<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1995
REGISTRATION NO. 33-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
PUBLIC STORAGE, INC.
(FORMERLY STORAGE EQUITIES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3551121
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR NO.)
ORGANIZATION) HUGH W. HORNE
PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD 600 NORTH BRAND BOULEVARD
GLENDALE, CALIFORNIA 91203- GLENDALE, CALIFORNIA 91203-1241
1241 (818) 244-8080
(818) 244-8080 (NAME, ADDRESS, INCLUDING ZIP
(ADDRESS, INCLUDING ZIP CODE, CODE, AND TELEPHONE
AND NUMBER, INCLUDING AREA CODE, OF
TELEPHONE NUMBER, INCLUDING AGENT FOR SERVICE)
AREA CODE,
OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES) --------------
COPIES TO:
DAVID GOLDBERG, ESQ.
PUBLIC STORAGE, INC.
600 NORTH BRAND BOULEVARD, SUITE 300
GLENDALE, CALIFORNIA 91203-1241
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OR UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Preferred Stock, $.01 par value per
share.............................. (1)(3) (2) (1)(2)(3) N/A
Depositary Shares................... (1)(3) (2) (1)(2)(3) N/A
Common Stock, $.10 par value per
share.............................. (1)(4) (2) (1)(2)(4) N/A
Warrants............................ (1)(5) (2) (1)(2)(5) N/A
Total............................. $274,634,539 (2) $274,634,539 $94,702(6)
==============================================================================================================
</TABLE>
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $274,634,539. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the
Registrant of the securities registered hereunder. No separate
consideration will be received for any Depositary Shares representing
shares of Preferred Stock of the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Preferred Stock, and Depositary Shares
representing a fractional interest in a share of Preferred Stock, as may
be sold, from time to time, by the Registrant. In the event Registrant
elects to offer to the public fractional interests in shares of the
Preferred Stock registered hereunder, Depositary Receipts will be
distributed to those persons acquiring such fractional interests and the
shares of Preferred Stock will be issued to a Depositary under a Deposit
Agreement. There is also being registered hereunder an indeterminate
number of shares of Preferred Stock as shall be issuable upon exercise of
Warrants registered hereby.
(4) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time
to time, by the Registrant. There is also being registered hereunder an
indeterminate number of shares of Common Stock as shall be issuable upon
conversion of the Preferred Stock or exercise of Warrants registered
hereby.
(5) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of Warrants representing rights to purchase Preferred
Stock or Common Stock, as the case may be, registered pursuant to this
Registration Statement.
(6) 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. 33-49696. IN THE EVENT ANY OF SUCH PREVIOUSLY
REGISTERED SECURITIES ARE OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT, THEY WILL NOT BE INCLUDED IN SUCH PROSPECTUS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PUBLIC STORAGE, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY FORM S-4
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
--------------------------- ----------------------
A. Information About the Transaction
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus........ Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back
Cover Pages
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information..................... Risk Factors and Summary--Ratio
of Earnings to Fixed Charges
4. Terms of the Transaction......... The Offering
5. Pro Forma Financial Information.. Incorporation of Certain Documents
by Reference
6. Material Contacts with the
Company Being Acquired.......... *
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................... The Offering
8. Interests of Named Experts and
Counsel.......................... Legal Opinions
9. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......
B. Information About the Registrant
10. Information with Respect to S-3
Registrants..................... Incorporation of Certain Documents
by Reference
11. Incorporation of Certain
Information By Reference........ Incorporation of Certain
Documents by Reference
12. Information with Respect to S-2
or S-3 Registrants.............. Incorporation of Certain
Documents by Reference
13. Incorporation of Certain
Information By Reference........ Incorporation of Certain
Documents by Reference
14. Information with Respect to
Registrants Other than S-2 or
S-3 Registrants................. Incorporation of Certain
Documents by Reference
C. Information About the Company
Being Acquired
15. Information with Respect to S-3
Companies........................ Incorporation of Certain Documents
by Reference
16. Information with Respect to S-2
or S-3 Companies................ Incorporation of Certain
Documents by Reference
17. Information with Respect to
Companies Other than S-2 or S-3
Companies....................... Incorporation of Certain
Documents by Reference
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited....................... Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer........................... Incorporation of Certain
Documents by Reference
- --------
* Omitted as Inapplicable.
<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, DECEMBER 13, 1995
PROSPECTUS
PUBLIC STORAGE, INC.
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
Public Storage, Inc. (the "Company") is registering an aggregate $300,000,000
stated amount of securities consisting of (i) shares of Preferred Stock, $.01
par value per share (the "Preferred Stock"), and depositary shares (the
"Depositary Shares") representing a fractional interest in a share of Preferred
Stock, (ii) shares of common stock, $.10 par value per share (the "Common
Stock") and (iii) warrants for the purchase of Preferred Stock or Common Stock
(the "Warrants") (collectively, the "Securities") which are being offered and
sold by the Company in connection with the acquisition of interests in, or
notes secured by, self-service facilities offering storage space for personal
and business use ("mini-warehouses") and other real properties or interests in
entities that own mini-warehouses and other real properties (collectively, the
"Real Estate Investments"). Unless accompanied by a supplement included in a
post-effective amendment filed with, and declared effective by, the Securities
and Exchange Commission, this Prospectus will not be used in connection with
"roll-up transactions." See "The Offering--Roll-Up Transactions."
The terms under which the Securities would be issued with respect to a
particular transaction or transactions are set forth in the accompanying
Supplement to this Prospectus (the "Prospectus Supplement"). The Preferred
Stock and the Notes may be offered in one or more series on terms to be
determined at the time of issuance. The applicable Prospectus Supplement will
also contain information, where applicable, about any listing on a securities
exchange of the Securities covered by such Prospectus Supplement.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 IN THE PROSPECTUS.
---------
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-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
(File No. 1-8389), are incorporated herein by reference: (i) the Annual Report
on Form 10-K for the year ended December 31, 1994, as amended byForm 10-K/As
dated April 4, 1995 and April 21, 1995, (ii) the Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995
and (iii) the Current Reports on Form 8-K datedJanuary 24, 1995, April 25,
1995 and May 22, 1995, the Current Report on Form 8-K, as amended by aForm 8-
K/A, each dated June 30, 1995, and the Current Report on Form 8-K dated
November 16, 1995. The financial statements included in Registration Statement
No. 33-58893, filed by the Company with the Commission pursuant to the
Securities Act, are also incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such information), will be provided
without charge to any person, including any beneficial owner, to whom this
Prospectus is delivered, upon written request. Requests for such copies should
be directed to Investor Services Department, Storage Equities, Inc., 600 North
Brand Boulevard, Suite 300, Glendale, California 91203-1241.
2
<PAGE>
THE COMPANY
The Company is a fully integrated, self-administered and self-managed real
estate investment trust ("REIT") that acquires, develops, owns and operates
self-service facilities offering space for personal and business use ("mini-
warehouses"). The Company is the largest owner and operator of mini-warehouses
in the United States. The Company also owns and operates, to a much smaller
extent, business parks containing commercial and industrial rental space. At
November 16, 1995, the Company had equity interests (through direct ownership,
as well as general and limited partnership and capital stock interests) in
1,044 properties located in 37 states, consisting of 1,009 mini-warehouse
facilities and 35 business parks. The Company also operates 77 properties in
which it has no equity interest.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger
of PSMI into the Company (the "Merger"), the Company became self-administered
and self-managed, acquired substantially all of PSMI's United States real
estate interests and was renamed "Public Storage, Inc."
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). To the extent that the Company
continues to qualify as a REIT, it will not be taxed, with certain limited
exceptions, on the net income that is currently distributed to its
shareholders (the "Shareholders"). See "Certain Federal Income Tax
Considerations." The Company was incorporated in California in 1980; its
principal executive offices are located at 600 North Brand Boulevard, Suite
300, Glendale, California 91203-1241. Its telephone number is (818) 244-8080.
3
<PAGE>
RISK FACTORS
In evaluating the Securities, investors should consider the following
factors, in addition to other matters set forth or incorporated in this
Prospectus (and in the applicable Prospectus Supplement) and the Registration
Statement.
CONTROL AND INFLUENCE BY THE HUGHES FAMILY
B. Wayne Hughes, the chief executive officer of the Company, and members of
his family (collectively, the "Hughes Family") beneficially own approximately
53% of the outstanding shares of Common Stock (approximately 57% upon
conversion of the Company's Class B common stock, par value $.10 per share
(the "Class B Common Stock")). Consequently, the Hughes Family has the ability
to control all matters submitted to a vote of Shareholders, including the
election of directors, amendment of the Company's restated articles of
incorporation (the "Articles of Incorporation"), dissolution and the approval
of other extraordinary transactions. In addition, this concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company.
OWNERSHIP LIMITATIONS
Public shareholders are further limited in their ability to change control
of the Company due to restrictions in the Articles of Incorporation and the
Company's bylaws (the "Bylaws") on beneficial ownership. Unless such
limitations are waived by the Company's board of directors (the "Board of
Directors"), no Shareholder may own more than (A) 2.0% of the outstanding
shares of all common stock of the Company or (B) 9.9% of the outstanding
shares of any class or series of shares of preferred stock of the Company. The
Articles of Incorporation and Bylaws provide, however, that no person shall be
deemed to exceed the ownership limit solely by reason of the beneficial
ownership of shares of any class of capital stock to the extent that such
shares of capital stock were beneficially owned by such person at the time of
the Merger, which includes the Common Stock owned by the Hughes Family. The
principal purpose of the foregoing limitations is to assist in preventing, to
the extent practicable, a concentration of ownership that might jeopardize the
ability of the Company to obtain the favorable tax benefits afforded a
qualified REIT. An incidental consequence of such provisions is to make a
change of control significantly more difficult (if not impossible) even if it
would be favorable to the interests of the public shareholders. Such
provisions will prevent future takeover attempts which the Board of Directors
has not approved even if a majority of the public shareholders deem it to be
in their best interests or in which the public shareholders may receive a
premium for their shares over the then market value. See "Description of
Common Stock and Class B Common Stock--Ownership Limitations."
TAX RISKS
Possible Treatment of the Merger as a Taxable Event. In connection with the
Merger, Hogan & Hartson L.L.P. ("Hogan & Hartson"), counsel to the Company,
has delivered an opinion that for federal income tax purposes under current
law, the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code. This opinion is based on certain representations
made by the Company and by PSMI and its shareholders and on certain
assumptions. Furthermore, this opinion is not binding on the IRS. Therefore,
the IRS may contest the qualification of the Merger as a reorganization under
Section 368(a) of the Code. If such a contest were successful, the Merger
would be a taxable transaction and PSMI would recognize gain in an amount
equal to the excess of the fair market value of the Common Stock and the Class
B Common Stock issued in the Merger over the adjusted basis of the assets
transferred to the Company. As the successor to PSMI, the Company would be
primarily liable for this resulting tax liability. In addition, the Merger may
impact the Company's ability to continue to qualify as a REIT, whether or not
the Merger qualifies as a reorganization under the Code. See "--Increase in
Nonqualifying Income," "--Elimination of Any Accumulated Earnings and
Profits," "--Increased Risk of Violation of Ownership Requirements," and
"Certain Federal Income Tax Considerations--Consequences of the Merger on the
Company's Qualification as a REIT." Subject to certain limitations, Hughes has
agreed to indemnify the Company for tax liabilities of PSMI, including any tax
liabilities arising directly or indirectly as a result of the Merger or
related transactions.
4
<PAGE>
Increased Risk of Violation of Gross Income Requirements. As a result of the
Merger, the Company performs property management services for properties in
which it has no or only a partial interest. Some or all of the gross income
received from these services will not be treated as income qualifying for
certain REIT gross income tests applicable to the Company. In 1995 and future
years, if the Company's nonqualifying income were to exceed 5% of its total
gross income, the Company's REIT status may terminate for that year and future
years unless the Company meets certain "reasonable cause" standards. Even if
the Company meets such standards, however, it would be subject to a 100%
excise tax on any excess nonqualifying net income.
If there were no change in the Company's current revenues through
acquisitions or otherwise and no other action by the Company to reduce its
percentage of nonqualifying income, the Company estimates that it would not
satisfy the 95% gross income test for 1996 because its nonqualifying income
would represent approximately 7% of its total gross income for 1996. For a
discussion of the Company's plans to reduce its percentage of nonqualifying
income in 1996 and subsequent years, see "Certain Federal Income Tax
Considerations--Consequences of the Merger on the Company's Qualification as a
REIT--Nonqualifying Income."
Increased Risk of Violation of Ownership Requirements. For the Company to
qualify as a REIT under the Code, no more than 50% in value of its outstanding
stock may be owned, directly or constructively under the applicable
attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year. The
value of the outstanding capital stock of the Company held by the Hughes
Family is currently estimated at approximately 45% (based upon the market
price at November 16, 1995 of the Common Stock and SEI's preferred stock, no
discount on the Class B Common Stock and no post-closing reduction in the
number of shares issued in the Merger). Accordingly, no four individuals other
than the Hughes Family may own directly or constructively, in the aggregate,
more than 5% of the value of outstanding capital stock of the Company. In
order to assist the Company in meeting these ownership restrictions, the
Articles of Incorporation and Bylaws contain the ownership limitations
described under "Description of Common Stock and Class B Common Stock--
Ownership Limitations." However, even with these ownership limitations, the
Company could still be in violation of the ownership restrictions if four
individuals unrelated to the Hughes Family were to own the maximum amount of
capital stock permitted under the Articles of Incorporation and Bylaws.
Therefore, to further assist the Company in meeting the ownership
restrictions, the Hughes Family has entered into an agreement with the Company
restricting the Hughes Family's acquisition of additional shares of capital
stock of the Company and providing that if, at any time, for any reason, more
than 50% in value of its outstanding capital stock otherwise would be
considered owned by five or fewer individuals, a number of shares of Common
Stock owned by Wayne Hughes necessary to prevent such violation will
automatically and irrevocably be transferred to a designated charitable
beneficiary. The provisions in the Articles of Incorporation and Bylaws and
the agreement with Wayne Hughes are modeled after certain arrangements that
the Internal Revenue Service (the "IRS") has ruled in private letter rulings
will preclude a REIT from being considered to violate the ownership
restrictions so long as such arrangements are enforceable as a matter of state
law and the REIT seeks to enforce them as and when necessary. There can be no
assurance, however, that the IRS might not seek to take a different position
with respect to the Company (a private letter ruling is legally binding only
with respect to the taxpayer to whom it was issued) or contend that the
Company failed to enforce these various arrangements and, hence, there can be
no assurance that these arrangements will necessarily preserve the Company's
REIT status. No private letter ruling has been sought by the Company from the
IRS with respect to the effect of these arrangements.
Elimination of Any Accumulated Earnings and Profits. The accumulated
earnings and profits, if any, of PSMI carried over to the Company in the
Merger. To retain its REIT status, the Company will have to distribute all of
these acquired earnings and profits, if any, on or before December 31, 1995.
Accordingly, the Company will be required to accurately determine the amount
of acquired earnings and profits and to increase its distributions to its
shareholders in 1995 if necessary to eliminate any such earnings and profits.
In connection with the Merger, a study of the earnings and profits showed that
PSMI had no earnings and profits at the time of the Merger. The determination
of earnings and profits depends on a number of factual matters related to the
activities and operation of PSMI and its predecessors in years prior to the
Merger. Accordingly, no assurances can be given that the IRS will not
challenge such conclusion. If the IRS were subsequently to determine that such
earnings and profits existed at the time of the Merger and the Company failed
to distribute such earnings
5
<PAGE>
and profits by December 31, 1995, the Company may lose its REIT qualification
for the year of the Merger and, perhaps, for subsequent years unless certain
relief provisions apply. See "Certain Federal Income Tax Considerations--
Consequences of the Merger on the Company's Qualification as a REIT--
Elimination of any Accumulated Earnings and Profits Attributable to Non-REIT
Years."
Consequences of Failure to Qualify as a REIT. The Company has elected to be
taxed as a REIT under the Code. In order for the Company to continue to
qualify as a REIT under the Code, certain detailed technical requirements must
be met (including certain income tests, certain limitations on types of assets
the Company can own, certain operational limitations, and certain stock
ownership tests). Although the Company intends to operate so that it will
continue to qualify as a REIT, the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in the circumstances of the Company preclude any
assurance that the Company will so qualify in any year. For any taxable year
that the Company fails to qualify as a REIT and certain relief provisions do
not apply, the Company would be taxed at the regular corporate rates on all of
its taxable income, whether or not it makes any distributions to its
shareholders. Those taxes would reduce the amount of cash available to the
Company for distribution to its shareholders or for reinvestment. As a result,
failure of the Company to qualify during any taxable year as a REIT could have
a material adverse effect upon the Company and its shareholders. Furthermore,
unless certain relief provisions apply, the Company would not be eligible to
elect REIT status again until the fifth taxable year that begins after the
first year for which the Company fails to qualify.
Corporate Level Tax on Sale of Certain Built-in Gain Assets. The Company
will be subject to a corporate level tax if it disposes of any of the assets
acquired in the Merger at any time during the 10-year period beginning at the
time of the Merger (the "Restriction Period"). This tax would be imposed at
the top regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value at
the time of the Merger of the assets disposed of and (b) the selling price of
such assets over (ii) the Company's adjusted basis at the time of the Merger
in such assets (such excess being referred to as the "Built-in Gain"). The
Company currently does not intend to dispose of any of the assets acquired in
the Merger during the Restriction Period, but there can be no assurance that
one or more such dispositions will not occur. See "Certain Federal Income Tax
Considerations--Tax Treatment of the Merger--Built-in Gain Rules."
OPERATING RISKS
General Risks of Real Estate Ownership. The Company is subject to the risks
generally incident to the ownership of real estate-related assets, including
lack of demand for rental spaces in a locale, changes in general economic or
local conditions, changes in supply of or demand for similar or competing
facilities in an area, the impact of environmental protection laws, changes in
interest rates and availability of permanent mortgage funds which may render
the sale or financing of a property difficult or unattractive and changes in
tax, real estate and zoning laws.
Competition Among Mini-Warehouses. Most of the Company's properties are
mini-warehouses. Competition in the market areas in which the Company operates
is significant and has affected the occupancy levels, rental rates and
operating expenses of certain of the Company's properties. Competition may be
accelerated by any increase in availability of funds for investment in real
estate. Recent increases in plans for development of mini-warehouses is
expected to further intensify competition among mini-warehouse operators in
certain market areas.
Risk of Environmental Liabilities. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an
owner or operator of real estate interests may be liable for the costs of
cleaning up, as well as certain damages resulting from, past or present
spills, disposals or other releases of hazardous or toxic substances or wastes
on, in or from a property. Certain Environmental Laws impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of hazardous or toxic substances or wastes at or from a property. An
owner or operator of real estate or real estate interests also may be liable
under certain Environmental Laws that govern activities or operations at a
property having adverse
6
<PAGE>
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous or toxic wastes. In some cases,
liability may not be limited to the value of the property. The presence of
such substances or wastes, or the failure to properly remediate any resulting
contamination, also may adversely affect the owner's or operator's ability to
sell, lease or operate its property or to borrow using its property as
collateral.
The Company has recently conducted preliminary environmental assessments of
most of its properties (and intends to conduct such assessments in connection
with property acquisitions) to evaluate the environmental condition of, and
potential environmental liabilities associated with, such properties. Such
assessments generally consist of an investigation of environmental conditions
at the subject property (not including soil or groundwater sampling or
analysis), as well as a review of available information regarding the site and
publicly available data regarding conditions at other sites in the vicinity.
In connection with these recent property assessments, the Company's operations
and recent property acquisitions, the Company has become aware that prior
operations or activities at certain facilities or from nearby locations have
or may have resulted in contamination to the soil and/or groundwater at such
facilities. In this regard, certain such facilities are or may be the subject
of federal or state environmental investigations or remedial actions. The
Company has obtained with respect to recent acquisitions, and intends to
obtain with respect to pending or future acquisitions, appropriate purchase
price adjustments or indemnifications that it believes are sufficient to cover
any such potential liabilities. Although there can be no assurance, based on
the recent preliminary environmental assessments, the Company believes it has
funds available to cover any liability from environmental contamination or
potential contamination and the Company is not aware of any environmental
contamination of its facilities material to its overall business or financial
condition.
Tenant Reinsurance. A corporation owned by the Hughes Family continues to
reinsure policies insuring against losses to goods stored by tenants in the
mini-warehouses operated by the Company. The Company believes that the
availability of insurance reduces its potential liability to tenants for
losses to their goods from theft or destruction. This corporation will
continue to receive the premiums and bear the risks associated with the
insurance. The Company has a right of first refusal to acquire the stock or
assets of this corporation if the Hughes Family or the corporation agree to
sell them, but the Company has no interest in its operations and no right to
acquire the stock or assets of the corporation in the absence of a decision to
sell. If the reinsurance business were owned directly by the Company, the
insurance premiums would be nonqualifying income to the Company. The Company
would be precluded from exercising its right of first refusal with respect to
the stock of the reinsurance corporation if such exercise would cause the
Company to violate any of the requirements for qualification as a REIT under
the Code.
Canadian Operations. The Hughes Family continues to own and operate mini-
warehouses in Canada. The Company has a right of first refusal to acquire the
stock or assets of the corporation engaged in these operations if the Hughes
Family or the corporation agree to sell them, but the Company has no interest
in its operations and no right to acquire the stock or assets in the absence
of a decision to sell.
PSCP. Prior to the Merger, Public Storage Commercial Properties Group, Inc.
("PSCP"), a subsidiary of PSMI, managed commercial properties for the Company
and others. Because certain of the revenues generated by PSCP would be
nonqualifying income to the Company, prior to the Merger, the common stock of
PSCP held by PSMI was converted into nonvoting preferred stock (representing
95% of the equity) and the voting common stock of PSCP (representing 5% of the
equity) was issued to the Hughes Family. While the Company acquired the
preferred stock of PSCP in the Merger, the Hughes Family is able to continue
to control the operations of PSCP by reason of their ownership of its voting
stock.
Merchandise Company. Prior to the Merger, PSMI sold locks, boxes and tape to
tenants to use in securing their rented spaces and moving their goods. Because
the revenues received from the sale of these items would be nonqualifying
income to the Company, immediately prior to the Merger PSMI transferred this
lock and box business to a separate corporation (the "Lock/Box Company"). In
the Merger, the Company acquired the
7
<PAGE>
nonvoting preferred stock of the Lock/Box Company (representing 95% of the
equity). The voting common stock of the Lock/Box Company (representing 5% of
the equity) was issued to the Hughes Family, who will be able to control the
operations of the Lock/Box Company by reason of their ownership of its voting
stock.
Liabilities with Respect to Acquired General Partner Interests. Upon
succeeding to substantially all of the properties and operations of PSMI in
the Merger, there may be certain liabilities and associated costs suffered by
the Company in its capacity as general partner of former PSMI limited
partnerships arising out of facts and circumstances in existence prior to the
Merger, and the Company will also have general partner liability for post-
Merger activities of these partnerships, as it does for other partnership as
to which it is a general partner. Subject to certain limitations, Hughes has
agreed to indemnify the Company for pre-Merger activities and the Class B
Common Stock will be placed in escrow to support such indemnification.
FINANCING RISKS
Dilution and Subordination. The interest of Shareholders, including persons
who acquire Securities in this offering, can be diluted through the issuance
of additional securities.
Since October 1992 the Company has issued shares of Preferred Stock and
intends to issue additional such shares. These issuances could involve certain
risks to holders of shares of Common Stock. In the event of a liquidation of
the Company, the holders of the Preferred Stock will be entitled to receive,
before any distribution of assets to holders of Common Stock, liquidating
distributions (an aggregate of approximately $366,350,000 in respect of
Preferred Stock issued to date), plus any accrued and unpaid dividends.
Holders of preferred stock are entitled to receive, when declared by the Board
of Directors, cash dividends (an aggregate of approximately $35 million per
year in respect of Preferred Stock issued to date, in preference to holders of
Common Stock. As a REIT, the Company must distribute to its Shareholders
(which include not only holders of Common Stock but also holders of Preferred
Stock) for each taxable year at least 95% of its annual taxable income.
Failure to pay full dividends on the Preferred Stock could jeopardize the
Company's qualification as a REIT. See "Description of Preferred Stock" and
"Certain Federal Income Tax Considerations--Tax Treatment of the Company."
Risk of Leverage. In making real estate investments, the Company has
incurred and may continue to incur indebtedness to the extent believed
appropriate. The incurrence of indebtedness increases the risk of loss of the
investment.
RISKS TO INVESTORS IN AFFILIATED ENTITIES
Securities may be issued under this Prospectus to investors in entities
affiliated with the Company. Because of the affiliation between the Company
and the affiliated entities, the terms of the transactions will not be
negotiated at arms' length and may not be as favorable to the investors in the
affiliated entities as could be obtained in transactions with unaffiliated
parties.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of certain
post-Merger adjustments, it is estimated that there will be approximately 72
million shares of Common Stock and seven million shares of Class B Common
Stock outstanding. Of these shares, approximately 42 million shares of Common
Stock outstanding prior to the Merger are tradeable without restriction
(except those applicable to affiliates of the Company) or further registration
under the Securities Act. The remaining approximately 36.4 million shares of
Common Stock and seven million shares of Class B Common Stock were issued in
the Merger without registration under the Securities Act in reliance on an
exemption from registration and are "restricted securities" within the meaning
of Rule 144 adopted under the Act (the "Restricted Shares"). The beneficial
owners of 15.5 million of the Restricted Shares
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<PAGE>
(including all of the Class B Common Stock) have agreed not to offer, sell or
otherwise dispose (except for gifts and pledges) of any of their shares for a
period of three years following the Merger, in the case of the Common Stock,
or for seven years following the Merger, in the case of the Class B Common
Stock. Upon expiration of such periods, each will be entitled to sell his or
her shares in the public market subject to Rule 144, which contains certain
public information, volume, holding period and manner of sale requirements.
The remaining approximately 27.9 million Restricted Shares will be available
for sale in the public market pursuant to Rule 144, subject to the foregoing
requirements that include, as the Rule is currently in effect, a two-year
holding period. Sales of substantial amounts of such Common Stock in the
public market could adversely affect the market price of the Common Stock.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends is computed by dividing earnings by the sum of fixed charges
and preferred stock dividends. Earnings consists of net income before minority
interest in income, loss on early extinguishment of debt and gain on
disposition of real estate plus fixed charges (other than preferred stock
dividends) less the portion of minority interest in income which does not
contribute to fixed charges.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------- ----------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividends............. 2.07 2.31 2.22 2.40 2.89 2.71 2.79
</TABLE>
THE OFFERING
The Securities that are being offered from time to time by this Prospectus
consist of shares of Preferred Stock, issuable in series, Depositary Shares,
shares of Common Stock, Warrants for the purchase of Preferred Stock and
Common Stock, aggregating $300,000,000 stated amount (collectively, the
"Securities").
SECURITIES TO BE ISSUED
The Company is issuing the Securities in connection with the acquisition of
Real Property Investments. The consideration for any acquisition may consist
of cash, Securities, assumption of liabilities, or a combination thereof, as
determined from time to time by negotiation.
The Preferred Stock and Depositary Shares will be issued in one or more
series with such terms, including dividend rates, maturity, security,
subordination, terms of redemption and payment and conversion rights, as the
Board of Directors of the Company determines by resolution prior to the
issuance of shares of Preferred Stock of any particular series. See
"Description of Common Stock and Class B Common Stock" and "Description of
Preferred Stock."
The terms under which the Securities would be issued with respect to a
particular transaction or transactions are set forth in the accompanying
Prospectus Supplement, other than in the transaction described below.
The Company intends to issue shares of convertible Preferred Stock
pursuant to this Prospectus to Boston Safe Deposit and Trust Company, as
Trustee of the Kodak Retirement Income Plan in exchange for a limited
partnership interest in Public Storage Institutional Fund, a partnership in
which the Company is also a
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<PAGE>
general partner. This convertible Preferred Stock (i) in preference to the
holders of shares of the Common Stock and any other capital stock ranking
junior to the convertible Preferred Stock, as to payment of dividends,
provides for dividends of $ per quarter, (ii) is convertible at the option
of the holder at any time into Common Stock at a conversion price computed by
dividing (A) % of the "Adjusted Property Value" (as defined) by (B) the
closing price of the Common Stock for a specified period (the "Conversion
Price") and (iii) will automatically convert into Common Stock at the
Conversion Price on the fourth anniversary of the issuance of the convertible
Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to shareholders, before any distribution of assets is made to holders of
Common Stock or any other shares of capital stock ranking as to such
distributions junior to the convertible Preferred Stock, liquidating
distributions, a liquidation preference equal to the greater of (i) $ plus
all accrued and unpaid dividends and (ii) the Conversion Price.
ROLL-UP TRANSACTIONS
Unless accompanied by a supplement included in a post-effective amendment
filed with, and declared effective by, the Commission, this Prospectus will
not be used in connection with "roll-up transactions" (as defined in item
901(c) of Commission Regulation S-K). Accordingly, unless accompanied by such
a supplement, this Prospectus does not represent an offer or a solicitation in
a roll-up transaction (as defined above).
RESALE OF SECURITIES
Unless the transaction is subject to the provisions of Rule 145 under the
Securities Act as described below, a person who receives shares of Securities
in exchange for Real Property Investments may publicly resell the securities,
if he or she is not an affiliate (within the meaning of Rule 144 under the
Securities Act) of the Company. If he or she is an affiliate of the Company,
the resale of such securities must generally be accomplished only with a
prospectus included in a registration statement filed under the Securities Act
or under paragraphs (c), (e), (f), and (g) of Rule 144, as described below.
Some of the Real Property Investments will be owned by limited partnerships
and other entities. If the transfer of the Real Property Investments in
exchange for the Securities requires the approval of the limited partners (or
other holders of the entity's securities) of the selling entity, and if the
transfer is part of a plan to distribute the Securities to the limited
partners or other equity owners, the recipients of the Securities who are
affiliates of the selling entity will be subject to certain resale
restrictions under Rule 145 under the Securities Act. (Limited partners are
generally not affiliates of a limited partnership.) During the two years
following the issuance of the Securities, these affiliates may publicly resell
those securities generally only in accordance with the requirements of
paragraph (c), (e), (f) and (g) of Rule 144. These paragraphs generally
require that there be available current public information about the Company,
that aggregate sales not exceed certain volume limitations and that sales
occur in unsolicited brokerage transactions. These restrictions may
significantly limit the ability of the holder of the Securities to resell them
during the two year period. After the Securities have been held for two years
by the holder of the entity's securities (including the period during which
the Securities are held by the entity before being distributed to the entity's
holders), the Securities may be sold without limitation provided that the
seller is not an affiliate of the Company and that there is available current
public information about the Company. The holding period of any Common Stock
that is issued on conversion of Securities that are convertible is deemed to
include the period during which such Securities are held. However, the holding
period of any Common or Preferred Stock that is purchased upon exercise of the
Warrants does not include the holding period of the Warrants.
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<PAGE>
DESCRIPTION OF COMMON STOCK AND CLASS B COMMON STOCK
The Company is authorized to issue 200,000,000 shares of Common Stock and
7,000,000 shares of Class B Common Stock. At November 16, 1995, the Company
had outstanding 65,652,073 shares of Common Stock (exclusive of shares
issuable upon conversion of the Company's convertible preferred stock and
shares subject to options) and had agreed to issue (i) subject to certain
conditions, 7,000,00 shares of Class B Common Stock and (ii) subject to
resolution of certain post-Merger adjustments, an additional 6,412,210 shares
of Common Stock.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Stock will
be issuable upon conversion of the Preferred Stock or upon the exercise of the
Warrants. The statements below describing the Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Articles of Incorporation and the Company's Bylaws (the
"Bylaws").
Holders of Common Stock will be entitled to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available
therefor. Payment and declaration of dividends on the Common Stock and
purchases of shares thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on outstanding preferred
stock. See "Description of Preferred Stock." Upon any liquidation, dissolution
or winding up of the Company, holders of Common Stock will be entitled to
share equally and ratably in any assets available for distribution to them,
after payment or provision for payment of the debts and other liabilities of
the Company and the preferential amounts owing with respect to any outstanding
preferred stock. Holders of Common Stock have no preemptive rights, which
means they have no right to acquire any additional shares of Common Stock that
may be issued by the Company at a subsequent date.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to such holders for a vote, with the exception that they
have cumulative voting rights with respect to the election of the Board of
Directors, in accordance with California law. Cumulative voting means that
each holder of Common Stock is entitled to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in his
or her name. A holder of Common Stock may cumulate the votes for directors by
casting all of the votes for one candidate or by distributing the votes among
as many candidates as he or she chooses. The outstanding shares of Common
Stock are, and additional shares of Common Stock will be, when issued, fully
paid and nonassessable.
OWNERSHIP LIMITATIONS
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of capital stock may be owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. In order to maintain its qualification as a
REIT, the Articles of Incorporation provide certain restrictions on the shares
of capital stock that any Shareholder may own.
The Articles of Incorporation and Bylaws provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (A) 2.0% of the outstanding
shares of all Common Stock or (B) 9.9% of the outstanding shares of any class
or series of shares of Preferred Stock. The Articles of Incorporation and
Bylaws provide, however, that no person shall be deemed to exceed the
ownership limit solely by reason of the beneficial ownership of shares of any
class of capital stock to the extent that such shares of capital stock were
beneficially owned by such person (including the Hughes Family) at the time of
the Merger. However, in determining whether an acquisition of shares after the
Merger violates the Articles of Incorporation or Bylaws, Shareholders will be
subject to these ownership limitations. This ownership limitation is necessary
in order to assist in preserving the Company's REIT status in view of the
Hughes Family's substantial ownership interest in the Company. See "Risk
Factors--Ownership Limitations" and "Certain Federal Income Tax
Considerations--Tax Treatment of the Company."
11
<PAGE>
The Board of Directors, in its sole and absolute discretion, may grant an
exception to the ownership limits to any person so requesting, so long as (A)
the Board of Directors has determined that, after giving effect to (x) an
acquisition by such person of beneficial ownership (within the meaning of the
Code) of the maximum amount of capital stock of the Company permitted as a
result of the exception to be granted and (y) assuming that the four other
persons who would be treated as "individuals" for the purposes of Section
542(a)(2) of the Code and who would beneficially own the largest amounts of
capital stock of the Company (determined by value) beneficially own the
maximum amount of capital stock of the Company permitted under the ownership
limits (or any exceptions to the ownership limits granted with respect to such
persons), the Company would not be "closely held" within the meaning of
Section 856(h) of the Code and would not otherwise fail to qualify as a REIT,
and (B) such person provides to the Board of Directors such representations
and undertakings as the Board of Directors may require. Notwithstanding any of
the foregoing ownership limits, no holder may own or acquire, either directly,
indirectly or constructively under the applicable attribution rules of the
Code, any shares of any class of the Company's capital stock if such ownership
or acquisition (i) would cause more than 50% in value of the Company's
outstanding capital stock to be owned, either directly or constructively,
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain tax-exempt entities,
other than, in general, qualified domestic pension funds), (ii) would result
in the Company's capital stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution), or (iii)
would otherwise result in the Company failing to qualify as a REIT.
The Articles of Incorporation and Bylaws provide that, if any holder of the
Company's capital stock purports to transfer shares to a person or there is a
change in the capital structure of the Company or other event and either the
transfer, the change in capital structure or such other event would result in
the Company failing to qualify as a REIT, or such transfer, the change in
capital structure or such other event would cause the transferee to hold
shares in excess of the applicable ownership limit, then the stock being
transferred (or in the case of an event other than a transfer, the stock
beneficially owned) which would cause one or more of the restrictions on
ownership or transfer to be violated shall be automatically transferred to a
trust for the benefit of a designated charitable beneficiary. The purported
transferee of such shares shall have no right to receive dividends or other
distributions with respect to such shares and shall have no right to vote such
shares. Any dividends or other distributions paid to such purported transferee
prior to the discovery by the Company that the shares have been transferred to
a trust shall be paid to the trustee of the trust for the benefit of the
charitable beneficiary upon demand. The trustee of the trust will have all
rights to dividends with respect to shares of stock held in trust, which
rights will be exercised for the exclusive benefit of the charitable
beneficiary. Any dividends or distributions paid over to the trustee will be
held in trust for the charitable beneficiary. Within 20 days of receiving
notice from the Company that shares of capital stock have been transferred to
the trust, the trustee shall designate a transferee of such stock so long as
such shares of stock would not violate the restrictions on ownership or
transfer in the Articles of Incorporation or Bylaws in the hands of such
designated transferee. Upon the sale of such shares, the purported transferee
shall receive the lesser of (A)(i) the price per share such purported
transferee paid for the stock in the purported transfer that resulted in the
transfer of the shares to the trust, or (ii) if the transfer or other event
that resulted in the transfer of the shares of the trust was not a transaction
in which the purported transferee gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust and (B) the
price per share received by the trustee from the sale or other disposition of
the shares held in the trust.
In addition, the Bylaws provide the Board of Directors with the power to
prevent the transfer of shares of capital stock or to redeem shares of capital
stock if the Board of Directors determines in good faith that such action is
necessary to preserve Company's REIT status.
CLASS B COMMON STOCK
The Class B Common Stock (i) does not participate in distributions on the
Common Stock until the later to occur of (x) funds from operations ("FFO") per
Common Share (as defined below) aggregating $1.80 during any period of four
consecutive calendar quarters or (y) January 1, 2000; thereafter, the Class B
Common Stock
12
<PAGE>
will participate in distributions (other than liquidating distributions) at
the rate of 97% of the per share distributions on the Common Stock, provided
that cumulative distributions of at least $.22 per quarter (beginning with the
4th quarter of 1995) per share have been paid on the Common Stock, (ii) does
not participate in liquidating distributions, (iii) is not entitled to vote
(except as expressly required by California law) and (iv) will automatically
convert into Common Stock, on a share for share basis, upon the later to occur
of (A) FFO per Common Share aggregating $3.00 during any period of four
consecutive calendar quarters or (B) January 1, 2003.
For these purposes:
1) FFO means net income (loss) (computed in accordance with GAAP) before
(i) gain (loss) on early extinguishment of debt, (ii) minority interest in
income and (iii) gain (loss) on disposition of real estate, adjusted as
follows: (i) plus depreciation and amortization (including the Company's
pro-rata share of depreciation and amortization of unconsolidated equity
interests and amortization of assets acquired in the Merger (including
property management agreements and goodwill)), and (ii) less FFO
attributable to minority interest. FFO is a supplemental performance
measure for equity REITs as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"). The NAREIT definition does not
specifically address the treatment of minority interest in the
determination of FFO or the treatment of the amortization of property
management agreements and goodwill. In the case of the Company, FFO
represents amounts attributable to Shareholders after deducting amounts
attributable to the minority interests and before deductions for the
amortization of property management agreements and goodwill. FFO does not
take into consideration scheduled principal payments on debt, capital
improvements, distributions and other obligations of the Company.
Accordingly, FFO is not a substitute for the Company's cash flow or net
income as a measure of its liquidity or operating performance or ability to
pay distributions.
2) FFO per Common Share means FFO less Preferred Stock dividends (other
than dividends on convertible preferred stock) divided by the outstanding
weighted average shares of Common Stock assuming conversion of all
outstanding convertible securities and the Class B Common Stock.
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<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 50,000,000 shares of Preferred Stock. At
November 16, 1995, the Company had outstanding 13,437,200 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 16, 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).
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<PAGE>
The other series of convertible Preferred Stock (i) has no stated value,
(ii) in preference to the holders of shares of the Common Stock and any other
capital stock ranking junior to the convertible preferred stock as to payment
of dividends, provides for dividends at a rate adjustable quarterly with a
minimum annual rate of 5% per year of the minimum liquidation preference,
(iii) is convertible at the option of the holder at any time into Common Stock
at a conversion price adjustable quarterly and (iv) on June 30, 2002 will be
automatically converted into Common Stock at a conversion price determined as
of the time of conversion.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to shareholders, before any distribution of assets is made to holders of
Common Stock or any other shares of capital stock ranking as to such
distributions junior to the convertible Preferred Stock, liquidating
distributions (i) in the amount of $25.00 per share, plus all accrued and
unpaid dividends, in the case of one of the series of convertible Preferred
Stock and (ii) a minimum liquidation preference of $31,200,000, plus all
accrued and unpaid dividends, in the case of the other series of convertible
Preferred Stock.
Except as expressly required by law and in certain other limited
circumstances, the holders of the convertible Preferred Stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding shares
of one of the series of convertible Preferred Stock and at least 50% of the
outstanding shares of the other series is required to authorize another class
of shares senior to the convertible Preferred Stock and junior to the Senior
Preferred Stock.
OWNERSHIP LIMITATIONS
For a discussion of the ownership limitations that apply to Preferred Stock,
see "Description of Common Stock and Class B Common Stock--Ownership
Limitations."
FUTURE SERIES OF PREFERRED STOCK
The following description of Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles of Incorporation (including the
applicable form of Certificate of Determination) and Bylaws.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such Preferred Stock; (2) the
number of shares of such Preferred Stock offered, the liquidation preference
per share and the offering price of such Preferred Stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Preferred Stock; (4) the date from which dividends on such
Preferred Stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such Preferred Stock; (6) the provision for
redemption, if applicable, of such Preferred Stock; (7) any listing of such
Preferred Stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into Common
Stock, including the conversion price (or manner of calculation thereof); (9)
the voting rights, if any, of such Preferred Stock; (10) any other specific
terms, preferences, rights, limitations or restrictions of such Preferred
Stock; (11) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and (12) any limitations on issuance of any series of
Preferred Stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company.
Ranking. The ranking of the Preferred Stock is set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, such Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of the
Company, rank (i) senior to the Common Stock, any additional class of common
stock and any series of Preferred Stock expressly made junior
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to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the affairs of the Company; (ii) on
a parity with all Preferred Stock previously issued by the Company the terms
of which specifically provide that such Preferred Stock rank on a parity with
the Preferred Stock offered hereby with respect to dividend rights or rights
upon liquidation, dissolution or winding up of the Company; and (iii) junior
to all Preferred Stock previously issued by the Company the terms of which
specifically provide that such Preferred Stock rank senior to the Preferred
Stock offered hereby with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
Dividends. Holders of shares of the Preferred Stock of each series offered
hereby shall be entitled to receive, when, as and if declared by the Board of
Directors, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as shall be fixed by the Board of Directors.
Dividends on any series of the Preferred Stock offered hereby may be
cumulative or non-cumulative, as provided in the applicable Prospectus
Supplement. Dividends, if cumulative, will be cumulative from and after the
date set forth in the applicable Prospectus Supplement. If the Board of
Directors fails to declare a dividend payable on a dividend payment date on
any series of the Preferred Stock for which dividends are noncumulative, then
the holders of such series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such series are declared
payable on any future dividend payment date.
No dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of any series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment, nor shall any
other distribution be declared or made upon the Common Stock, or any other
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any Common Stock or any other capital stock of the Company ranking junior to
or on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period.
Any dividend payment made on shares of a series of Cumulative Preferred
Stock offered hereby shall first be credited against the earliest accrued but
unpaid dividend due with respect to shares of such series which remains
payable.
Redemption. If so provided in the applicable Prospectus Supplement, the
shares of Preferred Stock will be subject to mandatory redemption or
redemption at the option of the Company, in whole or in part, in each case
upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such Preferred Stock that shall be redeemed by the Company in each
year commencing after a date to be specified, at a redemption price per share
to be specified, together with an amount equal to all accrued and unpaid
dividends thereon (which shall not, if such Preferred Stock does not have a
cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price
may be payable in cash, securities or other property, as specified in the
applicable Prospectus Supplement.
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Notwithstanding the foregoing, no shares of any series of Preferred Stock
offered hereby shall be redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless all outstanding shares of Preferred Stock of such series
are simultaneously redeemed unless, in each case, (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on the
Preferred Stock of such series shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Preferred Stock of such series pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or any other equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder and, upon redemption, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof. In order to facilitate the redemption of shares of Preferred Stock,
the Board of Directors may fix a record date for the determination of shares
of Preferred Stock to be redeemed, such record date to be not less than 30 or
more than 60 days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless the Company defaults in
providing funds for the payment of the redemption price on such date, all
dividends on the Preferred Stock called for redemption will cease. From and
after the redemption date, unless the Company so defaults, all rights of the
holders of the Preferred Stock as shareholders of the Company, except the
right to receive the redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when dividends on
Preferred Stock are in arrears, the Company may, at any time and from time to
time, purchase any shares of Preferred Stock in the open market, by tender or
by private agreement.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or
any other class or series of capital stock of the Company ranking junior to
any series of the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such
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Preferred Stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Stock will have no right or claim to any of the remaining
assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of any series of Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in
the distribution of assets upon liquidation, dissolution or winding up, then
the holders of such series of Preferred Stock and all other such classes or
series of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to such series of Preferred Stock upon liquidation, dissolution or
winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of the Preferred Stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable Prospectus Supplement.
If the equivalent of six quarterly dividends payable on any series of
Preferred Stock are in default (whether or not declared or consecutive), the
holders of all such series of Preferred Stock, voting as a single class with
all other series of Preferred Stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.
Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
such right to elect directors separately shall have so vested, the Company
may, and upon the written request of the holders of record of not less than
20% of the total number of preferred shares of the Company then outstanding
shall, call a special meeting of Shareholders for the election of directors.
In the case of such a written request, such special meeting shall be held
within 90 days after the delivery of such request and, in either case, at the
place and upon the notice provided by law and in the Bylaws, provided that the
Company shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing
annual meeting of Shareholders, and the holders of all classes of outstanding
preferred stock are offered the opportunity to elect such directors (or fill
any vacancy) at such annual meeting of shareholders. Directors so elected
shall serve until the next annual meeting of Shareholders or until their
respective successors are elected and qualify. If, prior to the end of the
term of any director so elected, a vacancy in the office of such director
shall occur, during the continuance of a default by reason of death,
resignation, or disability, such vacancy shall be filled for the unexpired
term of such former director by the appointment of a new director by the
remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of Preferred Stock will be required to amend
or repeal any provision of or add any provision to, the Articles of
Incorporation, including the Certificate of Determination, if such action
would materially and adversely alter or change the rights, preferences or
privileges of such series of Preferred Stock.
No consent or approval of the holders of any series of Preferred Stock
offered hereby will be required for the issuance from the Company's authorized
but unissued Preferred Stock of other shares of any series of Preferred Stock
ranking on a parity with or junior to such series of Preferred Stock, or
senior to a series of Preferred Stock expressly made junior to other series of
Preferred Stock as to payment of dividends and distribution of assets,
including other shares of such series of Preferred Stock.
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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of Preferred Stock offered hereby are convertible into Common Stock
will be set forth in the applicable Prospectus Supplement relating thereto.
Such terms will include the number of shares of Common Stock into which the
Preferred Stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at the option of the holders of the Preferred Stock or automatically upon the
occurrence of certain events, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
DESCRIPTION OF THE DEPOSITARY SHARES
The Company may, at its option, elect to offer Depositary Shares rather than
full shares of Preferred Stock. In the event such option is exercised, each of
the Depositary Shares will represent ownership of and entitlement to all
rights and preferences of a fraction of a share of Preferred Stock of a
specified series (including dividend, voting, redemption and liquidation
rights). The applicable fraction will be specified in the Prospectus
Supplement. The shares of Preferred Stock represented by the Depositary Shares
will be deposited with a Depositary (the "Depositary") named in the applicable
Prospectus Supplement, under a Deposit Agreement (the "Deposit Agreement"),
among the Company, the Depositary and the holders of the Depositary Receipts.
Certificates evidencing Depositary Shares ("Depositary Receipts") will be
delivered to those persons purchasing Depositary Shares in the offering. The
Depositary will be the transfer agent, registrar and dividend disbursing agent
for the Depositary Shares. Holders of Depositary Receipts agree to be bound by
the Deposit Agreement, which requires holders to take certain actions such as
filing proof of residence and paying certain charges.
The summary of terms of the Depositary Shares contained in this Prospectus
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Deposit Agreement, the Articles of
Incorporation and the form of Certificate of Determination for the applicable
series of Preferred Stock.
DIVIDENDS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the series of Preferred Stock represented
by the Depositary Shares to the record holders of Depositary Receipts in
proportion to the number of Depositary Shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
the Company for the applicable series of Preferred Stock. The Depositary,
however, will distribute only such amount as can be distributed without
attributing to any Depositary Share a fraction of one cent, and any balance
not so distributed will be added to and treated as part of the next sum
received by the Depositary for distribution to record holders of Depositary
Receipts then outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary
Receipts entitled thereto, in proportion, as nearly as may be practicable, to
the number of Depositary Shares owned by such holders on the relevant record
date, unless the Depositary determines (after consultation with the Company)
that it is not feasible to make such distribution, in which case the
Depositary may (with the approval of the Company) adopt any other method for
such distribution as it deems equitable and appropriate, including the sale of
such property (at such place or places and upon such terms as it may deem
equitable and appropriate) and distribution of the net proceeds from such sale
to such holders.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the affairs of
the Company, whether voluntary or involuntary, the holders of each Depositary
Share will be entitled to the fraction of the liquidation preference accorded
each share of the applicable series of Preferred Stock, as set forth in the
Prospectus Supplement.
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REDEMPTION
If the series of Preferred Stock represented by the applicable series of
Depositary Shares is redeemable, such Depositary Shares will be redeemed from
the proceeds received by the Depositary resulting from the redemption, in
whole or in part, of Preferred Stock held by the Depositary. Whenever the
Company redeems any Preferred Stock held by the Depositary, the Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing the Preferred Stock so redeemed. The Depositary will mail the
notice of redemption promptly upon receipt of such notice from the Company and
not less than 30 nor more than 60 days prior to the date fixed for redemption
of the Preferred Stock and the Depositary Shares to the record holders of the
Depositary Receipts.
VOTING
Promptly upon receipt of notice of any meeting at which the holders of the
series of Preferred Stock represented by the applicable series of Depositary
Shares are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts as of the record date for such meeting. Each such record holder of
Depositary Receipts will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the number of shares of Preferred
Stock represented by such record holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote such Preferred Stock
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all action which may be deemed necessary by
the Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting any of the Preferred Stock to the extent that it does not
receive specific instructions from the holders of Depositary Receipts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Depositary, upon payment of any unpaid amount due the Depositary, and subject
to the terms of the Deposit Agreement, the owner of the Depositary Shares
evidenced thereby is entitled to delivery of the number of whole shares of
Preferred Stock and all money and other property, if any, represented by such
Depositary Shares. Partial shares of Preferred Stock will not be issued. If
the Depositary Receipts delivered by the holder evidence a number of
Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of Preferred Stock to be withdrawn, the Depositary
will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares. Holders of Preferred Stock
thus withdrawn will not thereafter be entitled to deposit such shares under
the Deposit Agreement or to receive Depositary Receipts evidencing Depositary
Shares therefor.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Company and the Depositary. However, any
amendment which materially and adversely alters the rights of the holders
(other than any change in fees) of Depositary Shares will not be effective
unless such amendment has been approved by at least a majority of the
Depositary Shares then outstanding. No such amendment may impair the right,
subject to the terms of the Deposit Agreement, of any owner of any Depositary
Shares to surrender the Depositary Receipt evidencing such Depositary Shares
with instructions to the Depositary to deliver to the holder the Preferred
Stock and all money and other property, if any, represented thereby, except in
order to comply with mandatory provisions of applicable law. The Deposit
Agreement may be terminated by the Company or the Depositary only if (i) all
outstanding Depositary Shares have been redeemed or (ii) there has been a
final distribution in respect of the Preferred Stock in connection with any
dissolution of the Company and such distribution has been made to all the
holders of Depositary Shares.
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CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and the initial issuance of the Depositary Shares, and
redemption of the Preferred Stock and all withdrawals of Preferred Stock by
owners of Depositary Shares. Holders of Depositary Receipts will pay transfer,
income and other taxes and governmental charges and certain other charges as
are provided in the Deposit Agreement to be for their accounts. In certain
circumstances, the Depositary may refuse to transfer Depositary Shares, may
withhold dividends and distributions and sell the Depositary Shares evidenced
by such Depositary Receipt if such charges are not paid.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Receipts all
reports and communications from the Company which are delivered to the
Depositary and which the Company is required to furnish to the holders of the
Preferred Stock. In addition, the Depositary will make available for
inspection by holders of Depositary Receipts at the principal office of the
Depositary, and at such other places as it may from time to time deem
advisable, any reports and communications received from the Company which are
received by the Depositary as the holder of Preferred Stock.
Neither the Depositary nor the Company assumes any obligation or will be
subject to any liability under the Depositary Agreement to holders of
Depositary Receipts other than for its negligence or willful misconduct.
Neither the Depositary nor the Company will liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder, and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. The Company and
the Depositary may rely on written advice of counsel or accountants, on
information provided by holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information and on
documents believed to be genuine and to have been signed or presented by the
proper party or parties.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $150,000,000.
FEDERAL INCOME TAX CONSEQUENCES
Owners of the Depositary Shares will be treated for Federal income tax
purposes as if they were owners of the Preferred Stock represented by such
Depositary Shares. Accordingly, such owners will be entitled to take into
account, for Federal income tax purposes, income and deductions to which they
would be entitled if they were holders of such Preferred Stock. In addition,
(i) no gain or loss will be recognized for Federal income tax purposes upon
the withdrawal of Preferred Stock in exchange for Depositary Shares, (ii) the
tax basis of each share of Preferred Stock to an exchanging owner of
Depositary Shares will, upon such exchange, be the same as the aggregate tax
basis of the Depositary Shares exchanged therefor, and (iii) the holding
period for Preferred Stock in the hands of an exchanging owner of Depositary
Shares will include the period during which such person owned such Depositary
Shares.
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DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's stock option plans). The Company may issue Warrants for the purchase
of Preferred Stock or Common Stock. Warrants may be issued independently or
together with any other Securities offered by any Prospectus Supplement and
may be attached to or separate from such Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with
the Warrants of such series and will not assume any obligation or relationship
of agency or trust for or with any holders or beneficial owners of Warrants.
The following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will
be issued; (4) the designation, number and terms of the shares of Preferred
Stock or Common Stock purchasable upon exercise of such Warrants; (5) the
designation and terms of the other Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Security; (6) the date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock, if any, will be separately
transferable; (7) the price at which each share of Preferred Stock or Common
Stock purchasable upon exercise of such Warrants may be purchased; (8) the
date on which the right to exercise such Warrants shall commence and the date
on which such right shall expire; (9) the minimum or maximum amount of such
Warrants which may be exercised at any one time; and (10) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific securities acquired by such holder,
as well as his or her particular situation, and this discussion does not
attempt to address any aspects of federal income taxation relating to holders
of Securities, except as discussed under "--Taxation of Shareholders." Certain
federal income tax considerations relevant to holders of the Securities may be
provided in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OR HER TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR HER
OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX TREATMENT OF THE COMPANY
If certain detailed conditions imposed by the Code and the related Treasury
regulations are met, an entity, such as the Company, that invests principally
in real estate and that otherwise would be taxed as a corporation may elect to
be treated as a REIT. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that this enables the
Company to deduct dividend distributions to its shareholders, thus effectively
eliminating the "double taxation" (at the corporate and shareholder levels)
that typically results when a corporation earns income and distributes that
income to shareholders in the form of dividends.
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The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, beginning with its fiscal year ending December 31,
1981. That election will continue in effect until it is revoked or terminated.
The Company believes that it has qualified during each of the fiscal years for
which an election has been in effect, and currently qualifies, as a REIT, and
the Company expects to continue to be taxed as a REIT for federal income tax
purposes. While the Company intends to operate so that it will continue to
qualify as a REIT, given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility
of future changes in the circumstances of the Company, no assurance can be
given by the Company that the Company will qualify as a REIT in any particular
year.
Technical Requirements for Taxation as a REIT. The following is a very brief
overview of certain of the technical requirements that the Company must meet
on an ongoing basis in order to continue to qualify as a REIT. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
regulations and administrative and judicial interpretations thereof.
1. The capital stock must be widely-held and not more than 50% of the value
of the capital stock may be held by five or fewer individuals (determined
after giving effect to various ownership attribution rules). See "--
Consequences of Merger on the Company's Qualification as a REIT--Violation of
Ownership Requirements."
2. The Company's gross income must meet three income tests:
(a) at least 75% of the gross income must be derived from specified real
estate sources (including "rents from real property" and, in certain
circumstances, interest);
(b) at least 95% of the gross income must be from the real estate sources
includable in the 75% income test, and/or from dividends, interest, or
gains from the sale or disposition of stock or securities not held for sale
in the ordinary course of business; and
(c) less than 30% of the gross income may be derived from the sale of
real estate assets held for less than four years, from the sale of certain
"dealer" property, or from the sale of stock or securities held for less
than one year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts of sales. The Company anticipates that none of its gross annual
income will be attributable to rents that are based in whole or in part on the
income of any person (excluding rents based on a percentage of receipts or
sales, which, as described above, are permitted). Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
The Company does not anticipate that it will receive income from Related Party
Tenants. Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." The Company
does not anticipate deriving rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. Finally,
for rents received to qualify as "rents from real property," the Company
generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor" which is
adequately compensated and from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." Any services with respect to certain
Properties that the Company believes may not be provided by the Company
directly without jeopardizing the qualification of rent as "rents from real
property" will be performed by "independent contractors."
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See "--Consequences of the Merger on the Company's Qualification as a REIT--
The Company's Assumption of Management Activities With Respect to its
Properties," "--Consequences of the Merger on the Company's Qualification as a
REIT--Nonqualifying Income," and "--Consequences of the Merger on the
Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger" for a discussion of specific aspects of the Merger
that may impact upon the Company's ability to satisfy the 95% gross income
test.
3. Generally, 75% of the value of the Company's total assets must be
represented by real estate, mortgages secured by real estate, cash, or
government securities (including its allocable share of real estate assets
held by any partnerships in which the Company owns an interest). Not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class. Of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities. The 5%
test generally must be met for any quarter in which the Company acquires
securities of an issuer. The Company believes that it satisfies these tests.
In this regard, however, the 10% voting stock prohibition will preclude the
Company from controlling the operations of PSCP and the Lock/Box Company (in
which the Company will own 95% of the equity in the form of non-voting stock
and the Hughes Family will own 5% of the equity but 100% of the voting stock)
or PSCC (in which the Company will own a less than 10% equity interest) and
may preclude the Company from exercising its rights of first refusal with
respect to the corporations owning the Canadian operations and the reinsurance
business.
4. The Company must distribute to its shareholders in each taxable year an
amount at least equal to 95% of the Company's "REIT Taxable Income" (which is
generally equivalent to net taxable ordinary income). Under certain
circumstances, the Company can rectify a failure to meet the 95% distribution
test by paying dividends after the close of a particular taxable year.
In years prior to 1990, the Company made distributions in excess of its REIT
Taxable Income. During 1990, the Company reduced its distribution to its
shareholders to permit the Company to make an optional reduction in short-term
borrowings (which previously had been used to fund distributions to its
shareholders). As a result, distributions paid by the Company in 1990 were
less than 95% of the Company's REIT Taxable Income for 1990. The Company has
satisfied the REIT distribution requirements for 1990, 1991, 1992, 1993 and
1994 by attributing distributions in 1991, 1992, 1993, 1994 and 1995 to the
prior year's taxable income. The Company may be required, over each of the
next several years, to make distributions after the close of a taxable year
and to attribute those distributions to the prior year, but shareholders will
be treated for federal income tax purposes as having received such
distributions in the taxable years in which they were actually made. The
extent to which the Company will be required to attribute distributions to the
prior year will depend on the Company's operating results and the level of
distributions as determined by the Board of Directors. Reliance on subsequent
year distributions could cause the Company to be subject to certain penalty
taxes. In that regard, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
calendar year, (ii) 95% of its REIT capital gain net income for such calendar
year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed during such calendar year
(not taking into account distributions made in subsequent years but attributed
to such calendar year). The Company intends to comply with this 85%
distribution requirement in an effort to minimize any excise tax. Any
distributions required to be made by the Company in order to eliminate any
accumulated earnings and profits of PSMI would not be counted in determining
whether the Company satisfies the 95% distribution test and could adversely
impact upon the Company's ability to satisfy the 95% distribution test. See
"--Consequences of the Merger on the Company's Qualification as a REIT--
Elimination of Any Accumulated Earnings and Profits Attributable to Non-REIT
Years."
For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest. See "--Consequences of the Merger on
the Company's Qualification as a REIT--Acquisition of Affiliated Partnership
Interests in the Merger".
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Applicable Federal Income Tax. If the Company qualifies for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on
net income that it distributes currently to shareholders. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on default of a lease
or a loan secured by the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed above), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% gross income test.
Under the "Built-in Gain Rules" of IRS Notice 88-19, 1988-1 C.B. 486, the
Company will be subject to a corporate level tax if it disposes of any of the
assets acquired in the Merger at any time during the 10-year period beginning
on the closing date of the Merger (the "Restriction Period"), assuming the
Company makes the election pursuant to the Built-in Gain Rules (or applicable
future administrative rules or Treasury regulations) to have the 10-year rule
apply. This tax would be imposed on the Company at the top regular corporate
rate (currently 35%) in effect at the time of the disposition on the excess of
(i) the lesser of (a) the fair market value at the time of the Merger of the
assets disposed of and (b) the selling price of such assets over (ii) the
Company's adjusted basis in such assets at the time of the Merger (such excess
being referred to as the "Built-in Gain"). The Company currently does not
intend to dispose of any of the assets acquired in the Merger during the
Restriction Period, but there can be no assurance that one or more such
dispositions will not occur. If the Company does not make the election to have
the 10-year rule apply, PSMI would be taxed on the Built-in Gain at the time
of the Merger at regular corporate tax rates and the Company, as the successor
to PSMI in the Merger, would succeed to the liability for that tax.
Failure to Qualify as a REIT. For any taxable year that the Company fails to
qualify as a REIT and the relief provisions do not apply, the Company would be
taxed at the regular corporate rates on all of its taxable income, whether or
not it makes any distribution to its shareholders. Those taxes would reduce
the amount of cash available to the Company for distributions to its
shareholders or for reinvestment. As a result, failure of the Company to
qualify during any taxable year as a REIT could have a material adverse effect
upon the Company and its shareholders.
Termination of REIT Election. The Company's election to be treated as a REIT
will terminate automatically if the Company fails to meet the REIT
qualification requirements described above. If a termination (or a voluntary
revocation) occurs, unless certain relief provisions apply, the Company would
not be eligible to elect REIT status again until the fifth taxable year that
begins after the first year for which the Company's election was terminated
(or revoked). If the Company loses its REIT status, but later qualifies and
elects to be taxed as a REIT again, the Company may face significant adverse
tax consequences. Immediately prior to the effectiveness of the election to
return to REIT status, the Company would be treated as if its disposed of all
of its assets in a taxable transaction, triggering taxable gain with respect
to the Company's appreciated assets. (The Company would, however, be permitted
to elect an alternative treatment under which the gains would be taken into
account only as and when they actually are recognized upon sales of the
appreciated property occurring within the 10-year period after return to REIT
status. The Company would not receive the benefit of a dividends paid
deduction to reduce any such taxable gains. Thus, any such gains on
appreciated assets would be subject to double taxation, at the corporate as
well as the shareholder level.
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CONSEQUENCES OF THE MERGER ON THE COMPANY'S QUALIFICATION AS A REIT
In light of the complex federal income tax requirements applicable to REITs,
the Merger could have adverse consequences on the Company's continued
qualification as a REIT, as discussed in greater detail below. Hogan & Hartson
L.L.P. ("Hogan & Hartson"), counsel to the Company, is of the opinion that the
Company will continue to qualify as a REIT following the Merger so long as (A)
the Company has met at all times since the Merger and continues to meet the
stock ownership and gross income requirements applicable to REITs and
(B) either PSMI at the time of (and giving effect to) the Merger was not
considered to have any current or accumulated earnings and profits for tax
purposes or the Company makes distributions prior to the end of 1995 in an
amount sufficient to eliminate such earnings and profits. See "--Nonqualifying
Income", "--Violation of Ownership Requirements," and "--Elimination of Any
Accumulated Earnings and Profits Attributable to Non-REIT Years." Hogan &
Hartson, however, has not opined that the Company will continue to meet the
stock ownership and gross income requirements applicable to REITs following
the Merger or that PSMI did not have current or accumulated earnings and
profits at the time of the Merger, due to the numerous factual determinations
and future events that bear on those conclusions.
The Company's Assumption of Management Activities With Respect to its
Properties. Because of the complex federal income tax requirements
attributable to REITs, a number of federal income tax issues must be addressed
in connection with the Merger that are unique to the Company's status as a
REIT. One issue is whether the Company is permitted to perform property
management functions internally with respect to the mini-warehouse and
business park properties ("Properties") it owns. Generally, a REIT is
permitted to perform services with respect to properties it rents to tenants
so long as such services are usually and customarily rendered in connection
with the rental of space for occupancy only and are not considered to be
"rendered to the occupant." If a REIT performs services beyond this extent,
the rental income received for the use of its property will not qualify as
"rental income" for purposes of the REIT gross income tests. See "--Tax
Treatment of the Company--Technical Requirements for Taxation as a REIT."
Failure of the rental income received for properties that the Company owns to
qualify as "rental income" would result in the disqualification of the Company
as a REIT. See "--Tax Treatment of the Company--Termination of REIT Election."
As a result of the Merger, the Company "self-manages" the Properties it
owns. The Company received a private letter ruling from the IRS to the effect
that, should the Company acquire PSMI and assume and perform the management
activities of its Properties, such property management activities by the
Company would not adversely affect the characterization of the Company's rents
from the Properties as rents from real property. The ruling is based on the
Company's description of those management activities to be performed in
connection with Properties it owns, including maintenance, repair, lease
administration and accounting, and security. The ruling also considers the
ancillary activities to be directly performed by the Lock/Box Company, such as
the sale of inventory products such as locks, boxes, and packing materials.
Nonqualifying Income. The Company must meet several annual gross income
tests to retain its REIT qualification. See "--Tax Treatment of the Company--
Technical Requirements for Taxation as a REIT." Under the 95% gross income
test, the Company must derive at least 95% of its total gross income from
specified classes of income related to real property, dividends, interest or
gains from the sale or other disposition of stock or other securities that do
not constitute "dealer property." Income related to real property includes:
(i) proceeds from the rental of mini-warehouse facilities; (ii) interest on
obligations secured by mortgages on real property; and (iii) gains from the
sale or other disposition of real property (other than real property held by
the Company as a dealer).
After the Merger, the Company assumed and performs property management
activities for the various partnerships and REITs in which the Company has an
interest that own Properties, as well as for various other entities that own
mini-warehouse properties and/or business parks. The Company will receive
management fees from such partnerships, REITs, and other owners in exchange
for the performance of such management activities. The gross income received
by the Company from these property management activities with respect to
Properties owned by other entities (including the REITs in which the Company
has an ownership interest) and advisory
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services rendered to such other entities will be treated as income not
qualifying under the 95% gross income test ("Nonqualifying Income"). See "--
Acquisition of Affiliated Partnership Interests in the Merger." If there were
no change in current revenues of the Company through acquisitions or otherwise
and no other action by the Company to reduce its nonqualifying income (for
example, through the prepayment of management fees described below), the
Company estimates that it would not satisfy the 95% gross income test for 1996
because its nonqualifying income would represent approximately 7% of its total
gross income for 1996. However, the percentage of Nonqualifying Income may be
reduced in a variety of ways. First, the Company could reduce the actual
dollar amount of its Nonqualifying Income. Second, because the income tests
are based on a percentage of total gross income, increases in overall gross
income that result from increases in qualifying rents will reduce the
percentage of Nonqualifying Income. Pursuant to the Company's existing
acquisition program, the Company believes that additional assets that are
expected to be acquired by it during 1995 and 1996 would generate additional
qualifying income, thereby lowering the percentage of total Nonqualifying
Income recognized by it. Finally, to the extent that the Company acquires
properties following the Merger for which it assumed management
responsibilities in connection with the Merger, the management fees received
with respect to such properties would cease to be Nonqualifying Income.
Nevertheless, there can be no assurance that future acquisitions will be made
in amounts or at such times to permit the Company to satisfy these gross
income requirements. Moreover, increases in other Nonqualifying Income may
similarly affect these calculations.
If the Company determines at any time during the year that the receipt of
third-party management fees could adversely affect its ability to satisfy the
95% gross income test, it will notify the third-party property owners to which
it provides property management services and request that management fees be
paid at reduced rates for the remainder of the year. The Company will, to the
extent possible under existing tax guidelines, defer receipt of such fees to a
succeeding year in which recognition of the Nonqualifying Income would not
jeopardize its qualification as a REIT. If such deferral is not possible,
however, the Company would reduce the fees without condition or deferral.
Although this measure would reduce the Company's gross income (and
correspondingly its net profits), it would effectively reduce the Company's
overall Nonqualifying Income in order to preserve its REIT status. The Company
anticipates that this measure will be taken only as necessary and intends to
pursue less costly alternatives when appropriate.
In addition, in order to reduce the amount of Nonqualifying Income, before
December 31, 1995 the Company expects to have certain Properties pre-pay to
the Company all or a portion of the management fees that the Company otherwise
would be expected to receive for 1996, discounted to compensate for early
payment (payment estimated at approximately $4.5 million). Pre-payment of
management fees will reduce the percentage of Nonqualifying Income received by
the Company in taxable years subsequent to such prepayment. Hogan & Hartson is
of the opinion that it is more likely than not that the IRS would respect the
inclusion of the prepaid management fees in the gross income of the Company
when they are received. Hogan & Hartson's opinion is based on numerous cases
where courts have upheld the IRS's position that fees should be included in
income when they are received, rather than when the services to which such
fees relate are performed. There are, however, several contrary authorities
where courts, over the IRS's objections, have held that prepaid amounts are
not included in income in advance of performance. Because of these contrary
authorities, there can be no assurance that the IRS might not assert that such
management fees should be included in the gross income of the Company as the
related management services are provided, rather than being included in the
gross income when they are received. If the IRS were to successfully challenge
the treatment of such management fees and the inclusion of such fees in the
Company's gross income resulted in it failing the 95% gross income test for a
taxable year ending after the Merger, the Company's REIT status may terminate
for such year and future years unless it meets the "good cause" exception
described above. For years subsequent to 1996, assuming that there were no
changes in current revenues of the Company and assuming no acquisition or
development of additional assets, the Company estimates that it would not be
able to satisfy the 95% gross income test unless it were to take further steps
to reduce its percentage of Nonqualifying Income for those years (for example
by deferring the payment of management fees until later years or by disposing
of a portion of its management business, including possibly to a taxable
corporation in which the Company would own substantially all of the economic
interests but none of the voting stock).
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Finally, the Company and the various other owners of mini-warehouses and
business parks for which the Company performs management activities (the
"Owners") have entered into an agreement (the "Administrative and Cost-Sharing
Agreement") with PSCC, Inc. ("PSCC") pursuant to which PSCC provides the
Owners and the Company certain administrative and cost-sharing services in
connection with the operation of the Properties and the performance of certain
administrative functions. Each of the Owners and the Company pay the PSCC
directly for services rendered by PSCC in connection with the Administrative
and Cost Sharing Agreement. That payment is separate from and in addition to
the compensation paid to the Company under the management agreement for the
management of the Properties owned by the Owners. The Company has received a
private letter ruling from the IRS to the effect that the reimbursements and
other payments made to PSCC by the Owners will not be treated as revenues of
the Company for purposes of the 95% gross income test.
If the Company fails to meet the 95% gross income test during any taxable
year, its REIT status would terminate for that year and future years unless it
qualifies for the "good cause" exception. In order to qualify for the "good
cause" exception, the Company would have to satisfy each of the following: (i)
it reported the source and nature of each item of its gross income in its
federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return is not due to fraud with intent to evade tax; and
(iii) the failure to meet such test is due to a reasonable cause and not to
willful neglect. The Company intends to conduct its operations and affairs so
that it meets the 95% gross income test for each taxable year. The Company
also intends to operate so that, in the event it were to fail to meet the 95%
gross income test, it would satisfy the "reasonable cause" requirement of the
"good cause" exception because it exercised ordinary business care and
prudence in attempting to satisfy the 95% gross income test (including by
receiving opinions of counsel where appropriate). There can be no assurance,
however, that if the Company were unable to satisfy the 95% gross income test,
the IRS would necessarily agree that the Company had operated in a manner that
qualifies for the "good cause" exception. Furthermore, even if the Company's
REIT status were not terminated because of the "good cause" exception, the
Company still would be subject to an excise tax on any excess nonqualifying
income. Generally, if the Company fails the 95% gross income test but still
retains its qualification as a REIT under the "good cause" exception, it would
be subject to a 100% excise tax on the amount of the excess nonqualifying
income multiplied by a fraction, the numerator of which would be the Company's
taxable income (computed without its distribution deduction) and the
denominator of which would be the Company's gross income from all sources.
This excise tax would have the general effect of causing the Company to pay
all net profits generated from this excess nonqualifying income to the IRS.
Acquisition of Affiliated Partnership Interests in the Merger. In the
Merger, the Company acquired interests in various partnerships that own and
operate Properties. The Company, for purposes of satisfying the REIT asset and
gross income tests, will be treated as if it directly owns a proportionate
share of each of the assets of these partnerships. For these purposes, under
current Treasury regulations the Company's interest in each of the
partnerships must be determined in accordance with its "capital interest" in
such partnership. The character of the various assets in the hands of the
partnership and the items of gross income of the partnership will retain their
same character in the hands of the Company for these purposes. Accordingly, to
the extent the partnership receives real estate rentals and holds real
property, a proportionate share of such qualified income and assets will be
treated as qualified rental income and real estate assets of the Company for
purposes of determining its REIT qualification. The Company expects that
substantially all of the properties of the partnerships will constitute real
estate assets and will generate qualifying rental income for purposes of the
REIT gross income tests.
The acquisition of these partnership interests in the Merger creates several
issues regarding the Company's satisfaction of the 95% gross income test.
First, the Company will earn property management fees from these partnerships.
Existing Treasury regulations do not address the treatment of management fees
derived by a REIT from a partnership in which the REIT holds a partnership
interest, but the IRS has issued a number of private letter rulings holding
that the portion of the management fee that corresponds to the REIT interest
in the partnership in effect is disregarded in applying the 95% gross income
test where the REIT holds a "substantial" interest in the partnership. The
Company expects to disregard the portion of management fees derived from
partnerships in which it is a partner that corresponds to its interest in
these partnerships in determining the amount of its Nonqualifying Income, and
the estimate of the Company's prepayment of management fees set
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forth above was computed based upon this approach. There can be no assurance,
however, that the IRS would not take a contrary position with respect to the
Company, either rejecting the approach set forth in the private letter rulings
mentioned above or contending that the Company's situation is distinguishable
from those addressed in the private letter rulings (for example, because the
Company does not have a "substantial" interest in the partnerships).
Second, the Company will acquire interests in certain of these partnerships
that entitles the Company to a percentage of profits (either from operations,
or upon a sale, or both) in excess of the percentage of total capital
originally contributed to the partnership with respect to such interest.
Existing Treasury Regulations do not specifically address this situation, and
it is uncertain, based on existing authority, how the Company's "capital
interest" in these partnerships will be determined. This determination is
relevant because it affects both the percentage of the gross rental income of
the partnership that is considered gross rental income (or qualifying income)
to the Company and the percentage of the management fees paid to the Company
that are disregarded in determining the Company's Nonqualifying Income. For
example, if the Company takes the position that it has a 25% "capital
interest" in a partnership (because it would receive 25% of the partnership's
assets upon a sale and liquidation) but the IRS determines it only has a 1%
"capital interest" (because the original holder of the Company's interest only
contributed 1% of the total capital contributed to the partnership), the
Company's share of the qualifying income from the partnership would be reduced
and the portion of the management fee from the partnership that would be
treated as Nonqualifying Income would be increased, thereby adversely
affecting the Company's ability to satisfy the 95% gross income test. In
determining its "capital interest" in the various partnerships in which the
Company acquired an interest in the Merger, the Company will determine the
percentage of the partnership's assets that would be distributed to it if
those assets were sold and distributed among the partners in accordance with
the applicable provisions of the partnership agreements. There can be no
assurance, however, that the IRS will agree with this methodology and not
contend that another, perhaps less favorable, method must be used for purposes
of determining the Company "capital interests." If that were to occur, it
could adversely affect the Company's ability to satisfy the 95% gross income
test following the Merger.
Violation of Ownership Requirements. For the Company to qualify as a REIT
under the Code, no more than 50% in value of its outstanding stock may be
owned, directly or constructively under certain attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. The value of the outstanding
capital stock held by the Hughes Family is currently estimated to be
approximately 45%. Accordingly, no four individuals other than the Hughes
Family may own directly or constructively, in the aggregate, more than 5% of
the value of outstanding stock of the Company. In order to assist the Company
in meeting these ownership restrictions, the Articles of Incorporation and
Bylaws prohibit the actual or constructive ownership of more than 2.0% of the
outstanding shares of all common stock of the Company or more than 9.9% of the
outstanding shares of each class or series of shares of preferred stock of the
Company. (The Articles of Incorporation and Bylaws provide, however, that no
person is deemed to exceed this ownership limitation solely by reason of the
beneficial ownership of shares of any class of stock to the extent that such
shares of stock were beneficially owned by such person at the time of the
Merger.) However, even with these ownership limitations, the Company could
still be in violation of the ownership restrictions if four individuals
unrelated to the Hughes Family were to own the maximum amount of capital stock
permitted under the Articles of Incorporation and Bylaws. Therefore, to
further assist the Company in meeting the ownership restrictions, the Hughes
Family entered into an agreement with the Company for the benefit of the
Company and certain designated charitable beneficiaries restricting their
acquisition of additional shares of the Company's capital stock and providing
that if, at any time, for any reason, more than 50% in value of the Company's
outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of Common Stock of the Company owned by
Wayne Hughes necessary to cure such violation will automatically and
irrevocably be transferred to a designated charitable beneficiary. These
provisions are modeled after certain arrangements that the IRS has ruled in
private letter rulings will preclude a REIT from being considered to violate
the ownership restrictions so long as such arrangements are enforceable as a
matter of state law and the REIT seeks to enforce them as and when necessary.
There can be no assurance, however, that the IRS might not seek to take a
different position with respect to the Company (a private letter ruling is
legally binding only with
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respect to the taxpayer to whom it was issued) or contend that the Company
failed to enforce these various arrangements and, hence, there can be no
assurance that these arrangements will necessarily preserve the Company's REIT
status. No private letter ruling has been sought by the Company from the IRS
with respect to the effect of these arrangements.
Elimination of Any Accumulated Earnings and Profits Attributable to Non-
REIT Years. A REIT is not allowed to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of its first
taxable year in which it has non-REIT earnings and profits to distribute any
such accumulated earnings and profits. In a corporate reorganization
qualifying as a tax free statutory merger, the acquired corporation's current
and accumulated earnings and profits are carried over to the surviving
corporation. Any earnings and profits treated as having been acquired by a
REIT through such a merger will be treated as accumulated earnings and profits
of a REIT attributable to non- REIT years. Accordingly, the accumulated
earnings and profits, if any, of PSMI and its predecessors (including earnings
and profits resulting from transactions undertaken in contemplation of the
Merger or from the Merger itself) carried over to the Company in the Merger
and the Company is required to distribute any such accumulated earnings and
profits prior to the close of 1995 (the year in which the Merger occurred).
Failure to do so would result in disqualification of the Company as a REIT
(unless the "deficiency dividend" procedures described below apply and the
Company complies with those procedures).
The amount of the accumulated earnings and profits of PSMI acquired by the
Company will be based on the consolidated earnings and profits of PSMI
(including each of its predecessors) through and including the date of the
Merger ("Consolidated Accumulated Earnings"). In connection with the Merger,
the Company received a study prepared by PSMI of the earnings and profits of
PSMI and its subsidiaries, taking into account projected income of PSMI and
its predecessors to and including the time of the Merger and distributions to
the PSMI shareholders made at or prior to the time of the Merger, that showed
that PSMI had no Consolidated Accumulated Earnings at the time of the Merger.
The determination of accumulated earnings and profits acquired by the Company
in the Merger ("Acquired Earnings") depends upon a number of factual matters
related to the activities and operations of PSMI and its predecessors during
their entire corporate existence and is subject to review and challenge by the
IRS. There can be no assurance that the IRS will not examine the tax returns
of PSMI and its predecessors for years prior to and including the Merger and
propose adjustments to increase their taxable income. Because the earnings and
profits study used to calculate the amount of Acquired Earnings is based on
these returns, any such adjustments could increase the amount of the Acquired
Earnings. In this regard, the IRS can consider all taxable years of PSMI and
its predecessors as open for review for purposes of determining the amount of
earnings and profits.
Although not free from doubt, "deficiency dividend" procedures may be
available for the Company to distribute any Acquired Earnings that were
subsequently determined to exist as a result of an IRS audit. In order to use
this "deficiency dividend" procedure, the Company would have to make an
additional dividend distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements), in the form of cash, notes, other property, or stock in a
taxable stock dividend, within 90 days of the IRS determination. In addition,
the Company would have to pay to the IRS an interest charge on 50% of the
Acquired Earnings that were not distributed prior to December 31, 1995, from
the date on which its 1995 tax return was due to the date the IRS
determination was made. The statute and Treasury regulations related to the
application of the "earnings and profits distribution" requirement to a REIT
that acquires a "non-REIT" in a reorganization and the availability of the
"deficiency dividend" procedure in those circumstances are not entirely clear,
and there can be no assurance that the IRS would not take the position either
that the "deficiency dividend" procedure is not available (in which case, the
Company would cease to qualify as a REIT effective for its taxable year in
which the Merger occurred) or, alternatively, that even if the procedure is
available, the Company cannot qualify as a REIT for the taxable year in which
the Merger occurred (but it could qualify as a REIT for subsequent years).
30
<PAGE>
TAXATION OF SHAREHOLDERS
Distributions will generally be taxable to Shareholders as ordinary income
to the extent of the Company's earnings and profits. For this purpose,
earnings and profits of the Company will first be allocated to distributions
paid on preferred stock until an amount equal to such distributions has been
allocated thereto. As a result, it is likely that any distributions paid on
preferred stock will be taxable in full as dividends to the holders of
preferred stock. Dividends declared during the last quarter of a calendar year
and actually paid during January of the immediately following calendar year
generally are treated as if received by the shareholders on December 31 of the
calendar year during which they were declared. Distributions paid to
Shareholders will not constitute passive activity income and as a result,
generally cannot be offset by losses from passive activities of Shareholders
subject to the passive activity rules. Distributions designated by the Company
as capital gain dividends generally will be taxed as long-term capital gain to
Shareholders, to the extent that the distributions do not exceed the Company's
actual net capital gain for the taxable year. Corporate Shareholders may be
required to treat up to 20% of any such capital gain dividends as ordinary
income. Distributions by the Company, whether characterized as ordinary income
or as capital gain, are not eligible for the 70% dividends received deduction
for corporations. If the Company should realize a loss, Shareholders will not
be permitted to deduct any share of that loss. Future regulations may require
that Shareholders take into account, for purposes of computing their
individual alternative minimum tax liability, certain tax preference items of
the Company.
The Company may distribute cash in excess of its net taxable income. Upon
distribution of such cash by the Company to Shareholders (other than as a
capital gain dividend), if all of the Company's current and accumulated
earnings and profits have been distributed, the excess cash will be deemed to
be a non-taxable return of capital to each Shareholder to the extent of the
adjusted tax basis of the Shareholder's capital stock. Distributions in excess
of the adjusted tax basis will be treated as gain from the sale or exchange of
the capital stock. A Shareholder who has received a distribution in excess of
current and accumulated earnings and profits of the Company may, upon the sale
of the capital stock, realize a higher taxable gain or a smaller loss because
the basis of the Common Stock as reduced will be used for purposes of
computing the amount of the gain or loss. Generally, gain or loss realized by
a Shareholder upon the sale of capital stock will be reportable as capital
gain or loss. If a Shareholder receives a long-term capital gain dividend from
the Company and has held the capital stock for six months or less, any loss
incurred on the sale or exchange of the capital stock is treated as a long-
term capital loss, to the extent of the corresponding long-term capital gain
dividend received.
If a Shareholder is subject to "backup withholding," the Company will be
required to deduct and withhold from any dividends payable to such Shareholder
a tax of 31%. These rules may apply when a Shareholder fails to supply a
correct taxpayer identification number, or when the IRS notifies the Company
that a Shareholder is subject to the rules or has furnished an incorrect
taxpayer identification number.
The Company is required to demand annual written statements from the record
holders of designated percentages of its capital stock disclosing the actual
owners of the capital stock and to maintain permanent records showing the
information it has received as to the actual ownership of such capital stock
and a list of those persons failing or refusing to comply with such demand.
In any year in which the Company does not qualify as a REIT, distributions
by the Company to Shareholders will be taxable in the same manner discussed
above, except that no distributions can be designated as capital gain
dividends, distributions will be eligible for the corporate dividends received
deduction, and Shareholders will not receive any share of the Company's tax
preference items.
Tax Exempt Investors. In general, a tax exempt entity that is a Shareholder
is not subject to tax on distributions from the Company or gain realized on
the sale of capital stock, provided that the tax exempt entity has not
financed the acquisition of its capital stock with "acquisition indebtedness"
within the meaning of the Code. Special rules apply to organizations exempt
under Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), and such
prospective investors should consult their own tax advisors concerning the
applicable "set aside" and reserve requirements. In addition, certain
distributions by a REIT to a tax-exempt employee's pension trust that owns
more than 10% of the REIT will, in certain circumstances, be treated as
"unrelated business taxable income."
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<PAGE>
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing U.S. Federal income taxation of non-U.S. stockholders
(as defined below) are complex, and the following discussion is intended only
as a summary of such rules. Prospective non-U.S. stockholders should consult
with their tax advisors to determine the impact of U.S. Federal, state, and
local income tax laws on an investment in the REIT, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. For purposes of this discussion, a non-U.S. stockholder is
a holder of Securities that, for U.S. Federal income tax purposes, is not a
"United States person." A "United States person," in turn, means a citizen or
resident of the United States; a corporation, partnership, or other entity
created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; or an estate or trust whose
income is includible in gross income for U.S. Federal income tax purposes
regardless of its source. The following discussion assumes that the Securities
are held as "capital assets" under the Code.
Distributions to a non-U.S. stockholder will generally be subject to tax as
ordinary income to the extent of the Company's current and accumulated
earnings and profits as determined for U.S. Federal income tax purposes. Such
distributions will generally be subject to withholding of such income tax at a
30% rate, unless reduced by an applicable tax treaty or unless such dividends
are treated as effectively connected with a United States trade or business.
If the amount distributed exceeds a non-U.S. stockholder's allocable share of
such earnings and profits, the excess will be treated as a tax-free return of
capital to the extent of such stockholder's adjusted basis in the Securities.
To the extent that such distributions exceed the adjusted basis of a non-U.S.
stockholder's Securities, such distributions will generally be subject to tax
if such stockholder would otherwise be subject to tax on any gain from the
sale or disposition of its Securities, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profits, the
distribution will be subject to withholding at the same rate as dividends.
Amounts so withheld, however, are refundable or creditable against U.S.
Federal tax liability if it is subsequently determined that such distribution
was, in fact, in excess of current and accumulated earnings and profits of the
Company, unless the non-U.S. stockholder is otherwise subject to U.S. Federal
income tax.
For any year in which the Company qualifies as a REIT, distributions to a
non-U.S. stockholder that are attributable to gain from the sales or exchanges
by the Company of "United States real property interests" will be treated as
if such gain were effectively connected with a United States trade or business
and will thus be subject to tax at the normal capital gain rates applicable to
U.S. stockholders (subject to applicable alternative minimum tax) under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate stockholder not
entitled to a treaty exemption. The Company is required to withhold 35% of any
distribution that could be designated by the Company as a capital gains
dividend. This amount may be credited against the non-U.S. stockholder's
FIRPTA tax liability.
Gain recognized by a non-U.S. stockholder upon a sale of its Securities will
generally not be subject to tax under FIRPTA if the Company is a "domestically
controlled REIT," which is defined generally as a REIT in which at all times
during a specified testing period less than 50% in value of its shares were
held directly or indirectly by non-U.S. persons. Because only a minority of
the Shareholders are non-U.S. stockholders, the Company expects to qualify as
a "domestically controlled REIT." Accordingly, a non-U.S. stockholder should
not be subject to U.S. tax from gains recognized upon disposition of the
Securities, provided that such gain is not effectively connected with the
conduct of a United States trade or business and, in the case of an individual
stockholder, such holder is not present in the United States for 183 days or
more during the year of sale and certain other requirements are met.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Securities to a non-U.S. stockholder at an
address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of the Securities is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
32
<PAGE>
certifies its non-U.S. stockholder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements (but
not backup withholding) will also apply to payments of the proceeds of sales
of the Securities by foreign offices of United States brokers, or foreign
brokers with certain types of relationships to the United States, unless the
broker has documentary evidence in its records that the holder is a non-U.S.
stockholder and certain other conditions are met, or the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the non-U.S.
stockholder's U.S. Federal income tax liability, provided that the required
information is furnished to the IRS.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Securities could be
changed by future regulations.
STATE AND LOCAL TAXES
The tax treatment of the Company and the Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status
of the Company in such states. All investors should consult their tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
LEGAL OPINIONS
David Goldberg, senior vice president and general counsel of the Company,
has delivered an opinion to the effect that the securities offered by this
Prospectus will be validly issued, fully paid and nonassessable. Hogan &
Hartson L.L.P., Washington, D.C., has delivered an opinion as to the status of
the Company as a REIT. Mr. Goldberg owns 67,229 shares of Common Stock, 1,000
shares of convertible preferred stock and 500 shares of Senior Preferred
Stock, and has options to acquire an additional 62,500 shares of Common Stock.
See "Certain Federal Income Tax Considerations."
EXPERTS
The consolidated financial statements of the Company for the year ended
December 31, 1994 incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report with respect thereto. The following have also been audited by Ernst &
Young LLP as set forth in their reports with respect thereto: (i) the
financial statements of Public Storage Properties VII, Inc. which is included
in the Registration Statement on Form S-4 (No. 33-58893) of Storage Equities,
Inc., (ii) the combined statements of assets, liabilities and deficit of the
property management and advisory businesses of Public Storage, Inc. as of
December 31, 1994 and 1993 and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1994, and our report dated July 10, 1995 on the combined summaries of
historical information relating to real estate interests to be acquired for
each of the three years in the period ended December 31, 1994 which are
included in the Current Report on Form 8-K, as amended by a Form 8-K/A, each
dated June 30, 1995, of Storage Equities, Inc., and (iii) the combined
statements of assets, liabilities and equity of the property management and
advisory businesses and real estate assets of Public Storage, Inc. as of
December 31, 1994 and 1993 and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1994 which are included in the Current Report on Form 8-K dated November 16,
1995, of Public Storage, Inc. Such financial statements are incorporated
herein in reliance upon such reports given upon the authority of such form as
experts in accounting and auditing.
33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS, OFFICERS AND AGENTS.
In August 1988, the Company's Articles of Incorporation were amended (as
approved by the shareholders in August 1988) to provide that the Company may
indemnify the agents of the Company to the maximum extent permitted under
California law. See Section V of the Certificate of Amendment of Articles of
Incorporation (Exhibit 3.11) and Article VII of the By-Laws (Exhibit 3.12)
which are incorporated herein by this reference. In October 1988, the Company
also entered into indemnity agreements (in the form approved by the
shareholders in August 1988) with its management and non-management directors
and executive officers. The agreements permit the Company to indemnify
directors and executive officers to the maximum extent permitted under
California law and prohibit the Company from terminating its indemnification
obligations as to acts or omissions of any director or executive officer
occurring before the termination. The indemnification and limitations on
liability permitted by the amendment to the Articles of Incorporation and the
agreements are subject to the limitations set forth by California law. The
Company believes the indemnification agreements will assist it in attracting
and retaining qualified individuals to serve as directors and executive
officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits: See Exhibit Index contained herein.
(b) Financial Statement Schedules:
See Index to Financial Statement Schedules in registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
All other financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
II-1
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remains unsold at the termination of
the offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(7) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(8) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective data of the registration statement through
the date of responding to the request.
(9) Except as permitted by General Instruction H to Form S-4 (in a
transaction not covered by General Instruction I), the undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glendale, State of
California, on the 12th day of December, 1995.
PUBLIC STORAGE, INC.
By: /s/ B. WAYNE HUGHES
__________________________________
B. Wayne Hughes,
Chairman of the Board
Each person whose signature appears below hereby authorizes B. Wayne Hughes
and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his
behalf, individually and in each capacity stated below, any amendment,
including post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ B. WAYNE HUGHES Chairman of the Board, Chief December 12, 1995
____________________________________ Executive Officer and
B. Wayne Hughes Director (principal
executive officer)
/s/ HARVEY LENKIN President and Director December 12, 1995
____________________________________
Harvey Lenkin
/s/ RONALD L. HAVNER, JR. Senior Vice President and December 12, 1995
____________________________________ Chief Financial Officer
Ronald L. Havner, Jr. (principal financial officer
and principal accounting
officer)
/s/ ROBERT J. ABERNETHY Director December 12, 1995
____________________________________
Robert J. Abernethy
/s/ DANN V. ANGELOFF Director December 12, 1995
____________________________________
Dann V. Angeloff
/s/ WILLIAM C. BAKER Director December 12, 1995
____________________________________
William C. Baker
/s/ URI P. HARKHAM Director December 12, 1995
____________________________________
Uri P. Harkham
/s/ BERRY HOLMES Director December 12, 1995
____________________________________
Berry Holmes
/s/ MICHAEL M. SACHS Director December 12, 1995
____________________________________
Michael M. Sachs
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Agreement and Plan of Reorganization by and among Public Storage,
Inc., Public Storage Management, Inc. and the registrant dated as of
June 30, 1995.(2)
2.2 Amendment to Agreement and Plan of Reorganization by and among Public
Storage, Inc., Public Storage Management, Inc. and the registrant
dated as of November 13, 1995.(3)
3.1 Restated Articles of Incorporation.(4)
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A.(4)
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B.(4)
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock,
Series B.(5)
3.5 Certificate of Determination for the 8.25% Convertible Preferred
Stock.(4)
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C.(4)
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D.(6)
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E.(7)
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F.(8)
3.10 Certificate of Determination for the Convertible Participating
Preferred Stock.(9)
3.11 Certificate of Amendment of Articles of Incorporation.(9)
3.12 Bylaws, as amended.(10)
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.(10)
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.(10)
10.1 Loan Agreement between the registrant and Aetna Life Insurance Company
dated as of July 11, 1988.(11)
10.2 Amendment to Loan Agreement between the registrant and Aetna Life
Insurance Company dated as of September 1, 1993.(12)
10.3 Credit Agreement by and among the registrant, Wells Fargo Bank
National Association, as agent, and the financial institutions party
thereto dated as of May 22, 1995.(13)
10.4 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., the registrant and the holders
of the notes dated as of November 13, 1995.(10)
*10.5 Registrant's 1990 Stock Option Plan.(14)
*10.6 Registrant's 1994 Stock Option Plan.(14)
12.1 Statement on computation of ratio of earnings to fixed charges.(15)
23.1 Consent of Independent Auditors.(10)
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
</TABLE>
II-4
<PAGE>
- --------
(1) To be filed by amendment or incorporated by reference in connection with
the offering of Securities.
(2) Filed as Appendix A to the registrant's Proxy Statement dated October 11,
1995 (filed October 13, 1995) and incorporated herein by reference.
(3) Filed with the Registrant's Current Report on Form 8-K dated November 16,
1995 and incorporated herein by reference.
(4) Filed with the registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
(5) Filed with the registrant's Registration Statement No. 33-56925 and
incorporated herein by reference.
(6) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 9.50% Cumulative Preferred Stock, Series D and incorporated herein by
reference.
(7) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 10% Cumulative Preferred Stock, Series E and incorporated herein by
reference.
(8) Filed with the registrant's Form 8-A/A Registration Statement relating to
the 9.75% Cumulative Preferred Stock, Series F and incorporated herein by
reference.
(9) Filed with registrant's Registration Statement No. 33-63947 and
incorporated herein by reference.
(10) To be filed by amendment.
(11) Filed with the registrant's Current Report on Form 8-K dated July 14,
1988 and incorporated herein by reference.
(12) Filed with the registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(13) Filed with the registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995 and incorporated herein by
reference.
(14) Filed with the registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
(15) Filed with registrant's Form 10-Q for the quarterly period ended
September 30, 1995 and incorporated herein by reference.
*Compensatory Benefit Plan.
II-5
