, at the rate equal to the greater of (i) 9.08% per annum
and (ii) 2.0% plus the rate which Harris Trust and Savings Bank of Illinois
announces from time to time as its prime lending rate, in each case from the
date due, whether by acceleration or otherwise, until paid, to be expressed to
mature November 22, 2003 and to be substantially in the form attached hereto as
Exhibit A. Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months. The Notes are not subject to prepayment or
redemption at the option of the Company prior to their expressed maturity date
except on the terms and conditions and in the amounts and with the premium, if
any, set forth in (S) 4 of this Exchange Agreement. The term "Notes" as used
herein shall include each Note originally delivered pursuant to this Exchange
Agreement and the separate agreements with the other purchasers named in
Schedule I and all notes delivered in substitution or exchange for any of said
Notes pursuant to this Exchange Agreement and said other agreements. You and the
other purchasers named in Schedule I are hereinafter sometimes referred to as
the "Purchasers" and individually as a "Purchaser."
3.2 Exchange, Closing Date. The Company shall issue to you and, subject
to the terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, you agree to accept from the Company, Notes in
exchange for your PSMI Notes, in the outstanding principal amount set forth
opposite your name on Schedule I hereto at 100.00% of the principal amount
thereof on the Closing Date hereafter mentioned pursuant to the terms of this
Exchange Agreement.
You understand that, whether or not you exchange your PSMI Notes for the
Notes at the Closing pursuant to the terms and conditions of this Exchange
Agreement, your PSMI Notes will be assumed by the Company at the Closing and
will represent only the right to receive a Note in like principal amount as set
forth in Section I.
Delivery of the Notes will be made at a closing (the "Closing") at the
offices of Skadden, Arps, Slate, Meagher & Flom, Los Angeles, at 9:00 A.M., Los
Angeles time, on November 16, 1995 or such later date as shall mutually be
agreed upon by the Company and the Purchasers (the "Closing Date"). The Notes
delivered to you on the
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<PAGE>
Closing Date will be delivered to you in the form of a single registered Note in
the form attached hereto as Exhibit A for the full outstanding principal amount
of PSMI Notes tendered by you at the Closing (unless different denominations are
specified by you at least two business days prior to the Closing Date),
registered in your name or in the name of your nominee, all as you may specify
at any time prior to the Closing Date.
3.3 Other Agreements. Simultaneously with the execution and delivery of
this Exchange Agreement, the Company is entering into agreements identical
(except for name and signature of the other Purchasers) to this Exchange
Agreement with the other Purchasers under which such other Purchasers agreed to
exchange the principal amount of the PSMI Notes for the Notes set opposite such
Purchasers' names in Schedule I, and your and our obligations hereunder are
subject to the execution and delivery of the Exchange Agreements by the other
Purchasers. This Exchange Agreement and said agreements with the other
Purchasers are herein collectively referred to as the "Exchange Agreements." The
obligations of each Purchaser shall be several and not joint and no Purchaser
shall be liable or responsible for the acts of any other Purchaser.
SECTION 4. PREPAYMENT OF NOTES
No prepayment of the Notes may be made except to the extent and in the
manner expressly provided in this Exchange Agreement and in the Notes.
4.1 Required Prepayments. In addition to paying the entire outstanding
principal amount and the interest due on the Notes on the maturity date thereof,
the Company agrees that it shall prepay the principal amount of the Notes in
installments, payable on each of the times set forth below in the respective
aggregate amounts set forth opposite each such time:
<TABLE>
<CAPTION>
Amount
Date (000's)
---- ---------
<S> <C>
November 22, 1995 $2,500
May 22, 1996 2,875
November 22, 1996 2,875
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
May 22, 1997 3,250
November 22, 1997 3,250
May 22, 1998 3,625
November 22, 1998 3,625
May 22, 1999 4,000
November 22, 1999 4,000
May 22, 2000 4,375
November 22, 2000 4,375
May 22, 2001 4,750
November 22, 2001 4,750
May 22, 2002 4,875
November 22, 2002 4,875
May 22, 2003 5,000
November 22, 2003 5,000
</TABLE>
If a scheduled date of payment is not a Business Day, payment shall be made on
the immediately succeeding Business Day, and interest shall accrue and be
payable to (but not including) the actual date of payment. No premium shall be
payable in connection with any required prepayment made pursuant to this (S)
4.1. For purposes of this (S) 4.1, after prepayment of less than all the
outstanding Notes pursuant to (S) 4.2, the amount of each prepayment required by
this (S) 4.1 shall be reduced by an amount which is the same percentage of such
required prepayment as the percentage that the principal amount of Notes prepaid
pursuant to (S) 4.2 is of the aggregate principal amount of outstanding Notes
immediately prior to such prepayment.
4.2 Optional Prepayment with Premium. In addition to the payments
required by (S) 4.1, upon compliance with (S) 4.3, the Company shall have the
privilege, at any time and from time to time, of prepaying the outstanding
Notes, either in whole or in part (but if in part, then in a minimum principal
amount of $500,000), by payment of a price equal to the sum of (a) the principal
amount or portion thereof being prepaid, of and accrued and unpaid interest on,
the Notes being so prepaid to the date of such prepayment and (b) the Make Whole
Amount of the Notes being so prepaid.
4.3 Notice of Prepayments. The Company will give notice of any
prepayment of the Notes pursuant to (S) 4.2 to each holder thereof not less than
30 days nor more than 60 days before the date fixed for such prepayment
specifying (a) such date, (b) the principal amount
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<PAGE>
of the holder's Notes to be prepaid on such date, (c) that a premium may be
payable, (d) the date when such premium will be calculated, (e) the estimated
premium, and (f) the accrued interest applicable to the prepayment. Such notice
of prepayment shall also certify all facts, if any, which are conditions
precedent to any such prepayment. Notice of prepayment having been so given,
the aggregate principal amount of the Notes specified in such notice, together
with accrued interest thereon and the premium, if any, payable with respect
thereto, shall become due and payable on the prepayment date specified in said
notice. No later than 2:00 p.m., eastern time, two Business Days prior to the
prepayment date specified in such notice, the Company shall provide (by telecopy
transmission and overnight courier service) to each holder of a Note an
Officers' Certificate of the Company stating the actual amount of the premium,
if any, payable in connection with such prepayment and a reasonably detailed
computation of the premium and attaching a copy of the source market data by
reference to which the treasury yield was determined in connection with such
computation. No later than five Business Days prior to such prepayment date,
the Company shall provide (in the manner specified in the immediately preceding
sentence) a draft of such certificate estimating the premium, if any, so
payable. Prior to 2:00 p.m., eastern time, on the respective Business Days
referred to in the two immediately preceding sentences, the Company shall call
each Purchaser to confirm receipt of such estimate and certificate. In the case
of any prepayment pursuant to (S) 4.2, the determination of the premium
contained in such certificate shall be binding upon the Company and each holder
of a Note unless the holders of at least a majority in aggregate principal
amount of the Notes outstanding shall deliver (by telecopy transmission and
overnight courier service) to the Company, not less than one Business Day prior
to the prepayment date, a revised calculation of the premium in reasonable
detail. In such event, the premium calculated by such holders shall be
conclusive absent manifest error.
4.4 Application of Prepayments. All partial prepayments shall be
applied on all outstanding Notes ratably in accordance with the unpaid principal
amounts thereof.
7
<PAGE>
4.5 Direct Payment. Notwithstanding anything to the contrary contained
in this Exchange Agreement or the Notes, in the case of any Note owned by you or
your nominee or owned by any subsequent Institutional Holder which has given
written notice to the Company requesting that the provisions of this (S) 4.5
shall apply, the Company will punctually pay when due the principal thereof,
interest thereon and premium, if any, due with respect to said principal,
without any presentment thereof and without any notation of such payment being
made thereon (provided that the holder shall make such notations prior to
transferring any Notes), directly to you, to your nominee or to such subsequent
Institutional Holder at your address or your nominee's address set forth in
Schedule I hereto or such other address as you, your nominee or such subsequent
Institutional Holder may from time to time designate in writing to the Company
or, if a bank account with a United States bank is designated for you or your
nominee on Schedule I hereto or in any written notice to the Company from you,
from your nominee or from any such subsequent Institutional Holder, the Company
will make such payments in immediately available funds to such bank account for
receipt before 1:00 p.m., eastern time, marked for attention as indicated, or in
such other manner or to such other account in any United States bank as you,
your nominee or any such subsequent Institutional Holder may from time to time
direct in writing.
SECTION 5. REPRESENTATIONS
5.1 Representations of the Company. As an inducement to, and as part
of the consideration for, your Exchange of the Notes pursuant to this Exchange
Agreement, the Company represents and warrants that all of its representations
and warranties set forth below are true and correct as of the date hereof and
will be true and correct upon consummation of the Reorganization and the PSMI
Merger.
(a) Subsidiaries. Annex I attached hereto correctly states the name
of each subsidiary of the Company after giving effect to the PSMI Merger
(collectively, the "Subsidiaries"), its jurisdiction of incorporation and the
percentage of its Voting Stock owned by the Company or its Subsidiaries. The
Company and each Subsidiary has (or upon consummation of the PSMI
8
<PAGE>
Merger will have) good and marketable title to all of the shares of stock or
other ownership interests it purports to own of each Subsidiary, free and clear
in each case of any Lien, except as set forth on Schedule 5.1(a) attached
hereto. All such shares of stock or other ownership interests have been validly
issued and are fully paid and nonassessable.
(b) Corporate Organization and Authority. The Company and each
Subsidiary and each Controlled Partnership --
(1) in the event that it is a corporation, it is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation;
(2) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted, except
where the failure to do so would not, individually or in the aggregate,
materially and adversely affect its business, financial condition or property or
the ability of the Company to perform its obligations set forth in the
Documents;
(3) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or the nature of the property owned or leased by it makes such
licensing or qualification necessary and wherein the failure to be so qualified
would, individually or in the aggregate, materially and adversely affect its
business, financial condition or property or the ability of the Company to
perform its obligations set forth in the Documents.
(4) in the event it is a PS Partnership, it is a limited
partnership, duly organized, validly existing and in good standing under the
laws of the State of California, and is duly licensed or qualified to conduct
business and is in good standing in each jurisdiction wherein the character of
the property owned or the nature of the business transacted by it makes such
licensing or qualification necessary except where the failure to be so licensed
would not, individually or in
9
<PAGE>
the aggregate, materially and adversely affect its business, financial condition
or property or the ability of the Company to perform its obligations set forth
in the Documents.
(5) in the event it is a Joint Venture, it is a general
partnership, duly organized and validly existing under the laws of the State of
California, and is duly licensed in each jurisdiction wherein the character of
the property owned or the nature of the business transacted by it makes such
licensing necessary, except where the failure to be so licensed would not,
individually or in the aggregate, materially and adversely affect its business,
financial condition or property or the ability of the Company to perform its
obligations set forth in the Documents.
(c) Financial Statements. The audited balance sheets of the Company
as of December 31, 1994 and 1993 and the related statements of operations,
stockholders' equity and cash flows for the fiscal years ended on said dates,
each of which has been provided to you, are correct and complete in all material
respects and present fairly the financial position of the Company as of such
dates and the results of operations for such period (the "Audited Financials").
The unaudited historical operating results of the Company dated June 30, 1995
(the "Unaudited Financials"), a copy of which has been provided to you, are true
and correct in all material respects and present fairly the operating results of
the Company for the period contained therein. The Combined Historical Financial
Information of Operating Companies and Real Estate Interests and the Combined
Historical Financial Information of the Underlying Properties (collectively, the
"Historical Other Company Information"), pertaining to the Reorganization and
contained in the Proxy Statement of the Company dated October 11, 1995 (the
"Proxy Statement"), a copy of which has been provided to you, are correct and
complete in all material respects and present fairly the financial position of
the companies and properties referred to therein (the "Subject Entities") as of
such dates and the results of operations for the periods presented. The
unaudited pro forma consolidated balance sheet and consolidated statement of
income of the Company (the "Pro Forma Financials") pertaining to the
Reorganization and contained in the Proxy Statement are correct and complete in
10
<PAGE>
all material respects and have been prepared in a manner consistent with the
historical financial statements of the Company and the assumptions underlying
them are fair and reasonable. Except as disclosed in the Unaudited Financials
or the Pro Forma Financials, there are no material liabilities, including, to
the knowledge of the Company any contingent liabilities, of the Company not
reflected in said consolidated balance sheets as of said date (other than
amounts outstanding under the $45 million PSI credit facility which will be
repaid in connection with the Reorganization). Except as disclosed in the
Historical Other Company Information, there are no material liabilities,
including, to the knowledge of the Company, any contingent liabilities of the
Subject Entities not reflected in said Historical Other company information as
of said date.
Since June 30, 1995 there has been no change in the condition, financial
or otherwise, of the Company as shown on the unaudited consolidated balance
sheet as of such date except as contemplated by the Proxy Statement and except
for changes which individually or in the aggregate have not been materially
adverse.
(d) Indebtedness. Schedule 5.1(d) attached hereto correctly
describes all Current Debt, Funded Debt, Capitalized Leases and Long-Term Leases
of the Company and its Subsidiaries outstanding on September 30, 1995 and as
adjusted to reflect the PSMI Merger. All obligations and liabilities of the
Company under this Exchange Agreement and the Notes rank pari passu in right of
payment to the Bank Indebtedness of the Company.
(e) Full Disclosure. Neither the financial statements referred to in
paragraph (c) hereof nor the Documents, the Proxy Statement or any other written
statement furnished by or on behalf of any of the Companies to you in connection
with the negotiation or consummation of the Exchange of the Notes contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact
peculiar to any of the Companies which has not been disclosed to you which,
individually or in the aggregate, materially affects adversely nor, so far as
the Company can now reasonably foresee, will materially adversely affect the
properties, business, prospects, profits or financial
11
<PAGE>
condition of the Company. There is no fact peculiar to any of the Companies
which has not been disclosed to you which materially adversely affects nor, so
far as the Company can now reasonably foresee, will materially adversely affect
the ability of the Company to perform its obligations and undertakings under any
of the Documents.
(f) Pending Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Company after due inquiry, threatened
against or affecting the Company, or any Subsidiary in any court or before any
governmental authority or arbitration board or tribunal which the Company
believes to be reasonably likely to, individually or in the aggregate,
materially and adversely affect the properties, business, prospects, profits or
financial condition of the Company, or any Subsidiary or the ability of the
Company to perform its obligations and undertakings under the Documents to which
it is a party. Schedule 5.1(f) attached hereto correctly describes in all
---------------
material respects each such action, suit or proceeding which involve the
possibility of such a material and adverse effect. Neither the Company, nor any
Subsidiary is now, nor will it be after or as a result of the transactions
contemplated herein, in default or in violation with respect to any judgment,
order, writ, injunction, or decree of any court, governmental authority or
arbitration board or tribunal.
(g) Title to Properties. Except as described in Schedule 5.1(g)
---------------
attached hereto, the Company, and each Subsidiary has good and marketable title
in fee simple (or its equivalent under applicable law) to all of the real
property, and has good title to all the other material items of property, each
of them purports to own, including that reflected in the most recent balance
sheets included in the Audited Financials, the Unaudited Financials, the Pro
Forma Financials and Historical Other Company Information, referred to in
paragraph (c) hereof, except as sold or otherwise disposed of in the ordinary
course of business and except for Liens permitted by the Exchange Agreements and
the Notes.
(h) Patents and Trademarks. The Company, and each Subsidiary owns or
possesses all the patents, trademarks, trade names, service marks, copyright,
li-
12
<PAGE>
censes and rights with respect to the foregoing necessary for the present and
planned future conduct of its business, without any known conflict with the
rights of others.
(i) The Assumption and Exchange is Legal and Authorized. The
execution, delivery and compliance by each of the Companies with all of the
provisions of the Documents to which they are parties and the execution,
issuance, Exchange, delivery and performance of the respective obligations under
the Documents to which they are parties
(1) are within the corporate powers of each of the Companies;
(2) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under the articles of incorporation or bylaws of any of the
Companies or any indenture or other agreement or instrument to which any of the
Companies or any Subsidiary is a party or by which any of the Companies or any
Subsidiary or any of their respective properties may be bound or affected or
result in the imposition of any Liens or encumbrances on any property of any of
the Companies or any Subsidiary; and
(3) have been duly authorized by proper corporate action on the
part of each of the Companies (no action by the stockholders of any Company
being required by law, by its articles of incorporation or bylaws or otherwise,
except such as has been taken or will be taken prior to the Closing) and have
been duly executed and delivered by each of the Companies party thereto and the
Documents constitute the legal, valid and binding obligations, contracts and
agreements of the Companies party thereto, enforceable against such Persons in
accordance with their respective terms.
No consent of or waiver by any holder of any Indebtedness of the Company, or any
Subsidiary is required in connection with the issuance of the Notes (other than
the waiver of the lenders under the Bank Agreement, which has been obtained).
13
<PAGE>
(j) No Defaults. No Default or Event of Default has occurred and is
continuing. None of the Companies nor any Subsidiary--
(1) is in violation of any term of its charter instrument,
bylaws or partnership agreement;
(2) is in default in the payment of principal or interest on any
Funded Debt or Current Debt under any instrument or agreement under and subject
to which any Funded Debt or Current Debt has been issued; and
(3) has obtained any waivers with respect to any payment
defaults under any such instrument or agreement, except as have since been
cured.
No event has occurred and is continuing under the provisions of any such
instrument or agreement which with the lapse of time or the giving of notice, or
both, would constitute an event of default thereunder, which event or events of
default, if they were to be declared, could, taking into account any "cross-
default" provisions contained in any other Funded Debt or Current Debt,
materially and adversely affect the business, prospects, profits, properties or
condition (financial or otherwise) of the Company, or materially impair the
ability of the Company to perform its obligations contained in the Documents.
There is no default or event of default under the PSMI Note Agreement.
(k) Governmental Consent. Neither the nature of any of the Companies
or any Subsidiary, or of any of their respective businesses or properties, nor
any relationship between any of the Companies or any Subsidiary and any other
Person, nor any circumstance in connection with the offer, issuance, exchange or
delivery of the Notes and the execution and delivery of the Documents is such as
to require a consent, approval or authorization of, or filing, registration or
qualification with, any Governmental Authority on the part of any of the
Companies as condition to the execution and delivery of the Documents or the
offer, issuance, exchange or delivery of the Notes.
(l) Taxes. All tax returns required to be filed by any of the
Companies or any Subsidiary and
14
<PAGE>
any other Person with which any of the Companies files or has filed a
consolidated return in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon any of the
Companies or any Subsidiary and any such Person or upon any of their respective
properties, income or franchises, which are due and payable have been paid
except for taxes the amount, applicability or validity of which may be in
dispute and which are currently being contested in good faith by appropriate
proceedings and with respect to which the respective Company maintains on its
books adequate reserves therefor. For all taxable years ending on or before
December 31, 1994, the Federal income tax liability of each of the Companies and
any Subsidiary heretofore asserted has been satisfied. Neither the Company nor
any Subsidiary knows of any proposed additional tax assessment against it or any
of the other Companies and no material controversy in respect of additional
Federal or state income taxes due since said date is pending or to the best
knowledge of the Company after due inquiry, threatened. The provisions for
taxes (including, without limitation, any payment owing to any other Person
pursuant to any tax sharing agreement among such Persons) on the books of each
of the Companies are adequate for all open years and for its respective current
fiscal period.
(m) Margin Regulations. None of the transactions contemplated in the
Documents will violate or result in a violation of Section 7 of the Securities
Exchange Act, or any regulation issued pursuant thereto, including, without
limitation, Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter 11. "Margin stock" (within the meaning of
said Regulation G or U) does not constitute more than 25% of the assets of the
Company or of the Company and the Subsidiaries on a consolidated basis, both
before and after giving effect to the transactions contemplated hereby.
(n) Private Offering. None of the Companies, directly or indirectly,
nor any agent on its behalf has offered or will offer the Notes or any similar
Security or has solicited or will solicit an offer to acquire the Notes or any
similar Security from or has otherwise approached or negotiated or will approach
or negotiate in respect of the Notes or any similar Security with any Person
other than the Purchasers, each of whom
15
<PAGE>
was offered a portion of the Notes for investment. None of the Companies,
directly or indirectly, nor any agent on its behalf has offered or will offer
the Notes or any similar Security or has solicited or will solicit an offer to
acquire the Notes or any similar Security from any Person so as to bring the
issuance and exchange of the Notes within the provisions of Section 5 of the
Securities Act.
(o) ERISA. The consummation of the transactions provided for in the
Exchange Agreements and compliance by the Company with the provisions thereof
and the Notes issued thereunder will not involve any prohibited transaction
within the meaning of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended. Each Plan complies in all material respects with all
applicable statutes and governmental rules and regulations, and (1) no
Reportable Event has occurred and is continuing with respect to any Plan, (2)
neither the Company, nor any ERISA Affiliate has withdrawn from any Plan or
Multiemployer Plan or instituted steps to do so, and (3) no steps have been
instituted to terminate any Plan. No condition exists or event or transaction
has occurred in connection with any Plan which could result in the incurrence by
the Company or any ERISA Affiliate of any material liability, fine or penalty.
No Plan maintained by the Company or any ERISA Affiliate, nor any trust
created thereunder, has incurred any "accumulated funding deficiency" as defined
in Section 302 of ERISA, whether or not waived, nor does the present value of
all benefit liabilities (whether or not vested) under all Plans exceed, as of
the last annual valuation date, the current value of the assets of the Plans
allocable to such benefit liabilities based upon reasonable actuarial
assumptions. Neither the Company nor any ERISA Affiliate has any contingent
liability with respect to any post-retirement "welfare benefit plan" (as such
term is defined in ERISA) except as has been disclosed to the Purchasers.
(p) Compliance with Law. None of the Companies nor any Subsidiary
(i) is in violation of any law, ordinance, franchise, governmental rule or
regulation to which it is subject; or (ii) has failed to obtain any license,
permit, franchise or other governmental authorization necessary to the ownership
of its property
16
<PAGE>
or to the conduct of its business, which violation or failure to obtain,
individually or in the aggregate, could materially adversely affect the
business, prospects, profits, properties or condition (financial or otherwise)
of the Company or its Subsidiaries, or materially impair the ability of the
Company to perform its obligations contained in any of the Documents. Neither
the Company nor any Subsidiary is aware of any default with respect to any order
of any court or governmental authority or arbitration board or tribunal.
(1) None of the Companies nor any Subsidiary:
(i) is a party to any contract or agreement, or subject to any
charter or other corporate restriction that materially and adversely
affects the business, profits, prospects, properties or condition
(financial or otherwise) of the Company or any Subsidiary, or the ability
of the Company to perform its obligations as set forth in this Exchange
Agreement and in the other Documents;
(ii) is a party to any contract or agreement that restricts its
right or ability to incur Indebtedness, other than this Exchange Agreement
and the agreements listed on Schedule 5.1(d) to this Agreement, none of
which agreements, as of the Closing Date and giving effect to consents
received in respect thereof, prohibits (a) the issuance of the Notes by the
Company, (b) the execution and delivery of, or compliance with, the
Documents by the Company; or
(iii) has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by (S) 7.12.
(2) (i) None of the Companies nor any Subsidiary, nor any
Affiliate of any of the Companies is, by reason of being a "national" of a
"designated foreign country" or a "specially designated national"
17
<PAGE>
within the meaning of the Regulations of the Office of Foreign Assets Control,
United States Treasury Department (31 C.F.R., Subtitle B, Chapter V), and (ii)
none of the Companies nor any Subsidiary nor the transactions contemplated by
the Documents is for any other reason, subject to any restriction or prohibition
under, or is in violation of, any Federal statute or Presidential Executive
Order, or any rules or regulations of any department, agency or administrative
body promulgated under any such statute or order, concerning trade or other
relations with any foreign country or any citizen or national thereof or the
ownership or operation of any property. None of the Companies nor any
Subsidiary, nor any Affiliate of any of the Companies is an "enemy" or an "ally
of the enemy" within the meaning of Section 2 of the Trading with the Enemy Act
(50 U.S.C. App (S)(S) 1 et seq.), as amended. None of the Companies, nor any
Subsidiary, nor any Affiliate of the Company is in violation of, and neither the
issuance and Exchange of the Notes as contemplated by this Exchange Agreement
will violate, the Trading with the Enemy Act, as amended, or any executive
orders, proclamations or regulations issued pursuant thereto, including, without
limitation, regulations administered by the Office of Foreign Assets Control of
the Department of the Treasury (31 C.F.R., Chapter V).
(3) None of the Companies nor any Subsidiary is, and none of
them is directly or indirectly controlled by, or acting on behalf of any Person
which is, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(4) None of the Companies nor any Subsidiary is a "holding
company" or a subsidiary or affiliate of a "holding company," or a subsidiary
company of a "holding company," or a "public utility," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(q) Solvency. The fair value of the business and assets of the
Company will be in excess of the amount that will be required to pay its
liabilities (including, without limitation, contingent, subordinated, unmatured
and unliquidated liabilities on existing debts, as such liabilities may become
absolute and matured), in each case after giving effect to the transactions
contem-
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<PAGE>
plated by the Documents (including, without limitation, the Reorganization and
the PSMI Merger).
The Company, after giving effect to the transactions contemplated by the
Documents (including, without limitation, the Reorganization and the PSMI
Merger), will not be engaged in any business or transaction, nor is it about to
engage in any business or transaction, for which it has an unreasonably small
capital (within the meaning of the Uniform Fraudulent Transfer Act, as adopted
in the State of California and Section 548 of the Federal Bankruptcy Code), and
the Company has no intent to:
(1) hinder, delay or defraud any entity to which it is, or will
become, on or after the Closing Date, indebted, or
(2) to incur debts that would be beyond its respective ability
to pay as they mature.
(r) Compliance with Environmental Laws. Except as is set forth on
Schedule 5.1(r) attached hereto:
- ---------------
(1) To the best knowledge of the Companies after due inquiry,
all facilities and property (including underlying groundwater) owned or leased
by any of the Companies have been, and continue to be, owned or leased by such
Companies, as the case may be, in compliance with all Environmental Laws.
(2) There have been no past, and there are no pending or, to the
best knowledge of the Companies after due inquiry, threatened (i) claims,
complaints, notices or requests for information received by any of the Companies
with respect to any alleged violation of any Environmental Law, or (ii)
complaints, notices or inquiries to any of the Companies regarding potential
liability under any Environmental Law.
(3) To the best knowledge of the Companies after due inquiry,
there have been no Releases of Hazardous Materials at, on or under any property
now and previously owned or leased by any of the Companies that, singly or in
the aggregate, have, or may reasonably be expected to have, a material and
adverse effect on the
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financial condition, operations, assets, business, properties or prospects of
the Company and its Subsidiaries.
(4) To the best knowledge of the Companies after due inquiry,
each of the Companies have been issued and are in compliance with all permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for their businesses.
(5) No property now or, to the best knowledge of the management
of the Company, previously owned or leased by any of the Companies is listed or
proposed for listing (with respect to owned property only) on the National
Priorities List pursuant to CERCLA (as defined therein), on the CERCLIS or on
any similar state list of sites requiring investigation or clean-up.
(6) To the best knowledge of the Companies after due inquiry,
there are no underground storage tanks, active or abandoned, including petroleum
storage tanks, on or under any property now or previously owned or leased by any
of the Companies that, singly or in the aggregate, have, or may reasonably be
expected to have, a material and adverse effect on the financial condition,
operations, assets, business, properties or prospects of the Company and its
Subsidiaries.
(7) To the best knowledge of the Companies after due inquiry,
none of the Companies has directly transported or directly arranged for the
transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of federal, state
or local enforcement actions or other investigations which may lead to material
claims against any of the Companies for any remedial work, damage to natural
resources or personal injury, including claims under CERCLA.
(8) To the best knowledge of the Companies after due inquiry,
there are no polychlorinated biphenyls or friable asbestos present at any
property now or previously owned or leased by any of the Companies that, singly
or in the aggregate, have, or may reasonably be expected to have, a material and
adverse effect on the
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financial condition, operations, assets, business, properties or prospects of
the Company and its Subsidiaries.
(9) To the best knowledge of the Companies after due inquiry, no
conditions exist at, on or under any property now or previously owned or leased
by any of the Companies which, with the passage of time, or the giving of notice
or both, would have a material and adverse effect on the financial condition,
operations, assets, business, properties or prospects of the Company and its
Subsidiaries arising out of liability asserted under any Environmental Law.
(10) To the best knowledge of the Companies after due inquiry,
there are no past or present events, conditions or circumstances, including
without limitation pending changes in any Environmental Law or permit, that are
likely to interfere with or otherwise affect the operations of any of the
Companies as now conducted and as presently proposed to be conducted or that
would interfere with compliance or continued compliance with any Environmental
Law or permit.
(11) To the best knowledge of the Companies after due inquiry,
no pipeline or any equipment or property associated with the operations of any
of the Companies (whether or not owned or leased by any of the Companies) is
contaminated by polychlorinated biphenyls.
(s) Brokers. None of the Companies has dealt with any broker,
finder, commission agent or other Person other than BT Securities Corporation in
connection with the Exchange of the Notes and the transactions contemplated by
this Exchange Agreement and the other Documents, and the Company is under no
obligation to pay any broker's fee or commission in connection with such
transactions, other than a fee payable to BT Securities Corporation for
investment banking services rendered in connection with advisory services
rendered in structuring a financing transaction, which fee is the sole
obligation of the Company.
(t) Defense of Usury. To the fullest extent permitted by applicable
law, the Company shall not consent, plead (as a defense or otherwise) or in any
manner whatsoever claim (and shall actively resist any attempt to compel it to
assert, plead or claim) in any
21
<PAGE>
action, suit or proceeding that the interest rate on the Notes violates usury or
other laws relating to the interest payable on any indebtedness and shall not
otherwise avail itself (and shall actively resist any attempt to compel it to
avail itself) of the benefits or advantages of such laws.
(u) The Company is qualified, has been qualified at all times since
January 1, 1981, and intends to operate so as to continue to be qualified, (i)
as a REIT under Sections 856 et seq. of the Code, and (ii) to be subject to tax
-- ---
on its "real estate investment trust income" pursuant to Section 857 of the
Code.
(v) Survival of Representations and Warranties. All statements
contained in any certificate, document, financial statement or other instrument
delivered by or on behalf of the Company pursuant to or in connection with this
Exchange Agreement shall be deemed to constitute representations and warranties
thereunder. All of the Company's representations and warranties and indemnities
shall survive the execution and delivery of the same, any investigation by you
and the issuance of the Notes.
5.2 Representations of the Purchaser. You represent, and in entering
into this Exchange Agreement the Company understands, that you are an
"accredited investor" within the meaning of Rule 501 under the Securities Act
and that you are acquiring the Notes for the purpose of investment and not with
the present intention of distributing the Notes; it being understood, however,
that the disposition of your property shall at all times be and remain within
your control. You further represent that you are acquiring the Notes for your
own account and with your general corporate assets and not with the assets of
any separate account in which any employee benefit plan has any interest. As
used in this Section, the terms "separate account" and "employee benefit plan"
shall have the respective meanings assigned to them in ERISA. You further
represent that, at the Closing Date, you will be the owner (free and clear of
all liens, claims and encumbrances) of the aggregate principal amount of PSMI
Notes shown next to your name on Schedule I under the heading "Principal Amount
of PSMI Notes to be Exchanged," and have obtained any and all requisite third
party consents, if any, necessary, to exchange such PSMI
22
<PAGE>
Notes for a like aggregate outstanding principal amount of Notes in accordance
with this Exchange Agreement. You further represent that you have not dealt
with any broker, finder, commission agent or other Person other than BT
Securities Corporation in connection with the exchange of the Notes and the
transactions contemplated by this Agreement and are under no obligation to pay
any broker's fee or commission in connection with such transactions.
SECTION 6. CLOSING CONDITIONS
6.1 Conditions. Your acceptance of the Assumption and Exchange on the
Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of the Assumption and Exchange and to the following further
conditions precedent:
(a) Closing Certificate. You shall have received a certificate dated
the Closing Date, signed by the President or a Vice President of the Company,
the truth and accuracy of which shall be a condition to your acceptance of the
Assumption and Exchange, and to the effect that (a) the representations and
warranties of the Company set forth in Section 5.1 hereof are true and correct
on and with respect to the Closing Date, (b) the Company has performed all of
its obligations hereunder and under the Documents which are to be performed on
or prior to the Closing Date or such obligations have been waived in writing by
you, (c) the conditions set forth in clauses (e) through (m), inclusive, below
have been satisfied (or waived by you) and (d) no Default or Event of Default
has occurred and is continuing and there is no default or event of default under
the PSMI Note Agreement.
(b) Legal Opinions. You shall have received from Skadden, Arps,
Slate, Meagher & Flom, who are acting as your special counsel in this
transaction, and from David Goldberg, Esq., in-house counsel for the Company and
PSMI, their respective opinions dated the Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibits B and C,
respectively, hereto and such other matters incident to the transaction
contemplated hereby as you may reasonably request.
23
<PAGE>
(c) Existence and Authority. On or prior to the Closing Date, you
shall have received, in form and substance reasonably satisfactory to you and
your special counsel, such documents and evidence with respect to the Company as
you may reasonably request in order to establish the existence and good standing
of the Company and PSMI and the authorization of the transactions contemplated
by this Exchange Agreement.
(d) Satisfactory Proceedings. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation thereof, shall be satisfactory in form and
substance to you and your special counsel, and you and your special counsel
shall have received a copy (executed or certified as may be appropriate) of all
legal documents or proceedings taken in connection with the consummation of said
transactions.
(e) Management and Advisory Agreements. PSI and PSMI shall have used
all reasonable efforts to cause the owners of all properties managed and of all
partnerships and corporations advised by any of the PSI Entities (as defined in
the Reorganization Agreement) to consent to the management of such properties
and assumption of such advisory functions by the Company to the extent required
by the existing management and advisory agreements relating thereto.
(f) Intellectual Property Rights. PSI and PSMI shall have used all
reasonable efforts to obtain all assignments or other consents necessary to vest
in the Company exclusive ownership and full use and benefit with respect to the
PSI Intellectual Property Rights (as defined in the Reorganization Agreement).
(g) The Reorganization. Each of the transactions comprising the
Reorganization (including without limitation, the PSMI Merger) shall have been
consummated in accordance with California and all other applicable laws.
(h) Reorganization Agreement Conditions. The conditions contained in
Sections 8.1 and 8.3 of the Reorganization Agreement shall have satisfied or, in
the case of immaterial conditions, waived.
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<PAGE>
(i) Private Placement Number. A Private Placement Number, if the one
assigned to the PSMI Notes is not sufficient, relating to the Notes shall have
been duly assigned by Standard & Poor's Corporation.
(j) Payment of Counsel Fees. The Company shall have duly paid all
reasonable fees, expenses, costs and charges, including the fees and expenses of
Skadden, Arps, Slate, Meagher & Flom, special counsel to the Purchasers, (to the
extent that such fees and expenses are known 48 hours prior to the Closing Date
and are reflected in an invoice (which shall be in reasonable detail) delivered
by such counsel prior thereto), incurred by you through the Closing Date and
incident to the proceedings in connection with, and the transactions
contemplated by this Exchange Agreement and the Notes.
(k) Consents and Approvals. All actions, approvals, consents,
waivers, exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained by or from any
Federal, state or other governmental authority or agency, or by or from any
trustee or holder of any Indebtedness, obligation or security of any of the
Companies that are necessary in connection with the transactions contemplated by
this Exchange Agreement and the Notes (including, without limitation, the
Reorganization and the PSMI Merger) shall have been delivered to you.
(l) Legality. The Notes shall qualify as a legal investment for you
under the laws and regulations of each jurisdiction to which you are subject
(without reference to any so-called "basket" provision which permits the making
of an investment without restrictions as to the character of the particular
investment being made) and you shall have received such certificate or other
information as you shall reasonably request from the Company to establish such
fact.
(m) Other Purchasers. The Company shall have entered into Exchange
Agreements identical to this Exchange Agreement in all material respects with
each of the other Purchasers.
6.2 Occurrence of PSMI Merger. The obligations of the Company, PSMI
and PSI hereunder (other than those set forth in Section 15 hereof, which shall
be
25
<PAGE>
effective from and after the date hereof to the extent set forth therein) are
subject to the condition precedent that, on or before the Closing Date, the PSMI
Merger shall have been consummated in accordance with California and all other
applicable laws.
6.3 Waiver of Conditions. If on the Closing Date, the Company fails to
tender to you the Notes to be issued to you on such date or if the conditions
specified in (S) 6.1 have not been fulfilled, you may thereupon elect to be
relieved of all further obligations under this Agreement. Without limiting the
foregoing, if the conditions specified in (S) 6.1 have not been fulfilled, you
may waive compliance by the Company with any such condition to such extent as
you may in your sole discretion determine. Nothing in this (S) 6.3 shall
operate to relieve the Company of any of its obligations hereunder or to waive
any of your rights against the Company.
SECTION 7. COVENANTS
From and after the Closing Date and continuing so long as any amount
remains unpaid on any Note:
7.1 Corporate Existence, Etc. The Company will, and will cause its
Restricted Subsidiaries to, preserve and keep in full force and effect its
respective corporate or partnership existence and all licenses and permits
necessary to the proper conduct of its respective business, provided that the
foregoing shall not prevent any transaction permitted by (S) 7.13.
7.2 Insurance. The Company will, and will cause its Restricted
Subsidiaries to, insure and keep insured at all times all of its respective
properties and use their best efforts to cause to be insured all Self-Storage
Facilities which are of an insurable nature and of the character usually insured
by companies operating similar properties, against loss or damage by fire and
from other causes customarily insured against by companies engaged in similar
businesses in such amounts as are usually insured against by such companies, and
in any case as are adequate to provide reasonable protection against such loss
or damage to the Self-Storage Facility. Each such Person also will maintain at
all times with financially sound and reputable insurers adequate insurance
against loss or damage from such hazards and risks
26
<PAGE>
to the person and property of others as are usually insured against by companies
operating businesses similar to the businesses of the Company and its Restricted
Subsidiaries. All such insurance shall be carried with financially sound and
reputable insurers accorded a rating of "A-VI" or better by A.M. Best Company,
Inc. (or a comparable rating by any comparable rating agency), provided that at
--------
least 75 percent of all coverage and the insurer with the risk of first loss in
each category shall have a rating of "A-IX" or better. If the Company cannot
obtain sufficient insurance which meets the above criteria, the Company will
provide the Purchasers with notice and will demonstrate that insurance cannot be
obtained in accordance with the above criteria, in which case the requirement
shall be reduced to "A-V" and "A-VIII," respectively. The sum of the deductible
limit of all insurance coverage plus any amounts of self-insurance will not
exceed $1,000,000 per occurrence. A summary of insurance presently in force is
contained in the attached Schedule 7.2.
------------
7.3 Taxes, Claims for Labor and Materials; Compliance with Laws.
(a) The Company will, and will cause its Restricted Subsidiaries to,
promptly pay and discharge, when due, all taxes, assessments and governmental
charges or levies imposed upon such Person or upon or in respect of all or any
part of the property or business of such Person including, but not limited to,
any property leased by such Person (but only to the extent required to do so by
the applicable lease), all trade accounts payable in accordance with usual and
customary business terms, and all claims for work, labor or materials, which if
unpaid might become a Lien upon any property of such Person; provided such
Person shall not be required to pay any such tax, assessment, charge, levy,
account payable or claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of such Person or any material
interference with the use thereof by such Person and title to such property is
not materially and adversely affected thereby, and (ii) such Person shall set
aside on its books, reserves deemed by it to be adequate with respect thereto.
In the case of any item of the foregoing description involving in excess of
$1,000,000, the
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<PAGE>
adequacy of such reserves will be supported by a resolution of the Board of
Directors of the Company (which resolution will be delivered to the holders of
the Notes).
(b) The Company will, and will cause its Restricted Subsidiaries to,
promptly comply with all laws, ordinances or governmental rules and regulations
to which it is subject including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, ERISA and all Environmental Laws in all
applicable jurisdictions, the violation of which could materially and adversely
affect the properties, business, prospects, profits or condition (financial or
otherwise) of the Company or the ability of the Company to perform its
obligations set forth in the Documents, or would result in any Lien not
permitted under (S) 7.11.
7.4 Maintenance, Etc. The Company will, and will cause its Restricted
Subsidiaries to, maintain, preserve and keep its properties which are used or
useful in the conduct of its business (whether owned in fee or a leasehold
interest) in good repair and working order (ordinary wear and tear excepted) and
from time to time make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
7.5 Nature of Business. The Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which would then
be engaged in by such Person would be substantially changed from the general
nature of the business engaged in by such Person on the Closing Date (provided
that the Company's ownership of an Investment shall not in itself constitute a
change in the nature of the Company's business).
7.6 REIT Status. The Company shall conduct its affairs in a manner so
as to qualify as a real estate investment trust pursuant to Sections 856 et seq.
-- ---
of the Code.
7.7 Continuation of Existing Arrangements with the Company.
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<PAGE>
(a) (i) The Company shall not permit any of its Affiliates or
Subsidiaries to itself, directly or indirectly, engage in or perform (x) the
business of leasing storage space to the public in, or managing, facilities
located in the United States and used in the business of leasing storage space
to the public or (y) any other business conducted or service performed by the
Company, except as permitted by the proviso in (S) 7.11 hereof.
(ii) The foregoing provisions:
(x) shall not apply to an Affiliate or Subsidiary of the
Company to the extent that the Company or B. Wayne
Hughes, members of his immediate family, or trusts for
the benefit of the foregoing, individually or
collectively, directly or indirectly, through the
Company or any other Person, do not control or do not
have the right to exercise decision making authority
on behalf of any such Affiliate. In such circumstances
the Company shall use its best efforts to cause such
Affiliate to comply with such provisions, and
(y) are subject to the fulfillment of any applicable
fiduciary obligation imposed by law, as determined
by the board of directors of the Company or any
corporate general partner of an applicable
Ownership Entity.
(b) With respect to all Self-Storage Facilities now or hereafter
owned, leased, or in any manner operated or controlled by any Ownership Entity,
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the Company shall and shall cause its Affiliates and Subsidiaries (except to the
extent that the Company or any such Affiliate or Subsidiary does not control or
does not have the right to exercise decision-making authority on behalf of such
Ownership Entity (in which case the Company or its Affiliates or Subsidiaries
shall use their best efforts to cause such Ownership Entity) and subject to the
fulfillment of any applicable fiduciary obligation imposed by law, as determined
by the board of directors of the Company or any corporate general partner of
such Ownership Entity) to select the Company to serve as property manager, pay
the Company management fees consistent with fees received by the Company from
unrelated third parties for similar services and not terminate the Company as
property manager as discussed above with respect to each Self-Storage Facility
for which it is offered the opportunity to do so.
7.8 Financial Tests. The Company shall:
(a) Maintain at all times a Funded Debt Ratio of less than 0.40 to
1.00;
(b) Maintain net income of not less than $1.00 for each fiscal
quarter;
(c) Maintain an Interest Coverage Ratio of not less than 4.0 to 1.0
for each period of four (4) fiscal quarters ending on the last day of each
fiscal quarter, commencing with the quarter ending December 31, 1995;
(d) Maintain at all times Total Shareholders' Equity of not less than
ninety percent (90%) of the Total Shareholders' Equity of the Company as of the
effective date of the PSMI Merger and giving effect thereto (the "Post-Merger
Equity"); provided that, prior to the delivery by the Chief Financial Officer of
the Company of a certificate certifying the amount of the Post-Merger Equity
(which certificate shall be accompanied by an opinion of the Company's
independent public accountants reasonably satisfactory to the Purchasers, in
support thereof), the Company shall maintain at all times total Shareholders
Equity of not less than $650 million.
7.9 Unencumbered Assets. The Company shall at all times maintain
Unencumbered Assets with an Aggre-
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gate Net Asset Value equal to or greater than two times the aggregate amount of
Indebtedness (other than Non-recourse Indebtedness) then outstanding.
7.10 Limitation on Incurrences of Additional Indebtedness.
(a) From and after the Closing Date, the Company will not, and will
not permit any Restricted Subsidiary of the Company to, create, assume or incur
or in any manner be or become liable in respect of (including by Guarantee) any
Indebtedness, except:
(1) Indebtedness where payment is secured by a Permitted
Encumbrance;
(2) taxes, assessments and governmental charges or levies which
are not delinquent or which are being contested in good faith and for which, in
accordance with GAAP, adequate reserves have been set aside on the books of the
Company or the affected Restricted Subsidiary of the Company;
(3) current liabilities incurred in connection with the
obtaining of goods or services in the ordinary course of business of the Company
and its Restricted Subsidiaries and consistent with past practice;
(4) Non-recourse Indebtedness;
(5) Indebtedness owing from a Wholly Owned Restricted Subsidiary
to the Company or to another Wholly Owned Restricted Subsidiary;
(6) Indebtedness shown on Schedule 5.1(d);
---------------
(7) Other Indebtedness, such that the Company is in compliance
with the Funded Debt Ratio contained in (S) 7.8(a) hereof; and
(8) Indebtedness owing from a Management Fee Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary.
The exceptions set forth in the preceding sentence shall not be construed
to permit the Company or
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any of its Restricted Subsidiaries to incur, create, assume, become liable in
respect of or permit to exist any Indebtedness which would result in the
existence of a Default or an Event of Default under this Exchange Agreement.
(b) Any Person which becomes a Restricted Subsidiary of the Company
after the date hereof shall for all purposes of this (S) 7.10 be deemed to have
created, assumed or incurred at the time it becomes such a Restricted Subsidiary
all Indebtedness of such Person existing immediately after it becomes such a
Restricted Subsidiary.
7.11 Management Fees. The Company will not, and will not permit its
Restricted Subsidiaries to, sell, transfer or otherwise dispose of its right to
management fees under any Management Contract in respect of any Property or
subordinate its right to management fees under any Management Contract in
respect of any Property to any obligation of any Ownership Entity or to any Lien
on a Property; provided however, that the Company may sell or transfer its right
to management fees under any Management Contract in respect of any Property to a
Management Fee Subsidiary provided that the Board of Directors of the Company,
in good faith and pursuant to a board resolution, determines that the sale or
transfer of such management fees is reasonably necessary to the maintenance of
the Company's status as a "real estate investment trust" under the Code, and
that (a) any sale, transfer or other disposal by such Management Fee Subsidiary
of more than 10% of the economic interest in such management fees to a Person
other than the Company, and (b) the incurrence of any Indebtedness by such
Management Fee Subsidiary, other than to the Company, shall constitute a breach
of this (S) 7.11. The Company shall at all times retain an interest in each
Management Fee Subsidiary representing at least 90% of the economic interests
therein.
7.12 Limitation on Liens. The Company will not, and will not permit
any Restricted Subsidiary of the Company to, create, assume, incur, or suffer to
be incurred or to exist, any Lien on its or their property or assets, whether
now owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
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obligations in priority to the payment of its or their general creditors, or
acquire or agree to acquire, or permit any Restricted Subsidiary of the Company
to acquire, any property or assets upon conditional sales agreements or other
title retention devices, except for Permitted Encumbrances.
7.13 Mergers, Consolidations and Sales of Assets.
(a) The Company will not, and will not permit any Restricted
Subsidiary of the Company to, consolidate with or be a party to a merger or
amalgamate with any other Person or sell, lease, convey, or otherwise dispose of
all or substantially all of the assets of the Company (on a consolidated basis)
to any Person, unless (1)(i) the Company (or, in the case of a transaction not
involving the Company, the applicable Restricted Subsidiary) is the surviving
entity, or (ii) the surviving entity shall be a corporation organized under the
laws of the United States or Canada or a state or province thereof and shall
expressly assume all obligations of the Company under this Exchange Agreement
and the other Documents; (2) no Default or Event of Default shall exist or shall
occur immediately after giving effect on a pro forma basis to such transaction;
and (3) immediately after giving effect to such transaction on a pro forma
basis, the consolidated surviving or transferee entity would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to (S) 7.10. Notwithstanding the foregoing, any Restricted Subsidiary
may merge, consolidate or amalgamate with any other Restricted Subsidiary or
with the Company (provided that in the case of a transaction involving the
Company, the foregoing provisions of this (S) 7.13 (other than clause (3)) have
been satisfied).
For purposes of the first sentence of this (S) 7.13, the sale, lease,
conveyance or transfer of all or substantially all of the properties and assets
of one or more Restricted Subsidiaries of the Company, which properties and
assets, if held by the Company instead of such Restricted Subsidiaries, would
constitute all or substantially all of the properties and assets of the Company
on a consolidated basis, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
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(b) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets sold
and (ii) immediately after such sale and after giving effect thereto, no Default
or Event of Default shall exist.
(c) If the Net Cash Proceeds of an Asset Sale, when added to (x) the
Net Cash Proceeds of other Asset Sales occurring in the same fiscal year of the
Company, (y) the book value (at the time of transfer) of all assets transferred
to Unrestricted Subsidiaries by the Company or any of its Restricted
Subsidiaries in such fiscal year and (z) the book value (at the time of
designation) of the net assets of all Restricted Subsidiaries that are
designated Unrestricted Subsidiaries in such fiscal year, exceeds 10% of
Consolidated Assets measured as of the last day of the immediately preceding
fiscal year, then the Company shall, within 12 months of such Asset Sale, either
(i) invest Net Cash Proceeds, if any, in an amount equal to such excess (the
"Excess Proceeds") in properties and assets that will be used in the businesses
of the Company or its Wholly-Owned Restricted Subsidiaries existing on the date
of this Exchange Agreement or in Voting Stock or other equity interests of a
Person which becomes a Wholly-Owned Restricted Subsidiary or (ii) make an
optional repayment of the Notes in accordance with (S) 4.2, in the amount of the
Excess Proceeds not applied in accordance with clause (i).
7.14 Repurchase of Notes. The Company will not, and will not permit
its Restricted Subsidiaries or Affiliates to, directly or indirectly, repurchase
or make any offer to repurchase any Notes unless an offer has been made to
repurchase Notes, pro rata, from all holders of the Notes at the same time and
upon the same terms. In case the Company repurchases or otherwise acquires any
Notes, such Notes shall immediately thereafter be cancelled and no Notes shall
be issued in substitution therefor. Without limiting the foregoing, upon the
purchase or other acquisition of any Notes by the Company, any subsidiary of the
Company, any Controlled Partnership or any Affiliate of the Company, such Notes
shall no longer be outstanding for purposes of any section of this Agreement
relating to the taking by the holders of the Notes
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of any actions with respect hereto, including, without limitation, (S) 8.3, (S)
8.4 and (S) 10.1.
7.15 Transactions with Affiliates. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or be a
party to or suffer to exist any transaction or arrangement (an "Affiliate
Transaction") with any Affiliate of the Company (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate of the Company or the issuance of securities
and the acquisition of assets from Affiliates through purchase for cash,
property or securities, by merger, or otherwise), other than transactions among
the Company and its Wholly Owned Restricted Subsidiaries; provided, however,
that the foregoing shall not prohibit Affiliate Transactions in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and consistent with past practice that are upon
fair and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would be obtained in a comparable arm's-length transaction with
a Person other than an Affiliate of the Company and, with respect to an
Affiliate Transaction or series of Affiliate Transactions involving aggregate
payments equal to or greater than (i) $5 million, if a majority of the members
of the Board of Directors of the Company who are disinterested in such
transaction(s) approve such transaction(s), and (ii) $50.0 million, if, in
addition to satisfying clause (i), the Company receives a favorable written
opinion from an investment banking or accounting firm included on Schedule II
hereto and which is not an Affiliate of the Company that such transaction(s)
is/are fair to the Company or such Restricted Subsidiary, as the case may be,
from a financial point of view; provided, further, that the following
transactions shall not constitute Affiliate Transactions: (i) transactions in
accordance with the proviso to (S) 7.11; (ii) transactions described in clause
(z) of the definition of Asset Sale; and (iii) the sale or transfer of assets
comprising the Company's existing lock business or box business or truck rental
business, or the sale or transfer of any assets acquired after the Closing Date,
in each case to a Management Fee Subsidiary, provided that the Board of
Directors of the Company, in good faith and pursuant to a board resolution,
determines that the sale or transfer of
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such assets is reasonably necessary to the maintenance of the Company's status
as a "real estate investment trust" under the Code.
7.16 Limitation on Restricted Investments. The Company will not, and
will not permit any Restricted Subsidiary of the Company to, make any
Investments unless:
(a) At least 75% of the assets of the Company and its Restricted
Subsidiaries, in the aggregate, shall consist of Investments in Persons or
assets whose principal source of income is from the ownership or management of
facilities used in the business of leasing storage space to the public;
(b) At least 85% of the assets of the Company and its Restricted
Subsidiaries, in the aggregate, shall consist of Investments in cash and cash
equivalents or in Persons or assets whose principal source of income is derived
from "real estate assets" as defined in Code section 856;
(c) For purposes of (b) above, cash and cash equivalents may be
invested in:
(i) Investments in commercial paper maturing in twelve months or
less from the date of issuance which, at the time of acquisition by the
Company or any Restricted Subsidiary of the Company, is accorded a rating
of at least A3 by Standard & Poor's Corporation or a rating of P3 by
Moody's Investors Service Inc.;
(ii) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of America,
the payment or guarantee of which constitutes a full faith and credit
obligation of the United States of America, in either case, maturing twelve
months or less from the date of acquisition thereof; and
(iii) Investments in certificates of deposit maturing in twelve
months or less from the date of issuance thereof, issued
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by a bank or trust company organized under the laws of the United States of
America or any state thereof, having capital, surplus and undivided profits
aggregating at least $100,000,000 and whose long-term certificates of
deposits are, at the time of such investment in certificate of deposit by
the Company or a Restricted Subsidiary, rated A or better by Standard &
Poor's Corporation or A2 or better by Moody's Investors Services, Inc.
For purposes of this section, the measurement of the value of Investments and
assets shall be in accordance with GAAP. In addition, for purposes of this
section, at any time a Person becomes a Restricted Subsidiary of the Company or
an Unrestricted Subsidiary becomes a Restricted Subsidiary of the Company, the
Investments of such Restricted Subsidiary shall be deemed to have been made by
such Restricted Subsidiary at such time.
7.17 ERISA
(a) The Company will, and will cause each Restricted Subsidiary and
ERISA Affiliate of the Company to, at all times with respect to each Plan
established, maintained or contributed to by any of them,
(1) except to the extent waived pursuant to Section 303 of ERISA
or Section 412 of the Code, as the case may be, make timely payment of
contributions required
(i) to meet the minimum funding standards set forth in ERISA or
the Code with respect thereto, or
(ii) to be paid as provided for by Section 515 of ERISA, and
(2) comply in all material respects with all other applicable
provisions of ERISA.
(b) The Company agrees that all assumptions and methods used to
determine the actuarial valuation of employee benefits, both vested and
unvested, under any Plan of the Company or any subsidiary or ERISA Affiliate of
the Company, and each such Plan, whether now
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existing or adopted after the date hereof, will comply in all material respects
with ERISA and other applicable law.
(c) The Company will not at any time permit any Plan established,
maintained or contributed to by it or any subsidiary or ERISA Affiliate of the
Company to:
(1) engage in any "prohibited transaction" as such term is
defined in Section 4975 of the Code or in Section 406 of ERISA;
(2) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA, whether or not waived; or
(3) be terminated under circumstances which are likely to result
in the imposition of a Lien on the property of the Company or any subsidiary of
the Company pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in clauses (1), (2) or (3) above is likely
to subject the Company or any subsidiary or ERISA Affiliate of the Company to a
liability which, in the aggregate, is material in relation to the business,
property, operations, or condition, financial or otherwise, of the Company and
its subsidiaries taken as a whole.
(d) Upon the request of you or any other holder, the Company will
furnish a copy of the annual report of each Plan (Form 5500) required to be
filed with the Internal Revenue Service. Copies of annual reports shall be
delivered no later than 30 days after the later of the date such report has been
filed with the Internal Revenue Service or the date the copy is requested.
(e) Promptly upon the occurrence thereof, the Company will give you
and each other holder written notice of (1) a Reportable Event with respect to
any Plan; (2) the institution of any steps by the Company, any subsidiary of the
Company, any ERISA Affiliate of the Company, the PBGC or any other person to
terminate any Plan that is subject to the funding requirements of (S) 412
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of the Code or is a "multiemployer plan"; (3) the institution of any steps by
the Company, any subsidiary of the Company, or any ERISA Affiliate to withdraw
from any Plan; (4) a prohibited transaction in connection with any Plan; (5) any
material increase in the contingent liability of the Company or any subsidiary
of the Company with respect to any post-retirement welfare liability; or (6) the
taking of any action by the Internal Revenue Service, the Department of Labor,
or the PBGC with respect to any of the foregoing which, in any of the events
specified above, would result in any material liability of the Company or any of
its subsidiaries.
7.18 Reports and Rights of Inspection. The Company will keep, and will
cause each Restricted Subsidiary of the Company to keep, proper books of record
and account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of such Person, in
accordance with GAAP consistently applied (except for changes disclosed in the
financial statements furnished to you pursuant to this (S) 7.18 and concurred to
by the independent public accountants referred to in (S) 7.18(b) hereof), and
will provide, and will cause each such Restricted Subsidiary to provide,
reasonable protection against loss or damage to such books of record and
account. The Company will furnish to you so long as you are the holder of any
Note and to each other holder of the then outstanding Notes (in duplicate if so
specified below or otherwise requested):
(a) Quarterly Statements. Within 50 days after the end of each
quarterly fiscal period (except the last) of each fiscal year of the Company,
copies of:
(1) a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the close of such quarterly fiscal period, which
need not be audited, setting forth in comparative form the consolidated figures
for the fiscal year then most recently ended,
(2) a consolidated statement of income of the Company and its
Restricted Subsidiaries for such quarterly fiscal period and for the portion of
the fiscal year ending with such quarterly fiscal period, which need not be
audited, in each case setting forth in
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comparative form the consolidated figures for the corresponding periods of the
preceding fiscal year, and
(3) a consolidated statement of cash flows of the Company and
its Restricted Subsidiaries for the portion of the fiscal year ending with such
quarterly fiscal period, which need not be audited, setting forth in comparative
form the consolidated figures for the corresponding period of the preceding
fiscal year, reasonable detail and certified as complete and correct by the
principal financial officer of the Company;
(b) Annual Statements. Within 90 days after the close of each
fiscal year of the Company, copies of:
(1) a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the close of such fiscal year, and
(2) a consolidated statement of income and retained earnings and
cash flows of the Company and its Restricted Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail, certified as complete and
correct by the principal financial officer of the Company and accompanied by a
report thereon (which shall not be qualified by reason of any limitation as to
the status of the Company as a going concern or by any other limitation imposed
by the Company) of a firm of independent public accountants of recognized
national standing selected by such person to the effect that the consolidated
financial statements present fairly, in all material respects, the consolidated
financial position of the Company and its Restricted Subsidiaries as of the end
of the fiscal year being reported on and the consolidated results of the
operations and cash flows for said year in conformity with GAAP and that the
examination of such accountants in connection with such financial statements has
been conducted in accordance with generally accepted auditing standards and
included such tests of the accounting records and such other auditing procedures
as said accountants deemed necessary in the circumstances.
The Company shall, on the date it provides its audited financial statements to
you pursuant to (S) 7.18(b), simul-
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taneously provide such statements to the National Association of Insurance
Commissioners, Securities Valuation Office, 195 Broadway, New York, New York
10007 (the "NAIC");
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of the
Company, or any Restricted Subsidiary and any management letter received from
such accountants;
(d) SEC and Other Reports. Within 15 days of their becoming
available, one copy of any financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each regular or
periodic report and any registration statement or prospectus required to be
filed by the Company or any Restricted Subsidiary with any securities exchange
or the Securities and Exchange Commission or any successor agency (including,
without limitation, Forms 10-K, 10-Q and 8-K);
(e) Officers' Certificates. Within the periods provided in
paragraphs (a) and (b) above, Officers' Certificates of the Company
respectively, stating that such officers have reviewed the provisions of this
Exchange Agreement and setting forth: (1) the information and computations (in
sufficient detail) required in order to establish whether the Company was in
compliance with the requirements of (S) 7.8 through (S) 7.17 of this Agreement
applicable to it at the end of the period covered by the financial statements
then being furnished, and (2) whether there existed as of the date of such
financial statements and whether, to the best of such officers' knowledge, there
exists on the date of the certificate or existed at any time during the period
covered by such financial statements any Default or Event of Default and, if any
such condition or event exists on the date of the certificate, specifying the
nature and period of existence thereof and the action the Company is taking and
proposes to take with respect thereto;
(f) Accountants' Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating that they have reviewed this
Exchange Agreement and stating further wheth-
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er, in making their audit, such accountants have become aware of any Default or
Event of Default under any of the terms or provisions of (S) 7.8 through (S)
7.17 of this Exchange Agreement or (S) 7.3(a) (but not with respect to unaudited
quarterly periods), insofar as any such terms or provisions pertain to or
involve accounting matters or determinations, and if any such condition or event
then exists, specifying the nature and period of existence thereof;
(g) Litigation Notices. Promptly upon learning of any lawsuit or
similar action brought against the Company or any of its subsidiaries, the
claimed damages of which may exceed $500,000, a notice describing such action in
reasonable detail;
(h) Environmental Notices. Promptly upon learning of (i) any claims,
complaints, notices, requests or inquiries as set forth in (S) 5.1(r)(2) of this
Exchange Agreement, or (ii) any listing or proposed listing as set forth in (S)
5.1(r)(5), or (3) any notices of noncompliance for the matters identified in (S)
5.1(r)(4), a notice describing such action in reasonable detail and including
the underlying document; and
(i) Requested Information. With reasonable promptness, such other
data and information as you or any such holder may reasonably request,
including, without limitation, (1) such financial or other information as any
holder of Notes or any Person designated by such holder may reasonably determine
is required to permit such holder to comply with the requirements of Rule 144A
promulgated under the Securities Act, in connection with the resale by any
holder of the Notes, and (2) copies of any report, notice or proxy statement or
other filing required to be filed by the Company or any Affiliate of the Company
qualifying as a "real estate investment trust" under the Code with any
securities exchange or the Securities and Exchange Commission or any successor
agency.
Without limiting the foregoing, the Company will permit you, so long as you
are the holder of any Note, and each holder of the then outstanding Notes (or
such Persons as either you or such holder may designate), to visit and inspect,
under the Company's guidance but at your expense (except as set forth in the
last sentence of
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this paragraph), any of its or its respective subsidiaries' properties, to
examine all of their books of account, records, reports and other papers, to
make copies and extracts therefrom and to discuss their respective affairs,
finances and accounts with their respective officers, employees, and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss with you the finances and affairs of the Company and its
subsidiaries) all at such reasonable times, with reasonable notice and as often
as may be requested. Subsequent to and during the continuance of a Default or
Event of Default such visitation and inspection shall be at the sole expense of
the Company as applicable, and without its required guidance.
7.19 [Intentionally omitted]
7.20 Facilities. The Company and its Restricted Subsidiaries and the
Controlled Partnerships shall keep the Controlled Properties in good repair,
working order and condition, and from time to time shall make necessary repairs
or replacements thereto so that their property shall be maintained adequately
for its intended use.
7.21 Restrictive Agreements. The Company shall not and shall not
permit any of its Restricted Subsidiaries to enter into any agreement which
restricts the ability or right of any such Restricted Subsidiary to make
payments to the Company or another Restricted Subsidiary of the Company by way
of dividends, distributions, returns of capital, advances, reimbursement or
otherwise.
7.22 Rating for the Notes. You shall have received evidence
satisfactory to you by January 31, 1996 that Duff & Phelps Credit Rating Co. has
issued a private letter rating of at least "BBB+" for the Notes.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
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(a) Default in the payment of interest on any Note when the same
shall have become due and such default shall continue for more than two days; or
(b) Default in the making of any required prepayment on any of the
Notes as provided in (S) 4.1; or
(c) Default in the making of any other payment of the principal of
any Note or premium, if any, thereon at the expressed or any accelerated
maturity date or at any date fixed for prepayment; or
(d) Default in the observance or performance of any covenant or
agreement contained in (S) 7.8, 7.9 or 7.13(b), unless satisfactory evidence of
a remedy of such default is delivered to all holders within 10 days after the
day on which any executive officer of the Company first obtains knowledge of
such default; or
(e) Default in the performance or breach of any other provision of
this Exchange Agreement unless satisfactory evidence of a remedy of such default
is delivered to all holders within 10 days after the earlier of (1) the day on
which any executive officer of the Company first obtains knowledge of such
default and (2) the day on which written notice thereof is given to any
executive officer of the Company by any holder of a Note; or
(f) Default in the observance or performance by the Company of any of
the financial covenants contained in Section 6.20 or 6.21 of the Bank Agreement
unless such Default is permanently waived or such Default is cured by a
permanent amendment to the Bank Agreement; or
(g) Any representation or warranty or other statement made by or on
behalf of the Company herein or in the other Documents, or made by the Company
in any statement or certificate furnished by or on behalf of the Company in
connection with the consummation of the issuance and delivery of the Notes or
furnished by the Company pursuant hereto, is untrue or misleading in any
material respect as of the date of the issuance or making thereof; or
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(h) Any judgments or awards for the payment of money aggregating in
excess of $2,500,000 is or are outstanding against the Company or any Restricted
Subsidiary of the Company or against any property or assets of either and any
one of such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 30 days from the date of its entry; or
(i) (i) The Company or any of its Restricted Subsidiaries or any of
the Controlled Partnerships shall default (unless waived) in the payment when
due, whether by acceleration or otherwise, of any amount of principal or
interest due in respect of Indebtedness (other than Nonrecourse Indebtedness) in
an aggregate principal amount greater than $5 million or in respect of any
guaranty of such Indebtedness, or shall default (unless waived in writing) in
the performance or observance (subject to any applicable grace period) of any
agreement, covenant or condition with respect to any such Indebtedness or
guaranty if the effect of such default is to accelerate the maturity of any such
Indebtedness or to permit the holder or holders of any such Indebtedness or
guaranty, or any trustee or agent of such holders, to cause such Indebtedness to
become due and payable prior to its expressed maturity or to call upon such
guaranty in advance of nonpayment of the guaranteed Indebtedness; or (ii) the
Company or any of its Restricted Subsidiaries or any of the Controlled
Partnerships shall default (unless waived in writing) in the payment when due,
whether by acceleration or otherwise, of any amount of principal or interest due
in respect of Nonrecourse Indebtedness in an aggregate principal amount greater
than $10 million, or in respect of any guaranty of such Indebtedness, or shall
default (unless waived in the performance or observance (subject to any
applicable grace period) of any agreement, covenant or condition with respect to
any such Indebtedness or guaranty if the effect of such default is to accelerate
the maturity of any such Indebtedness or to permit the holder or holders of any
such Indebtedness or Guaranty, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or to call upon such guaranty in advance of non-payment of the
guaranteed Indebtedness;
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(j) Any final non-monetary judgment, order or decree shall be
rendered against the Company or any of its Restricted Subsidiaries or any of the
Controlled Partnerships which may have a material and adverse effect on the
business, financial condition or property of the Company or on the ability of
the Company to perform its obligations set forth in the Documents, and either
(i) enforcement proceedings shall have been commenced by any Person upon such
judgment or order, or (ii) there shall be any period of thirty (30) days during
which a stay or enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect, unless such judgment, order or
decree shall, within such thirty-day period, be vacated or discharged (other
than by satisfaction thereof);
(k) (i) An Employee Benefit Plan that is intended to be qualified
under section 401(a) of the Code shall lose its qualification, and the resulting
loss or cost to the Company or any Controlled Group member can reasonably be
expected to exceed $500,000; (ii) the commencement or increase of contributions
to, the adoption of, or the amendment of a Plan by, the Company or any
Controlled Group member shall result in a net increase in unfunded liabilities
to the Company or any Controlled Group member in the aggregate in excess of
$500,000; or (iii) the Internal Revenue Service asserts a claim against the
Company or any Controlled Group member in connection with the unfunded
liabilities arising under section 412 of the Code under the employee pension
benefit (as defined in section 3(2) of ERISA) maintained by any member of the
ERISA Affiliated Group, if such claim can reasonably be expected to impose on
the Company or any Controlled Group member liability in the aggregate amount of
$500,000 or more;
(l) The Company or any of its Restricted Subsidiaries or any of the
Controlled Partnerships shall institute a voluntary case seeking liquidation or
reorganization under Chapter 7 or Chapter 11, respectively, of the United States
Bankruptcy Code, or shall consent to the institution of an involuntary case
thereunder against it; or the Company or any of its Restricted Subsidiaries or
any of the Controlled Partnerships shall file a petition initiating or shall
otherwise institute any similar Insolvency Proceeding under any other applicable
federal or state law, or shall consent thereto; or the Company or
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any of its Restricted Subsidiaries or any of the Controlled Partnerships shall
apply for, or by consent or acquiescence there shall be an appointment of, a
receiver, liquidator, sequestrator, trustee or other officer with similar
powers, or the Company of any of its Restricted Subsidiaries or any of the
Controlled Partnerships shall make an assignment of the benefit of creditors; or
the Company or any of its Restricted Subsidiaries or any of the Controlled
Partnerships shall admit in writing its inability to pay its debts generally as
they become due; or, if an involuntary case shall be commenced seeking the
liquidation or reorganization of the Company of any of its Restricted
Subsidiaries or any of the Controlled Partnerships under Chapter 7 or Chapter
11, respectively, of the United States Bankruptcy Code, or any similar
proceeding shall be commenced against the Company or any of its Restricted
Subsidiaries or any of the Controlled Partnerships under any other applicable
federal or state law, and (i) the Company, any of its Restricted Subsidiaries or
any of the controlled Partnerships is a party to the petition commencing the
involuntary case; or (ii) the petition commencing the involuntary case is not
timely controverted; or (iii) the petition commencing the involuntary case is
not dismissed with forty-five (45) days of its filing; or (iv) an interim
trustee is appointed to take possession of all or a portion of the property
and/or to operate all or any part of the business of the Company or such
Restricted Subsidiary or Controlled Partnership; or (v) an order for relief
shall have been issued or entered therein; or a decree or order of a court
having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee or other officer having similar powers over
the Company or such Restricted Subsidiary or Controlled Partnerships, or of all
or a part of the property of any of the foregoing, shall have been entered; or
any other similar relief shall be granted against the Company or any of its
Restricted Subsidiaries or any of the Controlled Partnerships under any
applicable federal or state law;
(m) Any statutory Lien shall have been placed upon the assets of the
Company or any member of the Controlled Group under the Code or ERISA;
(n) A Change of Control (other than the PSMI Merger) shall occur; or
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(o) The Company fails at any time to be qualified as a real estate
investment trust under the Code.
Notwithstanding the provisions of paragraphs (a) and (c) above in this
Section 8.1, it shall not constitute an Event of Default if a payment due under
any one of such paragraphs is not made when due but is made within two days
thereafter (a "Late Payment"), provided that there can be no more than two Late
Payments during the collective term of this Exchange Agreement and the PSMI Note
Agreement, and any other payment not made when due shall constitute an immediate
Event of Default, and provided further that any payments due on the same day
under any such paragraphs (a) or (c) shall be deemed to be one payment for
purposes of counting Late Payments.
8.2 Notice to Holders. When any Default or Event of Default described
in the foregoing (S) 8.1 has occurred, or if the holder of any Note or of any
other evidence of Funded Debt or Current Debt of the Company gives any notice or
takes any other action with respect to a claimed default, the Company agrees to
give notice within three business days of such event to all holders of the Notes
then outstanding specifying the nature of such Default or Event of Default and
what action the Company is taking or proposes to take with respect thereto.
8.3 Acceleration of Maturities. When any Event of Default described in
paragraph (a), (b), (c), or (f) of (S) 8.1 has happened and is continuing, any
holder of any Note may declare such Note to be due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraphs (a)
through (k), (m), (n) or (o), inclusive, of said (S) 8.1 has happened and is
continuing, the holder or holders of 25% or more of the principal amount of
Notes at the time outstanding may, by notice to the Company, declare the entire
principal and all interest accrued on all Notes to be, and all Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived.
When any Event of Default described in paragraph (l) of (S) 8.1 has occurred,
then all outstanding Notes shall automatically become immediately due and
payable without presentment, demand or notice of any kind
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all of which are hereby expressly waived. Upon the Notes becoming due and
payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the holders of the Notes the entire principal and interest
accrued on the Notes and, to the extent not prohibited by applicable law, an
amount as liquidated damages for the loss of the bargain evidenced hereby (and
not as a penalty) equal to the Make-Whole Amount, determined as of the date on
which the Notes shall so become due and payable. No course of dealing on the
part of the holder or holders of any Notes nor any delay or failure on the part
of any holder of Notes to exercise any right shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies. The
Company further agrees, to the extent permitted by law, to pay to the holder or
holders of the Notes all costs and expenses incurred by them in the collection
of any Notes upon any default hereunder or thereon, including reasonable
compensation to such holder's or holders' attorneys for all services rendered in
connection therewith.
8.4 Rescission of Acceleration. The provisions of (S) 8.3 are subject
to the condition that if the principal of and accrued interest on all or any
outstanding Notes have been declared immediately due and payable by reason of
the occurrence of any Event of Default described in paragraphs (a) through (k),
(m), (n) or (o), inclusive, of (S) 8.1, the holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof on behalf of all holders, provided that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any principal, interest
or premium on the Notes which has become due and payable solely by reason of
such declaration under (S) 8.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have
been made good, cured or
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waived pursuant to (S) 10.1; and provided further, that no such rescission and
annulment shall extend to or affect any subsequent Default or Event of Default
or impair any right consequent thereto.
8.5 Valuable Rights. The Company acknowledges, and the parties to this
Agreement agree, that the right of each holder to maintain its investment in the
Notes free from repayment by the Company (except as in this Agreement
specifically provided for) is a valuable right and that the provision for
payment of the Make-Whole Amount by the Company in the event that the Notes are
accelerated as a result of an Event of Default is intended to provide
compensation for the deprivation of such right under such circumstances and not
as a penalty against the Company.
8.6 Other Remedies. During the existence of an Event of Default and
regardless of whether the Notes then outstanding shall have been declared to be
due and payable pursuant to (S) 8.3 of this Exchange Agreement and regardless of
whether any holder of Notes then outstanding shall otherwise have pursued or be
pursuing any other rights or remedies, any holder of Notes may proceed to
protect and enforce its rights under this Exchange Agreement and such Notes by
exercising such remedies as are available to such holder in respect thereof
under applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any agreement contained in this Exchange
Agreement or in aid of the exercise of any power granted in this Exchange
Agreement.
SECTION 9. SECURITY
The Notes are unsecured.
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS
10.1 Consent Required. Any term, covenant, agreement or condition of
this Exchange Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 66 2/3% in aggregate principal
amount of outstanding Notes (or 50% in the case of the
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selection of investment banks, accountants or appraisers not included in
Schedule II hereto); provided that without the written consent of the holders of
all of the Notes then outstanding, no such amendment or waiver shall be
effective (1) which will change the time of payment (including any prepayment
required by (S) 4) of the principal of or the interest on any Note or change the
principal amount thereof or change the rate of interest thereon, (2) which will
change any of the provisions with respect to optional prepayments or any of the
provisions contained in (S) 7.14 or (S) 10.2, or (3) which will change the
percentage of holders of the Notes required to consent to any amendment or
waiver under this Exchange Agreement or the Notes or any of the other provisions
of this (S) 10. For purposes of determining whether the holders of outstanding
Notes of the requisite unpaid principal amount at any time have taken any action
authorized by this (S) 10.1 or otherwise by this Agreement, any Notes owned by
the Company or any Restricted Subsidiary or Affiliate of the Company shall not
be deemed outstanding.
10.2 Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not, and will not permit any if its Restricted
Subsidiaries or Affiliates or any of the Controlled Partnerships to, solicit,
request or negotiate for or with respect to any proposed waiver or amendment of
any of the provisions of this Exchange Agreement or the Notes, unless each
holder of Notes (irrespective of the amount of Notes then owned by it) shall be
informed thereof by the Company and shall be afforded the opportunity of
considering the same and shall be supplied by the Company with sufficient
information to enable it to make an informed decision with respect thereto.
Executed or true and correct copies of any amendment or waiver effected pursuant
to the provisions of (S) 10.1 will be delivered by the Company to each holder of
Notes within 15 days following the date on which the same shall have become
effective. The Company will not, directly or indirectly, pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, to any holder of Notes as consideration for or as an
inducement to entering into by any holder of Notes of any waiver or amendment of
any of the terms and provisions of this Exchange Agreement or the Notes, unless
such remuneration is concurrently paid, on the same terms, ratably to the
holders of all Notes then outstanding.
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10.3 Effect of Amendment or Waiver. Any such amendment or waiver shall
apply equally to all of the holders of the Notes and shall be binding upon them,
upon each future holder of any Note and upon the Company, whether or not such
Note shall have been marked to indicate such amendment or waiver. No such
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived or impair any right consequent thereon.
SECTION 11. INTERPRETATION OF AGREEMENT; DEFINITIONS
11.1 Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Affiliate" shall be defined as a Person that
(a) directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control with, the Company;
(b) beneficially owns or holds five percent (5%) or more of the
Voting Stock of the Company; or
(c) 5 percent (5%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, (5%) or more of the equity interest) of which
is beneficially owned or held by the Company or a Subsidiary.
"Affiliate Transaction" shall have the meaning set forth in (S) 7.15.
"Aggregate Net Asset Value" means the Company's Combined Percentage
Interest in the pre-depreciation net book value (determined in accordance with
GAAP) of Unencumbered Assets of the Company and the Consolidated Affiliates.
"Annual Report" means the Company's Annual Report on Form 10-K filed with
the Securities and Ex-
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change Commission for the fiscal year ended December 31, 1994.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary of the Company; and (ii) any other
properties or assets of the Company or any Restricted Subsidiary of the Company.
For the purpose of this definition, the term "Asset Sale" shall not include (w)
any transfer of (A) inventory or obsolete or worn out equipment, in each case in
the ordinary course of business, or (B) properties and assets of the Company to
any Wholly Owned Restricted Subsidiary of the Company or of any Restricted
Subsidiary of the Company to the Company or any Wholly Owned Restricted
Subsidiary, (x) exchanges of property by the Company or any Restricted
Subsidiary for equivalent property of equivalent value that will be used in the
businesses of the Company or its Wholly Owned Restricted Subsidiaries existing
on the date of this Exchange Agreement (as determined by the Board of Directors
of the Company in good faith), (y) leases of assets in the ordinary course of
business consistent with past practice or (z) sales of Business Park Properties
or management contracts for Business Park Properties, regardless of whether or
not such properties are owned by the Company or a Controlled Partnership.
"Bank Agreement" shall mean the Amended and Restated Credit Agreement by
and among the Company and Wells Fargo Bank, National Association, as Agent, and
certain Financial Institutions party thereto dated as of May 22, 1995, as it may
be amended from time to time.
"Bank Indebtedness" means Indebtedness under the Bank Agreement.
"Business Day" shall mean a day of the year on which banks located in the
cities of New York, New York and Glendale, California are open for business.
"Business Park Property" shall be defined as a property generally of the
type (a) described in the
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Annual Report as "business parks" and (b) owned by the Company, a Restricted
Subsidiary of the Company or a Controlled Partnership.
"Capitalized Lease" means any lease under which the obligation of the
lessee is required by GAAP to be shown as a liability on the financial
statements of the lessee.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Capital Stock" means, with respect to any Person, any capital stock of
such Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into corporate stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each general
and limited partnership interest of such Person if such Person is a partnership.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" shall mean the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change of Control" means the occurrence of any of the following events:
(a) all or substantially all of the assets of the Company are sold, leased,
exchanged or otherwise transferred to any Person or group of persons or entities
acting in concert as a partnership or other group; (b) the Company is merged or
consolidated with or
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into another corporation (other than a Restricted Subsidiary that is not a
Controlled Partnership) with the effect that the common stockholders immediately
prior to such merger or consolidation hold less than seventy-five percent (75%)
of the ordinary voting power of the outstanding securities of the surviving
corporation of such merger or the corporation resulting from such consolidation;
(c) a change in the composition of the board of directors of the Company as a
result of which fewer than a majority of the incumbent directors are directors
who either (i) had been directors of the Company 24 months prior to such change,
or (ii) were elected, or nominated for election, to the board of directors with
the affirmative votes of a majority of the directors who had been directors of
the Company 24 months prior to such change and who were still in office at the
time of the election or nomination; or (d) a Person or group (as such term is
used in Rule 13d-5 under the Securities Exchange Act) of Persons (other than B.
Wayne Hughes; members of the immediate family of B. Wayne Hughes; any
foundation, trust, or other Person controlled by B. Wayne Hughes and/or his
immediate family, and any Person eligible to file a statement on Schedule 13G
pursuant to Rule 13d-1(b)(1) of the Securities Exchange Act) shall, as a result
of a tender or exchange offer, open market purchases, merger, privately
negotiated purchases or otherwise, have become, directly or indirectly, the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act) of securities having twenty-five percent (25%) or more of the ordinary
voting power of then outstanding voting securities of the Company.
"Closing Date" shall have the meaning set forth in (S) 3.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combined Percentage Interest" means as to any asset, liability or item of
income, gain, loss, deduction or expense on the consolidated financial
statements of the Company and the Consolidated Affiliates, the Company's
allocable share of such asset, liability or item, for the relevant period or as
of the date of determination, taking into account (a) the relative proportion of
each such item constituting or derived from assets directly owned by the Company
and constituting or derived
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from assets owned by the respective Controlled Partnerships, and (b) the
Company's Percentage Interests in the respective Controlled Partnerships.
As an example, assume that there are two Controlled Partnerships:
Partnership A, in which the Company's Percentage Interest is 55%; and
Partnership B, in which the Company's Percentage Interest is 40%. Further,
assume that, for fiscal 1995, depreciation derived from assets directly owned by
the Company is $40,000; depreciation derived from the assets owned by
Partnership A is $20,000; and depreciation derived from assets owned by
Partnership B is $30,000. For fiscal year 1995, the Company's Combined
Percentage Interest of all depreciation derived from the consolidated assets of
the Company and the Consolidated Affiliates would be 70%, calculated as follows:
(55% of $20,000)+(40% of $30,000)+(100% of $40,000) / $90,000 = 63/90
"Companies" means the Company, PSMI, PSI and each of their subsidiaries.
"Company" shall mean Storage Equities, Inc., a California corporation, and
any Person who succeeds to the business or to all, or substantially all, of the
assets of Storage Equities, Inc.
"Consolidated Affiliates" means, collectively, the Restricted Subsidiaries
of the Company and the Controlled Partnerships.
"Consolidated Assets" means, for the Company and its Restricted
Subsidiaries, total assets plus accumulated depreciation and accumulated
amortization, determined in accordance with GAAP.
"Consolidated Funded Debt" means, for the Company and the Consolidated
Affiliates on a consolidated basis in accordance with GAAP, all Indebtedness
including any Indebtedness or Contingent Obligation with respect to outstanding
letters of credit and any Contingent Obligation (excluding the Contingent
Obligations described in Schedule 5.1(d) with respect to any interest-bearing
indebtedness of any other Person.
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"Consolidated Interest Expense" means, for any period, gross consolidated
interest expense for the period (including all commissions, discounts, fees and
other charges in connection with standby letters of credit and similar
instruments, such portion of payments under Capitalized Leases as may be
characterized as interest expense in accordance with GAAP; but excluding
commitment fees under the Bank Agreement, amortization of loan origination costs
and other one-time or non-cash charges related to the incurrence of
Indebtedness) for the Company and the Consolidated Affiliates, on a consolidated
basis in accordance with GAAP, plus the portion of the up-front costs and
expenses for Rate Contracts (to the extent not included in gross interest
expense) fairly allocated to such Rate Contracts as expenses for such period, as
determined in accordance with GAAP.
"Consolidated Net Income" means for any period, the net income (or loss)
of the Company and the Consolidated Affiliates for such period, determined on a
consolidated basis for such Persons in accordance with GAAP; provided, however,
that in determining Consolidated Net Income, (a) there shall not be included in
gross revenues any revenues of a Non-consolidated Affiliate, but there shall be
included any dividends or distributions from any Non-consolidated Affiliate
received by the Company or any Consolidated Affiliate; and (b) there shall not
be included in gross revenues any of the following items: (i) if the Company or
one of the Consolidated Affiliates shall have acquired the assets and business
of any Person or any substantial part of the assets and business of any Person,
any earnings properly attributable to such assets and business or part thereof
prior to the date of such acquisition; and (ii) any earnings of, and dividends
payable to, the Company or one of the Consolidated Affiliates in a currency
which at the time may not be converted into Dollars under the laws of the nation
issuing such currency.
"Consolidated Tangible Net Worth" shall mean as of the date of any
determination thereof the total amount of all Tangible Assets of the Company and
its Restricted Subsidiaries after deducting therefrom, to the extent otherwise
included (i) Consolidated Funded Debt and (ii) all items which in accordance
with GAAP would be included on the liability and equity side of a consolidated
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balance sheet, except shareholders' equity calculated in accordance with GAAP.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet item, level of income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
nondelivery or nonfurnishing thereof, in any such case if the purpose or intent
of such agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the actual amount of the obligation so guaranteed or otherwise
supported. Without limitation, Contingent Obligation shall include any
environmental indemnity or other agreement with respect to the environmental
condition of any property (whether or not entered into in connection with the
issuance of Non-recourse Indebtedness).
"Controlled Group" means the Company and all Persons (whether or not
incorporated) under common control or treated as single employer with the
Company pursuant to section 414(b) or (c) of the Code.
"Controlled Partnership" means any of the following (a) any Joint Venture
(b) any PS Partnership or
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(c) as of any date, any other general or limited partnership whose financial
statements are required as of such date to be consolidated with those of the
Company in accordance with GAAP except any such partnership which constitutes an
Unrestricted Subsidiary.
"Controlled Property" means any real property owned, leased, managed,
operated or occupied by the Company, any Subsidiary of the Company or any
Controlled Partnership.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (a) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (b) Guarantees by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"Depreciation and Amortization" shall mean the depreciation and
amortization expense of the Company and its Restricted Subsidiaries for such
period (so long as deducted in the computation of Consolidated Net Income),
determined on a consolidated basis in accordance with GAAP consistently applied.
"Documents" shall mean, collectively, the Exchange Agreements, the Notes,
and all other documents necessary to consummate the transactions contemplated by
the Exchange Agreements (including any instruments contemplated by or executed
in connection with any of the foregoing).
"EBITDA" means, in respect of any fiscal period, Consolidated Net Income,
increased by extraordinary losses, decreased by extraordinary gains, and
increased by Depreciation and Amortization, interest (including the portion of
payments under any Capitalized Lease that may be characterized as interest), and
federal and state income taxes, all for such period for the Company and the
Consolidated Affiliates on a consolidated basis in accordance with GAAP.
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"Environmental Laws" shall mean all federal, state, or local laws,
statutes, rules, regulations or ordinances relating to public health, safety or
the environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in (S) 8.1.
"Exchange Agreements" shall have the meaning set forth in (S) 3.3.
"Fair Market Value" means, with respect to any property, the sale value
of such property, as determined by the Board of Directors of the Company in good
faith, that would be realized in an arm's-length sale at such time between an
informed and willing buyer and an informed and willing seller, under no
compulsion to buy or sell, respectively.
"Funded Debt" of any Person as of the date of any determination thereof
shall mean (a) all Indebtedness of such Person for borrowed money or which has
been incurred in connection with the acquisition of assets in
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each case having a final maturity of one or more than one year from the date of
origin thereof (or which is renewable or extendible at the option of the obligor
for a period or periods more than one year from the date of origin), including
all payments in respect thereof that are required to be made within one year
from the date of any determination of Funded Debt, whether or not the obligation
to make such payments shall constitute a current liability of the obligor under
GAAP, (b) all Capitalized Rentals of such Person, and (c) all Guarantees by such
Person of Funded Debt of others.
"Funded Debt Ratio" means, as of any day, the ratio of Net Funded Debt as
of such day to the sum of (a) Net Funded Debt as of such day plus (b) Total
Shareholders' Equity as of such day.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the Financial Accounting Standards
Board or in such statements, opinions and pronouncements of such other successor
entities as shall be accepted by a substantial majority of the accounting
profession in the United States of America.
"Governmental Authority" shall mean any federal, state, Canadian
provincial, county, city, town, village, municipal or other governmental
department, commission, board, bureau, agency, authority or instrumentality,
domestic or foreign.
"Guarantees" by any Person as of the date of any determination thereof
shall mean all obligations (other than endorsements in the ordinary course of
business of negotiable instruments for deposit or collection) of such Person
guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other
obligation of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, all obligations incurred
through an agreement, contingent or otherwise, by such Person: (a) to purchase
such Indebtedness or obligation or any property or assets constituting security
therefor, (b) to advance or supply funds (i) for the purchase or payment of such
Indebtedness or obligation, (ii) to maintain working capital or other balance
sheet condition or otherwise to advance or make available funds for the purchase
or payment of such
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Indebtedness or obligation, (c) to lease property or to purchase Securities or
other property or services primarily for the purpose of assuring the owner of
such Indebtedness or obligation of the ability of the primary obli-gor to make
payment of the Indebtedness or obligation, or (d) otherwise to assure the owner
of the Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Material" shall mean (a) any "hazardous substance," as defined
by CERCLA; (b) any "hazardous waste," as defined by the Resource Conservation
and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material or substance
within the meaning of any other Environmental Law.
"Holder" or "holder" shall mean any holder of a Note.
"Indebtedness" of any Person as of the date of any determination thereof
shall, without duplication, mean and include (a) any obligation for borrowed
money; (b) any obligation evidenced by bonds, debentures, notes or other similar
instruments; (c) any obligation to pay the deferred purchase price of property
or for services (other than in the ordinary course of business); (d) any
Capitalized Lease Obligation; (e) any obligation under any Rate Contract; (f)
any obligation or liability of others secured by a Lien, whether or not such
obligation or liability is assumed; (g) any Contingent Obligation (other than
Contingent Obligations incurred in the ordinary course of business); and (h)
Non-recourse Indebtedness.
"Insolvency Proceeding" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
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winding-up or relief of debtors; or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors or other, similar
arrangement.
"Institutional Holder" shall mean any holder of a Note that is an
"accredited investor" as defined in Section 2(15) of the Securities Act and any
"qualified institutional buyer" as defined in Rule 144A promulgated under the
Securities Act.
"Interest Coverage Ratio" means for any period the ratio of (a) the
Company's Combined Percentage Interest in EBITDA for such period plus the
Company's Combined Percentage Interest in all Sale-Leaseback Rental Expenses for
such period to (b) the Company's Combined Percentage Interest in Consolidated
Interest Expense for such period plus the Company's Combined Percentage Interest
in all Sale-Leaseback Rental Expenses for such period.
"Investments" means as applied to any Person, means any direct or
indirect ownership or purchase or other acquisition by that Person of any
capital stock, equity interest, obligations or other securities, or of a
beneficial interest in any capital stock, equity interest, obligations or other
securities, or all or substantially all of the assets of any other Person
(including any Restricted Subsidiary) or of the assets which comprise a separate
or separable line of business, or any direct or indirect loan, advance (other
than advances to employees for moving and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business) or capital contribution
by that Person to any other Person, including all indebtedness and accounts
receivable from that other Person which are not current assets or did not arise
from sales to that other Person in the ordinary course of business.
"Joint Venture" means any one of SEI/PSP I Joint Ventures, a California
general partnership; SEI/PSP II Joint Ventures, a California general
partnership; SEI/PSP III Joint Ventures, a California general partnership;
SEI/PSP IV Joint Ventures, a California general partnership; SEI/PSP V Joint
Ventures, a California general partnership; SEI/PSP VI Joint Ventures, a
California general partnership; SEI/PSP VII Joint Ventures, a
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California general partnership; and "Joint Ventures" means all such partnerships
collectively.
"Lien" shall mean any interest in real or personal property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest or lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
(including, with respect to stock, stockholder agreements, voting trust
agreements, buyback agreements and all similar arrangements) affecting property.
For the purposes of this Agreement, the Company or a Restricted Subsidiary of
the Company shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement. Capitalized Lease or
other arrangement pursuant to which title to the property has been retained by
or vested in some other Person for security purposes and such retention or
vesting shall constitute a Lien.
"Long-Term Lease" shall mean any lease of real or personal property (other
than a Capitalized Lease) having an original term, including any period for
which the lease may be renewed or extended at the option of the lessor, of more
than three years.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (a) the aggregate present value
as of the date of such prepayment of each dollar of principal being prepaid
(taking into account the application of such prepayment required by (S) 4.1) and
the amount of interest (exclusive of interest accrued to the date of prepayment)
that would have been payable in respect of such principal being prepaid if such
prepayment had not been made, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (b) 100% of the principal amount of the outstanding Notes being
prepaid.
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"Management Contract" shall mean a contract for management services
pursuant to which the Company agrees to manage one or more Self-Storage
Facilities.
"Management Fee Subsidiary" shall mean any corporation (a) having one
class of common stock and one class of preferred stock, (b) 100% of the
preferred stock of which is owned by the Company and (c) the preferred stock of
which represents at least 90% of the economic interest in such corporation.
"Multiemployer Plan" shall have the same meaning as set forth in ERISA.
"Net Cash Proceeds" shall mean the aggregate amount of cash and cash
equivalents received, less the sum of all fees, commissions and other expenses
incurred, including the amount (estimated reasonably and in good faith) of
income, franchise, sales and other applicable taxes required to be paid.
"Net Funded Debt" means the Company's Combined Percentage Interest in
Consolidated Funded Debt.
"Non-recourse Indebtedness" means, as to any Person, Indebtedness of such
Person, secured by specified collateral, the obligation to pay which
Indebtedness is nonrecourse to such Person and in respect of which obligation no
Affiliate of such Person is contingently or otherwise liable; provided that
Indebtedness shall not be deemed to be other than Non-recourse Indebtedness
solely by reason of the obligor's personal liability (a) for fraud,
misappropriation of rents, waste or similar intentional conduct, or (b)
environmental matters.
"Notes" shall have the meaning set forth in (S) 1.1.
"Obligations" shall mean each and every obligation, covenant and agreement
of the Company contained in the Notes and the Exchange Agreements.
"Officers' Certificate" shall mean a certificate, signed by any two of the
chairman of the board, president, executive vice presidents, chief operating
officer, principal financial officer or secretary of any Person, and including:
(a) a statement that the person
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making such certificate or opinion has read such covenant or condition; (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (c) a statement that, in the opinion of such person, he or she has
made such examination or investigation as is necessary to enable him or her to
ex-press an informed opinion as to whether or not such covenant or condition has
been complied with; and (d) a statement as to whether or not, in the opinion of
each such person, such condition or covenant has been complied with.
"Ownership Entity" shall mean any Person which invests in Self-Storage
Facilities and (a) is owned, operated or controlled by the Company or any
Affiliate of the Company or (b) for which the Company or any Affiliate of the
Company has the right to select a Self-Storage Facility manager.
"Percentage Interest" means, as to each Subsidiary and each Controlled
Partnership, the cumulative percentage ownership interest (direct and indirect)
of the Company in such Subsidiary's or Controlled Partnership's income.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means (a) carriers', warehousemen's, mechanics',
landlords', materialmen's, suppliers', tax, assessment, governmental and other
like liens and charges arising in the ordinary course of business securing
obligations that are not incurred in connection with the obtaining of any
advance or credit and which are not overdue, or are being contested in good
faith by appropriate proceedings, provided that, in accordance with GAAP,
adequate reserves have been established; (b) liens arising in connection with
worker's compensation, unemployment insurance, appeal and release bonds and
progress payments under government contracts; (c) judgment or attachment liens
in existence less than forty-five (45) days after the entry of the judgment, or
with respect to which execution has been stayed, or the payment of which is
covered in full by insurance; (d) zoning restrictions, easements, licenses or
other re-
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strictions on the use of real property, so long as the same do not materially
impair the use of such real property by the Company or any of its Restricted
Subsidiaries or any of the Controlled Partnerships or the value thereof to the
owner of such real property; (e) any lien existing or arising by operation of
law in the ordinary course of business, such as a "banker's lien" or similar
right of offset; (f) liens on the property of the Company or any of its
Restricted Subsidiaries or any of the Controlled Partnerships securing (i) the
performance of bids, trade contracts (other than for borrowed money), leases or
statutory obligations, (ii) obligations on surety and appeal bonds, and (iii)
other obligations of a like nature incurred in the ordinary course of business,
provided all such liens in the aggregate have no reasonable likelihood of
causing a material and adverse effect on the business, financial condition or
property of the Company or on the ability of the Company to perform its
obligations set forth in the Documents; (g) liens covering equipment, which
liens secure purchase money financing for such equipment, provided that (A) any
such lien covers only the equipment so acquired, and (B) the indebtedness
secured thereby is permitted pursuant to (S) 7.12 hereof; (h) liens identified
on Schedule 5.1(a) and any renewals, extensions or replacements thereof,
provided that by any such renewal, extension or replacement no lien is extended
to additional property and that no monetary amount secured by any such lien is
increased; (i) liens securing Non-recourse Indebtedness permitted under clause
(4) of (S) 7.10 hereof; and (j) other liens securing obligations in an aggregate
amount not exceeding $10,000,000 at any time.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization or a government or agency or political subdivision
thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Proceeding" means an action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), wheth-
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er commenced or, to the knowledge of the Company, threatened.
"Property" shall mean any Self-Storage Facility in the United States which
at any time is owned or controlled by an Ownership Entity or for which the
Company or any of its Subsidiaries has a Management Contract.
"Proxy Statement" shall have the meaning set forth in (S) 5.1(c).
"PSI" shall mean Public Storage, Inc., a California corporation, and any
Person who succeeds to the business or to all, or substantially all, of the
assets of Public Storage, Inc.
"PSMI Merger Agreement" means the Agreement and Plan of Merger dated June
30, 1995 between the Company, PSMI and PSI, as it may have been amended since
that time.
"PS Partnerships" means, collectively, PS Partners, Ltd., a California
limited partnership; PS Partners II, Ltd., a California limited partnership; PS
Partners III, Ltd., a California limited partnership; PS Partners IV, Ltd., a
California limited partnership; PS Partners V, Ltd., a California limited
partnership; PS Partners VI, Ltd., a California limited partnership; and PS
Partners VII, Ltd., a California limited partnership.
"Purchasers" shall have the meaning set forth in (S) 3.1.
"Rate Contracts" means interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"Reinvestment Rate" shall mean 0.5% when used with reference to (S) 4.2,
plus the yield (based on offered, and not bid, prices) on actively-traded U.S.
government securities with a maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the principal then
being prepaid or paid as set forth on page "USD" of the Bloomberg Financial
Markets Screen (or, if not available, any other nation-
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ally recognized trading screen reporting on-line intraday trading in United
States government securities) at 10:00 A.M. (New York City time) on the second
Business Day prior to the date fixed for prepayment, or in the event no such
nationally recognized trading screen reporting on-line intraday trading in the
United States government securities is available, the arithmetic mean of the
yields under the respective headings "This Week" and "Last Week" published in
the Statistical Release under the caption "Treasury Constant Maturities" for the
maturity (rounded to the nearest month) corresponding to the Weighted Average
Life to Maturity of the principal being prepaid (taking into account the
application of such prepayment required by (S) 4). If no maturity exactly
corresponds to such Weighted Average Life to Maturity, yields for the two
published maturities most closely corresponding to such Weighted Average Life to
Maturity shall be calculated pursuant to the immediately preceding sentence and
the Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the nearest
month.
"Release" shall have the meaning assigned thereto in CERCLA.
"Remaining Dollar Years" shall mean with respect to the principal amount
of Notes being prepaid the amount obtained by (1) multiplying (x) the remainder
of (i) the amount of principal that would have become due on each scheduled
payment date if such prepayment had not been made, less (ii) the amount of
principal on the Notes scheduled to become due on such date after giving effect
to such prepayment and the application thereof in accordance with the provisions
of (S) 4.1, by (y) the number of years (calculated to the nearest one-twelfth)
which will elapse between the date of determination and such scheduled payment
date, and (2) totalling the products obtained in (1).
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a subsidiary of the Company, as lessee or
sublessee under a lease of real or personal property, but shall be exclu-
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sive of any amounts reimbursed to the Company or such subsidiary (not to exceed
the rent owed by such Person) and shall be net of sublease income received by
the Company or such subsidiary in the ordinary course of business in respect of
property rented by such Person.
"Reportable Event" shall have the same meaning as in ERISA.
"Restricted Subsidiary" shall mean any Subsidiary that is not an
Unrestricted Subsidiary and any Controlled Partnership and shall include,
without limitation, those Subsidiaries listed on Annex I.
"Sale-Leaseback Rental Expense" shall mean all of the lease or rental
expenses associated with a Sale-Leaseback Transaction.
"Sale-Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company, one of its Restricted
Subsidiaries or one of the Controlled Partnerships transfers such property to a
Person and the Company, one of its Restricted Subsidiaries or one of the
Controlled Partnerships leases it from such Person.
"Securities Act" shall mean the Securities Act of 1933, as amended, and as
it may be further amended from time to time.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and as it may be further amended from time to time.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Self-Storage Facility" shall mean any facility managed by the Company, or
in which the Company owns an interest, and used in the business of leasing
storage space to the public.
"Statistical Release" shall mean the then most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve System and which establishes yields on
actively traded U.S. Government
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Securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination hereunder, then such other
reasonably comparable index which shall be designated by the holders of 66-2/3%
in aggregate principal amount of the outstanding Notes.
The term "subsidiary" with respect to any person, means (i) a corporation
a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more subsidiaries of such person or by
one or more subsidiaries of such person (ii) any other person (other than a
corporation) in which such person, one or more subsidiaries of such person, or
such person and one or more subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest.
"Subsidiary" means a subsidiary of the Company or a Management Fee
Subsidiary.
"Tangible Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its subsidiaries (less
depreciation, depletion and other properly deductible valuation reserves) after
deducting good will, patents, trade names, trade marks, copyrights, franchises,
experimental expense, organization expense, deferred assets other than prepaid
insurance and prepaid taxes, the excess of cost of shares acquired over book
value of related assets and such other assets as are properly classified as
"intangible assets" in accordance with GAAP.
"Total Shareholders' Equity" means the total shareholders' equity of the
Company determined in accordance with GAAP.
"Unaudited Financials" shall have the meaning set forth in (S) 5.1(c).
"Unencumbered Assets" means Controlled Properties which are free and clear
of Liens, provided that a Controlled Property owned by a Consolidated Affiliate
shall not be considered an Unencumbered Asset unless the
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Company's ownership interests (direct and indirect) in such Consolidated
Affiliate are free and clear of Liens.
"Unrestricted Subsidiary" shall mean any Subsidiary which is hereafter
designated as an Unrestricted Subsidiary by the Board of Directors of the
Company (such designation to be effective upon receipt by all holders of Notes
of a notice of such designation), provided that no person may be designated as
an Unrestricted Subsidiary if after giving effect thereto a Default or Event of
Default would exist or if the Company could not incur at least $1.00 of
additional Indebtedness in compliance with (S) 7.10; and provided further that
the Board of Directors of the Company may designate any Unrestricted Subsidiary
a Restricted Subsidiary (the subject entity to cease being an Unrestricted
Subsidiary upon receipt by all holders of Notes of a notice to that effect
signed by the Company), if the following conditions are met: (a) after giving
effect thereto, the Company is able to incur at least $1.00 of additional
Indebtedness in compliance with (S) 7.10 and, immediately after such
designation, (b) the book value (at the time of transfer) of all assets (other
than Business Park Properties or the related management contracts) transferred
to Unrestricted Subsidiaries by the Company or any of its Restricted
Subsidiaries in any fiscal year of the Company plus the book value (at the time
of designation) of the net assets (other than Business Park Properties or the
management contracts for Business Park Properties, regardless of whether or not
such properties are owned by the Company or a Controlled Partnership) of all
Restricted Subsidiaries that are designated an Unrestricted Subsidiary in such
fiscal year plus the Net Cash Proceeds of all shares or assets that are the
subject of one or more Asset Sales occurring during such fiscal year (except to
the extent that the Net Cash Proceeds of such Asset Sales have been applied in
accordance with (S) 7.13(c)) does not exceed 10% of Consolidated Assets measured
as of the last day of the immediately preceding fiscal year, and (c) no Default
or Event of Default has occurred and is continuing or would exist immediately
after such designation. A Restricted Subsidiary may be designated an
Unrestricted Subsidiary, but may not be designated again; provided that a
Subsid-
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iary that, upon its formation, is designated an Unrestricted Subsidiary may be
designated a Restricted Subsidiary and designated once more as an Unrestricted
Subsidiary, but may not be designated again, provided further that all
designations must satisfy the foregoing provisions of this definition.
"Voting Stock" shall mean Securities of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions),
managers, trustees or any other governing body.
"Weighted Average Life to Maturity" of the principal amount of the Notes
being prepaid shall mean, as of the time of any determination thereof, the
number of years obtained by dividing the then Remaining Dollar-Years of such
principal by the aggregate amount of such principal.
"Wholly-Owned Restricted Subsidiary" means any direct or indirect
Restricted Subsidiary of the Company where the Company's ownership of such
Restricted Subsidiary is through ownership of 100% of all issued and outstanding
capital stock and warrants, options or rights to purchase capital stock at all
levels.
11.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP, to
the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 Directly or Indirectly. Where any provision in this Exchange
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
SECTION 12. INDEMNIFICATION
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12.1 Indemnified Parties. In addition to all other sums due hereunder
or provided for in this Exchange Agreement or any of the other Documents and any
and all obligations of the Company to indemnify the Purchasers hereunder or
under any of the other Documents the Company shall, without limitation as to
time, indemnify and hold harmless each Purchaser, each of their Affiliates, and
the employees, officers, directors and representatives of each Purchaser,
including attorneys and consultants (individually, an "Indemnified Party" and
-----------------
collectively, the "Indemnified Parties"), to the fullest extent lawful, from and
-------------------
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable attorneys' fees) and
expenses, including expenses of investigation (collectively, "Losses"), as
------
incurred, arising out of or in connection with this Agreement, the PSMI Merger
Agreement, the Reorganization Agreement or the Documents or the transactions
contemplated hereby or thereby (or any other document or instrument executed
herewith or pursuant hereto or thereto), regardless of whether the transactions
contemplated by this Exchange Agreement are consummated and regardless of
whether any Indemnified Party is a formal party to any Proceeding; provided,
however, that the Company shall not be liable to any Indemnified Party for any
Losses to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or review) that such
Losses arose from the gross negligence or willful misconduct of such Indemnified
Party, which (i) is independent of any wrongful act by the Company, its
Affiliates or any of their respective representatives and (ii) was not taken by
such Indemnified Party in reliance upon any of the representations, warranties,
covenants or promises of the Company herein or in the other Documents, including
(without limitation) the certificates delivered by the Company pursuant hereto
or thereto. The Company agrees to advance to any Indemnified Party promptly for
all such Losses as they are incurred by such Indemnified Party (regardless of
whether the entitlement of such an Indemnified Party to indemnification
hereunder is being disputed); provided that the assertion of a claim against an
Indemnified Party shall not, in and of itself, constitute a Loss by such
Indemnified Party in the amount of such claim. Prior to reimbursing any
Indemnified Party for any Losses pursuant to this Section 12, the Company may
require such Indemnified
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Party to provide a written undertaking to reimburse the Company if it is finally
judicially determined by a court of competent jurisdiction (which determination
is not subject to appeal) that such Indemnified Party was not entitled to
indemnification pursuant to this Section 12 or otherwise. The obligations of the
Company to each Indemnified Party hereunder shall be separate obligations, and
the liability of the Company to any Indemnified Party hereunder shall not be
extinguished solely because any other Indemnified Party is not entitled to
indemnity hereunder.
12.2 Environmental Indemnification. The Company shall, without
limitation as to time, indemnify, reimburse, defend, and hold harmless the
Indemnified Parties for, from, and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, reasonable attorney's fees,
disbursements and expenses, asserted against, resulting to, imposed on, or
incurred by any of the Indemnified Parties in connection with any of the
following: (i) the events, circumstances, and conditions relating to
environmental matters described in the Exchange Agreement on Schedule 5.1(r);
(ii) any pollution or threat to human health or the environment that is related
in any way to the Companies', or any Person for whom any of the Companies is or
may be responsible by law or contract, management, use, control, ownership or
operation of the business or property in connection with the business of such
Companies, including, without limitation, all on-site and off-site activities
involving materials of environmental concern, regardless of whether the
pollution or threat to human health or the environment is described in this
Exchange Agreement; (iii) any environmental claim against any Person whose
liability for such environmental claim any of the Companies has assumed or
retained either contractually or by operation of law; or (iv) the breach of any
environmental representation or warranty set forth in this Exchange Agreement in
(S) 5.1(r) (provided that the determination as to whether there has been any
such breach shall be made without regard to any limitations in such
representations and warranties pertaining to the knowledge of the Companies).
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12.3 Notification of Proceeding. If any proceeding shall be brought or
asserted against any Indemnified Party in respect of which indemnity may be
sought from the Company hereunder, such Indemnified Party promptly shall notify
the Company in writing, and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all reasonable fees and expenses incurred in connection
with the defense thereof; provided, that the failure of any Indemnified Party to
give such notice shall not relieve the Company of its obligations pursuant to
this Agreement, except to the extent that it shall be finally determined by a
court of competent jurisdiction (which determination is not subject to review or
appeal) that such failure shall have materially and adversely prejudiced the
Company.
Any such Indemnified Party shall have the right to employ separate counsel
in any such action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Company has agreed to pay such
fees and expenses; or (2) the Company shall have failed promptly to assume the
defense of such Proceeding or to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Company or an Affiliate of the Company, and such Indemnified Party shall
have been advised by counsel that either (x) a conflict of interest may exist if
such counsel represents such Indemnified Party and the Company or its Affiliate
or (y) there may be one or more legal defenses available to such Indemnified
Party that are different from or in addition to those available to the Company
or such Affiliate (and in the case of any of (1), (2) or (3), if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Company), it being understood, however, that the Company shall not, in
connection with any one such Proceeding or separate but substantially similar or
related Proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of
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attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, which firm shall be designated in writing by such
Indemnified Parties. The Company shall have the right to employ separate counsel
in, and to participate in the defense of, any Proceeding with respect to which
it has no right to assume the defense, but the fees and expenses of such counsel
shall be at the expense of the Company. No Indemnified Party will be subject to
any liability for any settlement made without its written consent. The Company
shall not be liable for any settlement made without its written consent, which
shall not be unreasonably withheld. The Company shall not consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release, in form and substance reasonably satisfactory to
the Indemnified Party, from all liability in respect of such Proceeding for
which such Indemnified Party would be entitled to indemnification hereunder
(regardless of whether any Indemnified Party is a party thereto). All reasonable
fees and expenses of the Indemnified Party (including fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
action or proceeding in a manner not inconsistent with this (S) 12) shall be
paid to the Indemnified Party, as incurred, upon written notice thereof to the
Company (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder). Prior to reimbursing any
Indemnified Party for any Losses pursuant to this (S) 12, the Company may
require such Indemnified Party to provide a written undertaking to reimburse the
Company if it is finally judicially determined by a court of competent
jurisdiction (which determination is not subject to appeal) that such
Indemnified Party was not entitled to indemnification pursuant to this (S) 12 or
otherwise.
12.4 Rights of Subrogation. The Indemnified Parties shall have and be
entitled to all rights of subrogation, in respect of any Losses or other amounts
as to which the foregoing indemnity provisions apply, with respect to the claims
of the Company against any of the other parties to the PSMI Merger Agreement or
the Reorganization.
SECTION 13. CONTRIBUTION
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13.1 Relative Fault. If a claim by an Indemnified Party for
indemnification under (S) 12 is found unenforceable in a final judgment by a
court of competent jurisdiction (not subject to further appeal or review) even
though the express provisions hereof provide for indemnification in such case,
then the Company, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and such Indemnified Party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of the Company, on the one hand, and any Indemnified Party, on the other
hand, shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, the Company or such Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or Proceeding.
13.2 Allocation of Fault. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this (S) 13 were determined by
pro rata allocation or by any other method of allocation that does not account
- --- ----
for the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who is not guilty of such fraudulent misrepresentation.
13.3 Survival of Obligations. The obligations of the Company under (S)
12 and this (S) 13 shall survive the issuance of the Notes and any termination
of this Agreement or the other Documents.
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SECTION 14. MISCELLANEOUS
14.1 Registered Notes. The Company shall cause to be kept at its
principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register"), and the Company will register or
transfer or cause to be registered or transferred, as hereinafter provided and
under such reasonable regulations as it may prescribe, any Note issued pursuant
to this Exchange Agreement.
At any time and from time to time the registered holder of any Note which
has been duly registered as hereinabove provided may transfer such Note upon
surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name any registered Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Exchange Agreement. Payment of or on account of the principal, premium, if any,
and interest on any registered Note shall be made to or upon the written order
of such registered holder.
14.2 Exchange of Notes. At any time and from time to time, upon not
less than ten days' notice to that effect given by the holder of any Note
initially delivered or of any Note substituted therefor pursuant to (S) 14.1,
this (S) 14.2 or (S) 14.3, and, upon surrender of such Note at its office, the
Company will deliver in exchange therefor and insured to the reasonable
satisfaction of such holder, without expense to such holder, except as set forth
below, a Note for the same aggregate principal amount as the then unpaid
principal amount of the Note so surrendered, or Notes in the denomination of
$100,000 or any amount in excess thereof as such holder shall specify, dated as
of the date to which interest has been paid on the Note so surrendered or, if
such surrender is prior to the payment of any interest thereon, then dated as of
the date of issue, registered in the name of such Person or Persons as may be
designated by such holder, and otherwise of the same form and tenor as the Notes
so surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any
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stamp tax or governmental charge imposed upon such exchange or transfer.
14.3 Loss, Theft, Etc. of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft, mutilation or destruction of any Note, and in
the case of any such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company, or in the event of such mutilation upon surrender and cancellation of
the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If the Purchaser or any subsequent Institutional Holder is the
owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft or
destruction and stating that such Note had not been indorsed (in blank or
otherwise) by the owner or prior Holder, shall be accepted as satisfactory
evidence thereof and no further indemnity shall be required as a condition to
the execution and delivery of a new Note other than the written agreement of
such owner to indemnify the Company.
14.4 Expenses, Stamp Tax Indemnity. Whether or not the transactions
herein contemplated shall be consummated, the Company agrees to pay promptly
(and in any event within 30 days of receiving any statement or invoice therefor)
all of your expenses in connection with the preparation, execution and delivery
of this Exchange Agreement and the transactions contemplated hereby, including
but not limited to the reasonable charges and disbursements of your special
counsel (which shall be in reasonable detail), duplicating and printing costs
and charges for shipping the Notes, adequately insured to you at your home
office or at such other place as you may designate. The Company agrees to pay
all such expenses relating to any amendments, waivers or consents pursuant to
the provisions hereof (whether or not the same are actually executed and
delivered), including, without limitation, any amendments, waivers, or consents
resulting from any work-out, renegotiation or restructuring relating to the
performance by the Company of its obligations under this Exchange Agreement and
the Notes. The Company also agrees that it will pay and save you harm-
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less against any and all liability with respect to stamp and other taxes, if
any, which may be payable or which may be determined to be payable in connection
with the execution and delivery of this Exchange Agreement or the Notes, whether
or not any Notes are then outstanding. The Company agrees to protect and
indemnify you against any liability for any and all brokerage fees and
commissions payable or claimed to be payable to any Person in connection with
the transactions contemplated by this Exchange Agreement except to the extent
such fees and commissions are a result of your gross negligence or willful
misconduct. The obligations of the Company under this (S) 14.4 shall survive the
payment or prepayment of the Notes and the termination of this Exchange
Agreement.
14.5 Powers and Rights Not Waived; Remedies Cumulative. No delay or
failure on the part of the holder of any Note in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies of the holder
of any Note are cumulative to, and are not exclusive of, any rights or remedies
any such holder would otherwise have.
14.6 Notices. All communications provided for hereunder shall be in
writing and, if to you, delivered or mailed prepaid by registered or certified
mail or overnight air courier, or by facsimile communication confirmed by
overnight air courier, in each case addressed to you at your address appearing
on Schedule I to this Exchange Agreement or at such other address as you or the
subsequent holder of any Note initially issued to you may designate to the
Company in writing, and if to the Company, delivered or mailed by registered or
certified mail or overnight air courier, or by facsimile communication, to the
Company at 600 North Brand Boulevard, Suite 300, Glendale, California 91203-
1241, Attention: Chief Financial Officer, or to such other address as the
Company may in writing designate to you or to a subsequent holder of the Note
initially issued to you; provided, however, that a notice to you by overnight
air courier shall only be effective if delivered to you at a street address
designated for such purpose in Schedule I, and a notice to you by facsimile
communication shall only be effective if made by confirmed transmission to you
at
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a telephone number designated for such purpose in Schedule I, or, in either
case, as you or a subsequent holder of any Note initially issued to you may
designate to the Company in writing.
14.7 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to your benefit and to
the benefit of your successors and assigns, including each successive holder or
holders of any Notes.
14.8 Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall be deemed to be material and to have been relied upon by
you, notwithstanding any investigation made by you or on your behalf, and shall
survive the closing and the delivery of this Exchange Agreement and the Notes.
14.9 Jurisdiction and Process. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, EACH OF THE COMPANY AND PSI HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN IN NEW YORK CITY OR ANY FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN NEW YORK CITY IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS EXCHANGE AGREEMENT, AND
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE COMPANY,
PSMI AND PSI IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
14.10 Severability. Should any part of this Exchange Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Exchange Agreement had been executed
with the invalid or unenforceable portion thereof eliminated and it is
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hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Exchange Agreement without including
therein any such part, parts or portion which may, for any reason, be hereafter
declared invalid or unenforceable.
14.11 Entire Agreement. This Exchange Agreement constitutes the final
entire agreement by the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings and
discussions, whether oral or written.
14.12 Governing Law. THIS EXCHANGE AGREEMENT AND THE NOTES ISSUED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH NEW YORK LAW
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
14.13 Captions. The descriptive headings of the various sections or
parts of this Exchange Agreement are for convenience only and shall not affect
the meaning or construction of any of the provisions hereof.
14.14 Reproduction of Documents. This Exchange Agreement and all
documents relating hereto, including, without limitation, (i) consents, waivers
and modifications which may hereafter be executed, (ii) documents received by
you at the Closing (except the Notes themselves), and (iii) financial
statements, certificates and other information previously or hereafter furnished
to you, may be reproduced by you by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process, and you may destroy
any original document so reproduced. The Company agrees and stipulates that any
such reproduction which is legible shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence;
provided that nothing herein contained shall preclude the Company from objecting
to the admission of any reproduction on the basis that such reproduction is not
accurate, has been altered or is otherwise incomplete.
SECTION 15. PURCHASE OF PSMI NOTES BY THE COMPANY
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15.1 From and after the date hereof and continuing until the earlier
of (a) consummation of the PSMI Merger and each of the transactions comprising
the Reorganization (the first date which is on or after the date on which all
such transactions have been consummated (the "Reorganization Date") or (b) the
date on which no amounts remain outstanding on any PSMI Note, (x) the Company
shall be bound by the covenants set forth in (S)(S) 7.1 through 7.7, inclusive,
7.9 through 7.13, inclusive, and 7.15 through 7.21, inclusive (except that any
references therein to the "Closing Date" shall be deemed to refer to the date of
this Exchange Agreement), and (y) the Company agrees that it will not take any
action, or fail to take any action, the result of either of which is that the
Company's ability to satisfy its obligations set forth in (S) 15.2 hereof is
adversely impaired.
15.2 If the Reorganization Date does not occur on or prior to
November 17, 1995, then, from and after November 18, 1995 and continuing until
the earlier to occur of (i) the Reorganization Date or (ii) February 18, 1996,
each holder of a PSMI Note shall have the right, exercisable at its option by
the delivery to the Company of a written statement (a "Put Notice") demanding
that the Company purchase any or all PSMI Notes held by such Person in
accordance with this (S) 15.2, to demand that the Company purchase any of all of
its PSMI Notes (the "Put Option"). Within 5 business days following receipt by
the Company of a Put Notice relating to any PSMI Notes, PSMI shall purchase such
PSMI Notes by making a wire transfer of same day funds to the account of the
holder who delivered such Put Notice (the "Demanding Holder") specified therein
in an amount equal to the amount that PSMI would be required to pay if such PSMI
Notes were being prepaid by PSMI pursuant to (S) 2.2 of the PSMI Note Agreement.
Prior to or concurrently with such purchase, the Demanding Holder shall deliver
to the Company the PSMI Notes that are the subject of the Put Notice. Upon the
satisfaction by the Company of its obligation to purchase any and all PSMI Notes
requested to be purchased by holders of PSMI Notes pursuant to (S) 15.2, the
Company's obligations under (S) 15.1, and the obligations of the Hughes Family
under (S) 15.3, shall terminate.
15.3 B. Wayne Hughes, Tamara Gustavson and B. Wayne Hughes, Jr.
(collectively, the "Hughes Family") each agree that, if the Reorganization Date
has not occurred on or prior to November 17, 1995, then, within 5 Business Days
following the earlier of (x) February 18,
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1996, and (y) the first date which is on or after the date on which a written
waiver of the Put Option set forth in (S) 15.2 has been received by B. Wayne
Hughes from all holders of the PSMI Notes, if any PSMI Notes are then
outstanding, he or she will contribute (the "Contribution") to the capital of
PSMI any and all assets that are received by him or her or by any Person
directly or indirectly controlling, controlled by or under common control with
him or her or with him or her and one or more other members of the Hughes
Family, directly or indirectly in connection with any of the transactions
comprising the Reorganization, provided, however, if the Company defaults in its
obligation to purchase any PSMI Notes in accordance with (S) 15.2, then each
member of the Hughes family shall make its respective portion of the
Contribution within 5 business days following the date of such default.
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The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Exchange Agreement may be
executed in any number of counterparts, each executed counterpart constituting
an original but all together only one agreement.
STORAGE EQUITIES, INC.
By /s/ Ronald L. Havner, Jr.
--------------------------------------------
Name: Ronald L. Havner, Jr.
Title: Vice President - Chief Financial
Officer
PUBLIC STORAGE, INC.
By /s/ Ronald L. Havner, Jr.
--------------------------------------------
Name: Ronald L. Havner, Jr.
Title: Vice President - Chief Financial
Officer
PUBLIC STORAGE MANAGEMENT, INC.
By /s/ Ronald L. Havner, Jr.
--------------------------------------------
Name: Ronald L. Havner, Jr.
Title: Vice President - Chief Financial
Officer
Solely for purposes of (S) 15.3 hereof:
/s/ B. Wayne Hughes
----------------------------------------------
B. Wayne Hughes
/s/ Tamara Gustavson
----------------------------------------------
Tamara Gustavson
/s/ B. Wayne Hughes, Jr.
----------------------------------------------
B. Wayne Hughes, Jr.
Accepted as of November 13, 1995
Allstate Life Insurance Company
- -------------------------------
Purchaser
By /s/ David A. Chulupuck
-----------------------------
By /s/ Dorothy E. Even
-----------------------------
Authorized Signatory
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Massachusetts Mutual Life Insurance Company
- --------------------------------------------
Purchaser
By /s/ Bruce E. Gaudette
-----------------------------------------
Bruce E. Gaudette, Vice President
AMERICAN MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------
Purchaser
By /s/ Roger D. Fors
------------------------------------------
Roger D. Fors, Vice President,
Fixed Income Investments
PFL Life Insurance Company
- ---------------------------------------------
Purchaser
By /s/ Gregory W. Theobald
-------------------------------------------
Gregory W. Theobald, VP & Asst. Secretary
THE UNION CENTRAL LIFE INSURANCE COMPANY
- ---------------------------------------------
Purchaser
By /s/ Joseph A. Tucker, III
-------------------------------------------
Joseph A. Tucker, III
Assistant Treasurer
Life Investors Insurance Company of America
- ----------------------------------------------
Purchaser
By /s/ Gregory W. Theobald
- -----------------------------------------------
Gregory W. Theobald, VP & Asst. Secretary
International Life Investors
Insurance Company of America
- -----------------------------------------------
Purchaser
By /s/ Gregory W. Theobald
---------------------------------------------
Gregory W. Theobald, VP & Asst. Secretary
Bankers United Life Assurance Company
- -----------------------------------------------
Purchaser
By /s/ Gregory W. Theobald
---------------------------------------------
Gregory W. Theobald, VP & Asst. Secretary
THE MANHATTAN LIFE INSURANCE COMPANY
- -------------------------------------------------
Purchaser
By /s/ J. N. Kotsonis
----------------------------------------------
J. N. Kotsonis
By /s/ N. V. Gordon
----------------------------------------------
N. V. Gordon
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus of Public Storage, Inc., formerly Storage Equities, Inc. (included in
Amendment No. 1 to the Registration Statement on Form S-4 (No. 33-64971) and
which will also be used in connection with the Registration Statement on Form
S-4 (No. 33-49696) for the registration of shares of its preferred stock, its
depositary shares, shares of its common stock and warrants for the purchase of
its preferred stock and common stock and to the incorporation by reference
therein of our report dated February 7, 1995, except for Note 13, for which the
date is March 13, 1995 with respect to the consolidated financial statements and
schedules of Storage Equities, Inc. in its Annual Report on Form 10-K as amended
by a Form 10-K/A (Amendment No. 2) dated April 21, 1995 for the year ended
December 31, 1994 filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference of the following: (i) our
report dated February 24, 1995 with respect to the financial statements of
Public Storage Properties VII, Inc. which is included in the Registration
Statement on Form S-4 (No. 33-58893) of Storage Equities, Inc., (ii) our report
dated July 10, 1995 on the combined statements of assets, liabilities and
deficit of the property management and advisory businesses of Public Storage,
Inc. as of December 31, 1994 and 1993 and the related combined statements of
operations and cash flows for each of the three years in the period ended
December 31, 1994, and our report dated July 10, 1995 on the combined summaries
of historical information relating to real estate interests to be acquired for
each of the three years in the period ended December 31, 1994 which are included
in the Current Report on Form 8-K, as amended by a Form 8-K/A, each dated June
30, 1995, of Storage Equities, Inc., (iii) our report dated October 6, 1995 on
the combined statements of assets, liabilities and equity of the property
management and advisory businesses and real estate assets of Public Storage,
Inc. as of December 31, 1994 and 1993 and the related combined statements of
operations and cash flows for each of the three years in the period ended
December 31, 1994 which are included in the Current Report on Form 8-K dated
November 16, 1995, of Public Storage, Inc., each of which is incorporated by
reference in the Registration Statements on Form S-4 (Nos. 33-64971 and
33-49696) and related Prospectus.
ERNST & YOUNG LLP
Los Angeles, California
December 21, 1995
