<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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STORAGE EQUITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3551121
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION) HUGH W. HORNE
STORAGE EQUITIES, INC.
600 NORTH BRAND BOULEVARD 600 NORTH BRAND BOULEVARD
GLENDALE, CALIFORNIA 91203-1241 GLENDALE, CALIFORNIA 91203-1241
(818) 244-8080 (818) 244-8080
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP
AND CODE, AND TELEPHONE
TELEPHONE NUMBER, INCLUDING NUMBER, INCLUDING AREA CODE, OF
AREA CODE, AGENT FOR SERVICE)
OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
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COPIES TO:
DAVID GOLDBERG, ESQ.
STORAGE EQUITIES, 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
pursuant to dividend or interest reinvestment plans, please 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]
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(a)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
PROPOSED MAXIMUM
AMOUNT OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PER SHARE OR AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED 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.......................... $363,736,025 (2) $363,736,025 $125,430(6)
==================================================================================================
</TABLE>
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $ . 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) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
--------------
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. 33-54755. 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
================================================================================
SUBJECT TO COMPLETION, NOVEMBER 3, 1995
PROSPECTUS
STORAGE EQUITIES, INC.
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
Storage Equities, Inc. (the "Company") may from time to time offer in one or
more series (i) shares of preferred stock, par value $.01 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, par value $.10 per share (the "Common Stock"), or (iii)
warrants to purchase Preferred Stock or Common Stock (the "Warrants"), with an
aggregate public offering price of up to $400,000,000 on terms to be determined
at the time of offering. The Preferred Stock, Depositary Shares, Common Stock
and Warrants (collectively, the "Securities") may be offered, separately or
together (in any combination), as separate series, in amounts, at prices and on
terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Preferred Stock and
Depositary Shares, the specific title and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, the offering
price and whether Depositary Shares will be offered, and if so, the fraction of
a share of Preferred Stock represented by a Depositary Share; (ii) in the case
of Common Stock, the offering price; and (iii) in the case of Warrants, the
duration, offering price, exercise price and detachability.
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.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
This Prospectus may also be used in a registered resale by persons who hold
(i) Securities issued pursuant to this Prospectus or (ii) securities issued in
private or other transactions in connection with acquisitions by the Company of
direct or indirect interests in real properties or otherwise, in each case in
transactions in which such persons may be deemed to be underwriters within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"). See
"Plan of Distribution."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS.
---------
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.
---------
, 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-
3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under 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 by Form 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,
(iii) the Current Reports on Form 8-K dated January 24, 1995, April 25, 1995
and May 22, 1995 and the Current Report on Form 8-K, as amended by a Form 8-
K/A, each dated June 30, 1995 and (iv) the financial statements pursuant to
Rule 3-14 of Regulation S-X included in the Current Report on Form 8-K dated
June 7, 1994 and the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, as amended by a Form 10-Q/A dated December 15, 1994. The
financial statements included in Registration Statement No. 33-58893, filed by
the Company with the Commission pursuant to the Securities Act and in the Proxy
Statement filed on October 13, 1995 by the Company with the Commission pursuant
to the Exchange 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, Storage Equities, Inc., 600 North Brand
Boulevard, Suite 300, Glendale, California 91203-1241.
2
<PAGE>
THE COMPANY
All references to the Company and all descriptions of the business of the
Company in this Prospectus assume completion of a pending merger between Public
Storage Management, Inc. and the Company under which the Company would become
self-administered and self-managed. If the conditions to this merger are
satisfied, the merger is scheduled for November 1995. It is condition to the
issuance of any Securities under this Prospectus that this merger be completed.
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 30, 1995, the Company had equity interests (through direct ownership,
as well as general and limited partnership and capital stock interests) in
properties located in 36 states, consisting of mini-warehouse
facilities, business parks and combination mini-
warehouse/business park facilities. The Company also operates properties
in which it has no equity interest.
In a series of November 1995 mergers among Public Storage, Inc. ("Old PSI")
and its affiliates, culminating in the merger of Public Storage Management,
Inc. ("PSMI") into the Company (the "Merger"), the Company became self-
administered and self-managed, acquired substantially all of Old PSI'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") own approximately % of the
outstanding shares of Common Stock (approximately % 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 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 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 stock to the extent that such shares of
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 SEI for
tax liabilities of Old PSI, PSMI and their affiliates, 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
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 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 43% (based upon the market price at
October 10, 1995 of the Common Stock and SEI's preferred stock, a 35% discount
on the Class B Common Stock and a post-closing reduction in the number of
shares issued in the Merger of 1,400,000). Accordingly, no four individuals
other than the Hughes Family may own directly or constructively, in the
aggregate, more than 7% 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 contain the ownership limitations
described under "Description of Common Stock and Class B Common Stock--
Ownership Limitations." However, even with these ownership limitations, there
still could be a 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. 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 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 absolute 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 on 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 these earnings and profits. As a
condition to the Merger, a study of the earnings and profits showed that PSMI
had no earnings and profits at the time of the Merger. No opinion of counsel or
outside accountants to the effect that there were no earnings and profits at
the time or as a result of the Merger was obtained. 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. 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 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 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 many of the Company's
investments are located is significant and has affected the occupancy levels,
rental rates and operating expenses of certain of the Company's investments.
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
6
<PAGE>
adverse 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 Old PSI, 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 Old PSI 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 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
7
<PAGE>
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 Old PSI in
the Merger, there may be certain liabilities and associated costs suffered by
the Company in its capacity as general partner of former Old PSI 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 $ 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 $ 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)
at least 95% of its 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.
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 71
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 29 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 (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 20.5
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.
8
<PAGE>
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, primarily investments in mini-warehouses, including
mortgage loans and interests in real estate partnerships, and the repayment of
outstanding bank borrowings under the Company's credit facility.
RATIO OF EARNINGS TO 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
SIX MONTHS
ENDED
JUNE 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.............. 2.08 2.34 2.22 2.40 2.89 2.71 2.79
</TABLE>
9
<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 November 30, 1995, the Company had
outstanding 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 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 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 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, 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
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<PAGE>
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."
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 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 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.
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) November 30, 1999; thereafter, the Class B
11
<PAGE>
Common Stock 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) November 30, 2002.
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.
12
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of Preferred Stock. At
November 30, 1995, the Company had outstanding shares of Preferred
Stock. 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 [November 30,] 1995, the Company had eight series of Preferred Stock
outstanding: six 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, (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 9.2% to 10% per year in the case of the seven 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, 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 September 30, 2002
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, 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).
13
<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
14
<PAGE>
expressly made junior 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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<PAGE>
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
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dividend periods if such 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.
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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.
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
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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.
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,
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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.
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.
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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 OWN 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.
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 so qualify for 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.
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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."
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).
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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".
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% 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
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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 qualification
requirements described above. If a termination (or a voluntary revocation)
occurs, unless certain relief provisions apply, the Company will 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.
CONSEQUENCES OF THE MERGER ON THE COMPANY'S QUALIFICATION AS A REIT
In light of the unique 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 continues to meet the stock ownership and gross income requirements
applicable to REITs and (B) either PSMI at the time of the Merger is not
considered to have any current or accumulated earnings and profits for tax
purposes or the Company makes distributions prior to the end of the calendar
year in which the Merger occurs 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 unique 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 to satisfy these tests would result in the
disqualification of the Company as a REIT. See "--Tax Treatment of the
Company--Termination of REIT Election."
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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 its own Properties, 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 services rendered to such other entities will
be treated as income not qualifying under the 95% 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, additional assets may be acquired by it
during 1995 and 1996 that 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% 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 does 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 and 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.
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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 $4.0 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% 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 management fees for those years (for
example by deferring the payment of those 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).
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 PS Clearing Company, 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. Such services include the provisions of
corporate office space and certain equipment, personnel required for the
operation and maintenance of the properties, and corporate or partnership
administration. 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% test.
If the Company fails to meet the 95% 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%
test for each taxable year. The Company also intends to operate so that, in the
event it were to fail to meet the 95% 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% 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% 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
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the 95% 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.
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 held by the Hughes Family is currently estimated to be
approximately 43%. Accordingly, no four individuals other than the Hughes
Family may own directly or constructively, in the aggregate, more than 7% of
the value of outstanding stock of the Company. In order to assist the Company
in meeting these ownership restrictions, the Articles of Incorporation 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 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, there still could be a 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. 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 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 absolute 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 on 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. Under
recently finalized Treasury regulations, 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
those 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
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the date of the Merger ("Consolidated Accumulated Earnings"). As a condition to
the Merger, the Company received a study prepared by PSMI of the earnings and
profits of PSMI and its subsidiaries that showed, 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, PSMI had no Consolidated Accumulated Earnings at the time of the
Merger. Neither the Company nor PSMI, however, obtained an opinion of counsel
or outside accountants to the effect that there were no accumulated or current
earnings and profits at the time or as a result of the Merger. The calculation
of the amount of accumulated earnings and profits acquired by the Company in
the Merger ("Acquired Earnings") depends upon a number of factual and legal
interpretations 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, 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 earnings and profits.
Although not free from doubt, it appears pursuant to the recently finalized
Treasury regulations that the Company may be able to use certain "deficiency
dividend" procedures 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 occurs) or,
alternatively, that even if the procedure is available, the Company cannot
qualify as a REIT for the taxable year in which the Merger occurs (but it could
qualify as a REIT for subsequent years).
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 its REIT asset and 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. It is expected that substantially all of
the properties of the partnerships will constitute real estate assets and
generate qualified rental income for these REIT qualification purposes.
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
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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 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.
TAXATION OF SHAREHOLDERS
Distributions generally will 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 first will 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
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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, for taxable years beginning after December
31, 1993, 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."
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
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<PAGE>
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 subsequently is 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.
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 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 own tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
32
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Securities, underwriters
may be deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers, will be set
forth in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated in
such Prospectus Supplement. Each Contract will be for an amount not less than,
and the aggregate principal amount of Securities sold pursuant to Contracts
shall be not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and
(ii) if the Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts. Agents and underwriters will
have no responsibility in respect of the delivery or performance of Contracts.
This Prospectus may also be used in a registered resale by persons who hold
(i) Securities issued pursuant to this Prospectus or (ii) securities issued in
private or other transactions by the Company in connection with acquisitions of
interests in, or notes secured by, mini-warehouses and other real properties or
interests in entities that own mini-warehouses and other real properties, or
otherwise, in each case in transactions in which they may be deemed
underwriters within the meaning of the Securities Act. Any profits realized on
sales pursuant to this Prospectus by holders of such shares may be regarded as
underwriting compensation. Such sales may be made on the NYSE, in the over-the-
counter market or in privately negotiated transactions. The Company has an
agreement with one such person to supply it or its transferees with a
prospectus for the purpose of selling Common Stock issuable upon conversion of
convertible Preferred Stock issued by the Company in connection with the
acquisition of a partnership interest and estimates that such person would have
the right to sell approximately 1,750,000 shares of Common Stock. The Company
also has an agreement with the persons who received Common Stock in the Merger
to supply them with a prospectus for the purpose
33
<PAGE>
of pledging their shares as collateral for loans and estimates that such
persons have the right to pledge approximately 28,600,000 shares of Common
Stock.
Unless any such transaction involves less than 1% of the Company's
outstanding securities of the same class, this Prospectus will be supplemented
to set forth the name of such securityholder, the nature of any position,
office or other material relationship of the securityholder with the Company
and its affiliates during the preceding three years and the amount of
securities of the class owned by such securityholder prior to the sale, the
amount of such securities to be sold and the percentage of such class after the
sale.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
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 combined summaries of historical information
relating to operating revenues and specified expenses--certain properties (the
"Combined Summaries") for the properties and periods indicated in Note 1 to
such Combined Summaries and the combined statements of assets, liabilities and
equity of the operating companies and real estate interests (the "Combined
Statements") for the businesses and assets and periods indicated in such
Combined Statements, which have been incorporated by reference in this
Prospectus, have also been audited by Ernst & Young LLP as set forth in their
reports with respect thereto. Such consolidated financial statements, combined
summaries of historical information and combined statements of assets,
liabilities and equity are incorporated herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses, other than underwriting discounts and commissions, in
connection with the offerings of the Securities, are as follows:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............ $125,430
Rating Agency Fees.............................................. *
Printing and Engraving Expenses................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Blue Sky Fees and Expenses...................................... *
Miscellaneous................................................... *
--------
TOTAL......................................................... $ *
========
</TABLE>
- --------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 IV of the Restated Articles of Incorporation
(Exhibit 3.1) and Article VII of the By-Laws (Exhibit 3.11) 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 16. EXHIBITS.
See Exhibit Index contained herein.
ITEM 17. 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;
II-1
<PAGE>
(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.
(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.
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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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 2nd day of
November, 1995.
STORAGE EQUITIES, 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 November 2, 1995
____________________________________ Executive Officer and
B. Wayne Hughes Director (principal
executive officer)
/s/ HARVEY LENKIN President and Director November 2, 1995
____________________________________
Harvey Lenkin
/s/ RONALD L. HAVNER, JR. Vice President and Chief November 2, 1995
____________________________________ Financial Officer (principal
Ronald L. Havner, Jr. financial officer and
principal accounting
officer)
/s/ ROBERT J. ABERNETHY Director November 2, 1995
____________________________________
Robert J. Abernethy
/s/ DANN V. ANGELOFF Director November 2, 1995
____________________________________
Dann V. Angeloff
/s/ WILLIAM C. BAKER Director November 2, 1995
____________________________________
William C. Baker
/s/ URI P. HARKHAM Director November 2, 1995
____________________________________
Uri P. Harkham
/s/ BERRY HOLMES Director November 2, 1995
____________________________________
Berry Holmes
/s/ MICHAEL M. SACHS Director November 2, 1995
____________________________________
Michael M. Sachs
</TABLE>
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<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)
3.1 Restated Articles of Incorporation.(3)
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A.(3)
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B.(3)
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B.(4)
3.5 Certificate of Determination for the 8.25% Convertible Preferred
Stock.(3)
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C.(3)
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D.(5)
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E.(6)
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F.(7)
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock.(9)
3.11 Bylaws, as amended.(8)
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.(9)
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.(9)
12.1 Statement on computation of ratio of earnings to fixed charges.(9)
23.1 Consent of Independent Auditors.(9)
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>
- --------
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Filed with the registrant's Current Report on Form 8-K/A dated June 30,
1995 and incorporated herein by reference.
(3) Filed with the registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
(4) Filed with the registrant's Registration Statement No. 33-56925 and
incorporated herein by reference.
(5) 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.
(6) 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.
(7) 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.
(8) Filed with registrant's Registration Statement No. 33-30340 and
incorporated herein by reference.
(9) To be filed by amendment.
II-4
