<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
---------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________.
Commission File Number: 1-8389
----------
STORAGE EQUITIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
California 95-3551121
- --------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 North Brand Blvd., Glendale, California 91203-1241
- --------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 9, 1995:
Common Stock, $.10 par value, 42,042,616 shares outstanding
- -------------------------------------------------------------
<PAGE>
STORAGE EQUITIES, INC.
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Balance Sheets at June 30, 1995
and December 31, 1994 1
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1995 and 1994 2
Condensed Consolidated Statement of Shareholders' Equity 3
Condensed Consolidated Statements of Cash Flows for
Six Months Ended June 30, 1995 and 1994 4 - 5
Notes to Condensed Consolidated Financial Statements 6 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 28
PART II. OTHER INFORMATION (Items 1, 2 and 3 are not applicable)
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 30
</TABLE>
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 89,759,000 $ 20,151,000
Real estate facilities, at cost,
net of accumulated depreciation
of $219,649,000 ($202,745,000 at
December 31, 1994) 994,006,000 764,973,000
Mortgage notes receivable from
affiliates 14,352,000 23,062,000
Other assets 18,740,000 12,123,000
-------------- -------------
Total assets $1,116,857,000 $ 820,309,000
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Note payable to banks $ - $ 25,447,000
Mortgage notes payable 58,497,000 51,788,000
Accrued and other liabilities 34,160,000 14,061,000
-------------- -------------
Total liabilities 92,657,000 91,296,000
Minority interest 131,536,000 141,227,000
Shareholders' equity:
Preferred Stock, $.01 par value,
50,000,000 shares authorized,
13,406,000 shares issued and
outstanding (8,911,000 shares
at December 31, 1994), at
liquidation preference:
Cumulative Senior Preferred Stock,
issued in series (Note 9) 277,650,000 165,275,000
Convertible preferred stock 57,500,000 57,500,000
Common stock, $.10 par value,
60,000,000 shares authorized,
42,042,616 shares issued and
outstanding (28,826,707 at
December 31, 1994) 4,205,000 2,883,000
Paid-in capital 561,985,000 372,361,000
Cumulative net income 202,236,000 172,485,000
Cumulative distributions paid (210,912,000) (182,718,000)
-------------- -------------
Total shareholders' equity 892,664,000 587,786,000
-------------- -------------
Total liabilities and
shareholders' equity $1,116,857,000 $ 820,309,000
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1995 1994 1995 1994
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $46,094,000 $33,948,000 $88,068,000 $65,247,000
Interest and other income 1,818,000 1,643,000 3,042,000 3,293,000
----------- ----------- ----------- -----------
47,912,000 35,591,000 91,110,000 68,540,000
----------- ----------- ----------- -----------
EXPENSES:
Cost of operations 16,535,000 12,762,000 32,342,000 24,688,000
Depreciation and amortization 8,779,000 6,730,000 16,926,000 13,541,000
General and administrative 645,000 640,000 1,736,000 1,380,000
Advisory fee 1,816,000 1,237,000 3,426,000 2,356,000
Interest expense 1,694,000 1,286,000 3,214,000 2,844,000
----------- ----------- ----------- -----------
29,469,000 22,655,000 57,644,000 44,809,000
----------- ----------- ----------- -----------
Income before minority
interest 18,443,000 12,936,000 33,466,000 23,731,000
Minority interest in income (1,892,000) (2,742,000) (3,715,000) (4,791,000)
----------- ----------- ----------- -----------
Net income $16,551,000 $10,194,000 $29,751,000 $18,940,000
=========== =========== =========== ===========
Allocation of net income:
- -------------------------
Net income allocable to
preferred shareholders $ 7,332,000 $ 3,649,000 $13,308,000 $ 7,298,000
Net income allocable to
common shareholders 9,219,000 6,545,000 16,443,000 11,642,000
----------- ----------- ----------- -----------
Net income $16,551,000 $10,194,000 $29,751,000 $18,940,000
=========== =========== =========== ===========
Net income per common share $ 0.26 $ 0.28 $ 0.50 $ 0.52
=========== =========== =========== ===========
Weighted average common
shares outstanding 34,792,185 23,887,332 32,707,556 22,436,885
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1995
(Amounts in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
------------------------ Total
Cumulative Common Paid-in Cumulative Cumulative Shareholders'
Senior Convertible Stock Capital Net Income Distributions Equity
---------- ----------- ------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $165,275 $57,500 $2,883 $372,361 $172,485 $(182,718) $587,786
Issuance of Cumulative
Preferred Stock:
Series E (2,195,000 shares) 54,875 - - (1,987) - - 52,888
Series F (2,300,000 shares) 57,500 - - (2,011) - - 55,489
Issuance of Common Stock:
In connection with mergers
(6,664,287 shares) - - 667 99,305 - - 99,972
Less: cost of issuance shares
in connection with mergers - - - (2,500) - - (2,500)
Public offerings (5,482,200
shares) - - 548 81,520 - - 82,068
Other (1,069,422 shares) - - 107 15,297 - - 15,404
Net income - - - - 29,751 - 29,751
Cash distributions:
Cumulative Senior
Preferred Stock: - - - - - - -
Series A ($1.250 per share) - - - - - (2,282) (2,282)
Series B ($1.150 per share) - - - - - (2,744) (2,744)
Series C ($1.066 per share) - - - - - (1,279) (1,279)
Series D ($1.188 per share) - - - - - (1,426) (1,426)
Series E ($1.042 per share) - - - - - (2,286) (2,286)
Series F ($0.400 per share) - - - - - (919) (919)
Convertible Preferred Stock
($1.031 per share) - - - - - (2,372) (2,372)
Common Stock ($.44 per share) - - - - - (14,886) (14,886)
-------- ------- ------ -------- -------- --------- --------
Balances at June 30, 1995 $277,650 $57,500 $4,205 $561,985 $202,236 $(210,912) $892,664
======== ======= ====== ======== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,751,000 $ 18,940,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
(including amortization of
mortgage notes receivable
discounts) 16,859,000 130,035,000
Minority interest in income 3,715,000 4,791,000
Other (851,000) (282,000)
------------- ------------
Total adjustments 19,723,000 17,544,000
------------- ------------
Net cash provided by
operating activities 49,474,000 36,484,000
------------- ------------
Cash flows from investing activities:
Principal payments received
on mortgage notes receivable
from affiliates 311,000 5,283,000
Acquisitions of real estate
facilities (61,980,000) (59,820,000)
Acquisition cost of mergers (21,427,000) -
Capital improvements to
maintain real estate facilities (3,306,000) (2,298,000)
Construction in process (3,400,000) -
Acquisition of minority
interests in real estate
partnerships (10,735,000) (15,710,000)
Acquisition of mortgage notes
receivable - (4,020,000)
Other (1,031,000) (65,000)
------------- ------------
Net cash used in investing
activities (101,568,000) (76,630,000)
------------- ------------
Cash flows from financing activities:
Net pay downs on note payable
to banks (25,447,000) (35,770,000)
Net proceeds from the issuance
of preferred stock 108,377,000 28,900,000
Net proceeds from the issuance
of common stock 80,340,000 78,748,000
Principal payments on mortgage
notes payable (5,418,000) (4,568,000)
Distributions paid to
shareholders (28,194,000) (17,230,000)
Distributions from operations
to minority interest in real
estate partnerships (9,107,000) (12,085,000)
Reinvestment by minority
interests into real estate
partnerships 1,151,000 3,631,000
------------- ------------
Net cash provided by financing
activities 121,702,000 41,626,000
------------- ------------
Net increase in cash and cash
equivalents 69,608,000 1,480,000
Cash and cash equivalents at the
beginning of the period 20,151,000 10,532,000
------------- ------------
Cash and cash equivalents at the end of
the period $ 89,759,000 $ 12,012,000
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
STORAGE EQUITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(CONTINUED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cancellation of mortgage notes
receivable to acquire real
estate facilities $ 8,466,000 $ 5,001,000
Assumption of mortgage notes
payable upon the acquisition of
real estate facilities 12,127,000 5,913,000
Reduction in other assets -
deposits on real estate acquisitions - 4,350,000
Issuance of common stock:
- to acquire real estate facilities 10,598,000 -
- to acquire partnership
interests in real estate entities 4,034,000 -
- in connection with mergers 99,972,000 -
Acquisition of partnership interests
in real estate entities in exchange for
common stock (4,034,000) -
Acquisition of real estate facilities in
exchange for the cancellation of mortgage
notes receivable, the assumption of
mortgage notes payable, reduction in
deposits made to acquire real estate
facilities and issuance of common stock (31,191,000) (15,264,000)
Increase in accrued and other
liabilities - accrued cash portion
of merger cost 14,007,000 -
Merger acquisitions (Note 3):
Real estate facilities (140,775,000) -
Other assets (1,441,000) -
Accrued and other liabilities 6,810,000 -
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
1. Description of the business
---------------------------
Storage Equities, Inc. (the "Company") is a California corporation
that invests primarily in existing mini-warehouses which offer self-storage
spaces for lease, usually on a month-to-month basis, for personal and
business use. The Company, to a lesser extent, has also invested in business
park facilities containing commercial and industrial rental space.
At June 30, 1995, the Company had equity interests (through direct
ownership, as well as general and limited partnership interests) in 489
properties located in 37 states, including 450 mini-warehouse facilities, 19
business parks and 20 combination mini-warehouse/business park facilities.
In addition to the 235 properties owned wholly by the Company, an additional
238 properties owned by real estate partnerships have been included in the
consolidated financial statements (see below). All of these facilities are
operated under the "Public Storage" name.
As of June 30, 1995, the Company has invested in 211 properties
jointly through general partnerships (the "Joint Ventures") with PS Partners,
Ltd. ("PSP-1"); PS Partners II, Ltd. ("PSP-2"); PS Partners III, Ltd. ("PSP-
3"); PS Partners IV, Ltd. ("PSP-4"); PS Partners V, Ltd. ("PSP-5"); PS
Partners VI, Ltd. ("PSP-6"); and PS Partners VII, Ltd. ("PSP-7"). In
addition, the Company also owns limited partnership units and general
partnership interests in each of the above partnerships including PS Partners
VIII, Ltd. ("PSP-8"). These eight publicly-held partnerships (collectively
the "PSP Partnerships") are affiliates of the Company.
2. Summary of significant accounting policies
------------------------------------------
Basis of presentation
---------------------
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six months ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1995. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for year ended December 31, 1994.
6
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
2. Summary of significant accounting policies (Cont'd.)
----------------------------------------------------
Basis of presentation (Cont'd.)
-------------------------------
The condensed consolidated financial statements include the accounts of
the Company and the PSP Partnerships. The Company through its direct
ownership interests in the Joint Ventures combined with its limited and
general partnership interests owns a significant economic interest in each of
the PSP Partnerships (Note 7). In addition, the Company is able to exercise
significant control over the PSP Partnerships through its (i) position as a
co-general partner, (ii) ownership of significant limited partnership
interests and (iii) ability to compel the sale of the properties held in the
Joint Ventures; such properties represent a significant majority of the PSP
Partnerships' investment portfolio.
The Company's aggregate cost of its interests in the PSP Partnerships
is less than the historical book value of such interests in the underlying
net assets of the PSP Partnerships. In consolidation, the difference between
the Company's cost and the historical carrying value of the underlying
properties has been allocated to the real estate facilities and is being
amortized over the remaining lives of the real estate facilities.
Allowance for possible losses
-----------------------------
The Company has no allowance for possible losses relating to any of its
real estate investments, including mortgage notes receivable. The need for
such an allowance is evaluated by management by means of periodic reviews of
its investment portfolio.
Depreciation
------------
Depreciation is computed using the straight-line method over the
estimated useful lives of the buildings and improvements, which is generally
between 5 and 25 years. Leasing commissions relating to the business park
operations are expensed as incurred.
Under the terms of the joint venture agreements, depreciation with
respect to the Joint Ventures is allocated first to the PSP Partnerships to
the extent of their original capital contribution then to the Company to the
extent of its original capital contribution and thereafter pro rata based on
ownership interests in each respective Joint Venture.
7
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
2. Summary of significant accounting policies (Cont'd.)
----------------------------------------------------
Net income per common share
---------------------------
Net income per common share is computed using the weighted average
common shares outstanding (adjusted for stock options). The Company's
preferred stock has been determined not to be common stock equivalents. In
computing earnings per common share, the preferred stock dividends reduced
income available to common stockholders. Fully diluted earnings per common
share are not presented, as the assumed conversion of the 8.25% Convertible
Preferred Stock would be anti-dilutive.
Revenue recognition
-------------------
Property rents are recognized as earned.
Interest income on mortgage notes receivable is recognized using the
effective rate of interest.
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and Public
-----------------------------------------------------------------------------
Storage Properties VII, Inc. ("Properties 7")
---------------------------------------------
On February 28, 1995 and June 30, 1995, the Company completed separate
merger transactions with Properties 6 and Properties 7, respectively,
whereby the Company acquired all the outstanding stock of Properties 6 and
Properties 7 in exchange for cash and common stock of the Company.
Properties 6 and Properties 7 were real estate investment trusts and
affiliates of the Company's investment adviser (Public Storage Advisers,
Inc., the "Adviser").
Properties 6 owned and operated 22 mini-warehouse facilities and one
combination mini-warehouse/business park facility (approximately 1,453,000
square feet). Pursuant to the merger, the Company acquired all of the
outstanding stock of Properties 6 for an aggregate cost of $65,342,000
consisting of the issuance of 3,147,015 shares of the Company's common stock
(with an aggregate value of $43,915,000) and $21,427,000 in cash. The merger
has been accounted for as a purchase, accordingly, allocations of the total
acquisition cost to the net assets acquired were made based on the fair value
of such assets and liabilities as of February 28, 1995. The fair market
values of the assets acquired and liabilities assumed are summarized as
follows:
8
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and Public
-----------------------------------------------------------------------------
Storage Properties VII, Inc. ("Properties 7") (Cont'd.)
-------------------------------------------------------
<TABLE>
<CAPTION>
At February 28, 1995
--------------------
<S> <C>
Real estate facilities $66,475,000
Other assets 279,000
Accrued and other liabilities (1,412,000)
-----------
$65,342,000
===========
</TABLE>
Properties 7 owned and operated 34 mini-warehouse facilities, three
business parks, and one combination mini-warehouse/business park facility
(approximately 2,014,000 square feet). Pursuant to the merger, the Company
acquired all of the outstanding stock of Properties 7 for an aggregate cost
of $70,064,000 consisting of the issuance of 3,517,272 shares of the
Company's common stock (with an aggregate value of $56,057,000) and
$14,007,000 in cash. The merger has been accounted for as a purchase,
accordingly, allocations of the total acquisition cost to the net assets
acquired were made based on the fair value of such assets and liabilities as
of June 30, 1995. The fair market values of the assets acquired and
liabilities assumed are summarized as follows:
<TABLE>
<CAPTION>
At June 30, 1995
----------------
<S> <C>
Real estate facilities $74,300,000
Other assets 1,162,000
Accrued and other liabilities (5,398,000)
-----------
$70,064,000
===========
</TABLE>
The historical operating results of Properties 6 (prior to February 28,
1995) and Properties 7 have not been included in the Company's historical
operating results. Pro forma data (unaudited) for the six months ended June
30, 1995 and 1994 as though the merger transactions had been effective at the
beginning of each period are as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues $99,600,000 $80,227,000
Net income 32,313,000 22,298,000
Net income per common share $ 0.51 $ 0.52
</TABLE>
9
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
3. Acquisition of Public Storage Properties VI, Inc. ("Properties 6") and Public
-----------------------------------------------------------------------------
Storage Properties VII, Inc. ("Properties 7") (Cont'd)
------------------------------------------------------
The pro forma data does not purport to be indicative either of results
of operations that would have occurred had the purchase been made at the
beginning of each period or future results of operations of the Company.
Certain pro forma adjustments were made to the combined historical amounts to
reflect (i) expected reductions in general and administrative expenses, (ii)
estimated increased interest expense from bank borrowings to finance the cash
portion of the acquisition cost, (iii) estimated increase in depreciation and
amortization expense, and (iv) estimated increased advisory fee expense.
4. Real estate facilities
----------------------
In addition to the 61 facilities acquired in connection with the
mergers, the Company acquired 27 mini-warehouse facilities (approximately
1,669,946 square feet) for an aggregate cost of $81,765,000 during the six
months ended June 30, 1995, consisting of the cancellation of mortgage notes
receivable totaling $8,466,000, the assumption of mortgage notes payable
totaling $12,127,000, and cash totaling $61,172,000. At December 31, 1994,
affiliates of Adviser, had participation interests of up to 25% in 21 mini-
warehouse facilities owned by the Company. During the first six months of
1995, the Company acquired these participation interests from such affiliates
for $10,598,000 in common stock of the Company and cash totaling $808,000.
The cost of these participation interests has been included in real estate
facilities as part of the acquisition cost of the respective facilities.
Several mini-warehouse facilities which were acquired during 1995 were
acquired directly from affiliates of the Adviser (principally private limited
partnerships whose limited partners are unrelated to the Company and whose
general partners are affiliates of the Adviser). The aggregate acquisition
cost of these real estate facilities was approximately $38,262,000. In
addition, one mini-warehouse facility was acquired from an unrelated third
party subject to participation interests owned by an affiliate of the Adviser
(the participation interest was purchased prior to the acquisition). The
aggregate acquisition cost of this facility was approximately $1,868,000.
During 1995, the Company began construction of two mini-warehouse
facilities. Included in real estate facilities at June 30, 1995 is
approximately $3,400,000 of costs related to the construction in process.
10
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
5. Mortgage notes receivable from affiliates
-----------------------------------------
At June 30, 1995, mortgage notes receivable balance of $14,352,000 is
net of related discounts totaling $525,000. The mortgage notes bear interest
at stated rates ranging from 8.5% to 11.97% (effective interest rates ranging
from 10% to 14.8%) and are secured by 8 mini-warehouse facilities.
During 1995, the Company canceled mortgage notes which had a net
carrying value of $8,466,000, as part of the acquisition cost of the
underlying real estate facility securing the mortgage note. See Note 4.
6. Minority interest
-----------------
Minority interest consists principally of equity interests in the PSP
Partnerships which are not owned by the Company consisting of limited
partnership interests owned by unaffiliated third parties.
During 1995, pursuant to cash tender offers, the Company acquired
approximately 23.9% and 12.9% of the limited partnership units in PSP-1 and
PSP-8 for an aggregate cost of approximately $10,735,000. These transactions
had the effect of reducing minority interest by approximately $5,450,000 (the
historical book value of such interests in the underlying net assets of the
partnerships).
Minority interest in income consists of the minority interests' share
of the operating results of the Company relating to the consolidated
operations of the PSP Partnerships. In determining income allocable to the
minority interests for the six months ended June 30, 1995 and 1994
consolidated depreciation and amortization expense of approximately
$5,392,000 and $7,294,000, respectively, was allocated to the minority
interest ($2,619,000 and $3,241,000 for the three months ended June 30, 1995
and 1994, respectively).
7. Advisory and management contracts
---------------------------------
Pursuant to an advisory contract, the Company paid the Adviser advisory
fees of approximately $3,426,000 and $2,356,000 for the six months ended June
30, 1995 and 1994, respectively ($1,816,000 and $1,237,000 for the three
months ended June 30, 1995 and 1994, respectively). The Adviser advises the
Company with respect to its investments and administers the daily corporate
operations of the Company.
Public Storage Management, Inc. ("PSMI") and Public Storage Commercial
Properties Group, Inc. ("PSCP"), also affiliates of the Company's Adviser,
operate all of the Company's real property investments pursuant to a Property
Management Agreement for a fee which is equal to 6% of the gross revenues of
the mini-warehouse spaces operated and 5% of the gross revenues of the
business park facilities operated. Management fees relating to the Company's
real estate
11
<PAGE>
STORAGE EQUITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
7. Advisory and management contracts (Cont'd)
------------------------------------------
facilities, which are included in cost of operations, amounted to
$5,205,000 and $3,840,000 for the six months ended June 30, 1995 and 1994,
respectively ($2,774,000 and $2,004,000 for the three months ended June 30,
1995 and 1994, respectively).
8. Shareholders' equity
--------------------
Common stock
------------
During 1995, the Company issued shares of its common as follows: (i)
25,000 shares ($190,000) in connection with exercise of stock options, (ii)
40,000 shares ($582,000) to directors/officers of the Company for cash,
(iii) 747,355 shares ($10,598,000) to acquire participation interests in
mini-warehouse facilities owned by the Company (see Note 4), (iv) 257,067
shares ($4,034,000) to acquire the participation interests in mini-
warehouses owned by affiliates of the Adviser, (v) 5,482,200 shares
($82,068,000) in a public offering, and (vi) 6,664,287 shares ($99,972,000)
in connection with the mergers (Note 3). All the shares of common stock,
with the exception of the shares issued in connection with the exercise of
stock options, were issued at the prevailing market price at the time of
issuance. In connection with the issuance of common shares pursuant to the
mergers, the Company incurred related costs and expenses of approximately
$2,500,000.
Preferred stock
---------------
At June 30, 1995 and December 31, 1994, the Company had the following
Series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
Shares Outstanding Liquidation Preference
------------------------------- --------------------------------
Dividend June 30, December 31, June 30, December 31,
Series Rate 1995 1994 1995 1994
---------- --------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
A 10.00% 1,825,000 1,825,000 $ 45,625,000 $ 45,625,000
B 9.20% 2,386,000 2,386,000 59,650,000 59,650,000
C Adjustable 1,200,000 1,200,000 30,000,000 30,000,000
D 9.50% 1,200,000 1,200,000 30,000,000 30,000,000
E 10.00% 2,195,000 - 54,875,000 -
F 9.75% 2,300,000 - 57,500,000 -
Convertible 8.25% 2,300,000 2,300,000 57,500,000 57,500,000
---------- --------- ------------ ------------
13,406,000 8,911,000 $335,150,000 $222,775,000
========== ========= ============ ============
</TABLE>
12
<PAGE>
9. Shareholders' equity (Cont'd.)
------------------------------
On February 1, 1995, the Company issued 2,195,000 shares of its 10.0%
Cumulative Preferred Stock, Series E (the "Series E Preferred Stock") in
connection with a public offering raising net proceeds of approximately
$52,888,000.
On May 3, 1995, the Company issued 2,300,000 shares of its 9.75%
Cumulative Preferred Stock, Series F (the "Series F Preferred Stock") in
connection with a public offering raising net proceeds of approximately
$55,489,000.
The Series A, Series B, Series C, Series D, Series E and Series F
(collectively the "Cumulative Senior Preferred Stock") have general
preference rights with respect to liquidation and quarterly distributions.
With respect to the payment of dividends and amounts upon liquidation, the
Convertible Preferred Stock ranks junior to the Cumulative Senior Preferred
Stock and any other shares of preferred stock of the Company ranking on a
parity with or senior to the Cumulative Senior Preferred Stock. The
Convertible Preferred Stock ranks senior to the common stock, any additional
class of common stock and any series of preferred stock expressly made junior
to the Convertible Preferred Stock. In addition, the payment of advisory fees
is subordinated to the payment of quarterly dividends to the Cumulative
Senior Preferred Stock.
Dividends
---------
Dividends for the second quarter of 1995 totaled $8,428,000 ($.220 per
quarter for each common share) to common shareholders, $1,141,000 ($.625 per
quarter for each preferred share) to holders of the Series A Preferred Stock,
$1,372,000 ($.575 per quarter for each preferred share) to holders of the
Series B Preferred Stock, $629,000 ($.525 per quarter for each preferred
share) to holders of the Series C Preferred Stock, $713,000 ($.594 per
quarter for each preferred share) to holders of the Series D Preferred Stock,
$1,372,000 ($.625 per quarter for each preferred share) to holders of the
Series E Preferred Stock, $919,000 ($.400 per quarter for each preferred
share) to holders of the Series F Preferred Stock and $1,186,000 ($.516 per
quarter for each preferred share) to holders of the Convertible Preferred
Stock.
The dividend rate on the Series C Preferred Stock for the second
quarter of 1995 was equal to 8.393% per annum. The dividend rate per annum
will be adjusted quarterly and will be equal to the highest of one of three
U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
and Thirty Year Constant Maturity Rate) multiplied by 110%. However, the
dividend rate for any dividend period will not be less than 6.75% per annum
nor greater than 10.75% per annum. The dividend rate with respect to the
third quarter of 1995 will be equal to 7.249% per annum.
13
<PAGE>
10. Proposed Merger and Restructure
-------------------------------
The Company has entered into an Agreement and Plan of
Reorganization by and among PSI, PSMI and the Company, dated as of June 30,
1995, pursuant to which PSMI would be merged into the Company. Prior to the
merger, substantially all of the United States real estate interests of PSI,
together with the Adviser and PSCP, will be combined into PSMI. In the
merger, the outstanding capital stock of PSMI would be converted into an
aggregate of 30,000,000 shares of Common Stock of the Company (subject to
certain adjustments) and 7,000,000 shares of newly created Class B Common
Stock of the Company. The merger was approved by a special committee of
disinterested directors of the Company and by the Company's Board of
Directors. The merger is subject to a number of conditions, including
approval by the Company's common shareholders and delivery of a fairness
opinion from Robertson, Stephens & Company, L.P. The Company's Form 8-K
dated June 30, 1995 (filed July 19 ,1995) is incorporated herein by this
reference.
11. Events subsequent to June 30, 1995
----------------------------------
In July 1995, the Company completed a cash tender offer for up to
45% of the 150,000 outstanding limited partnership units in PSP-6 at $281 per
unit. The Company acquired 19,088 units (representing approximately 13% of
the total units) of PSP-6 for a total cost of approximately $5.4 million
(including related costs and expenses). The Company has commenced another
tender offer for units in PSP-6 at the same price.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
RESULTS OF OPERATIONS
---------------------
Three months ended June 30, 1995 compared to the three months ended
-------------------------------------------------------------------
June 30, 1994
-------------
Net income for the three months ended June 30, 1995 was $16,551,000
compared to $10,194,000 for the same period in 1994, representing an increase
of $6,357,000. Net income allocable to common shareholders increased to
$9,219,000 for the three months ended June 30, 1995 from $6,545,000 for the
three months ended June 30, 1994. The increase in net income and net income
allocable to common shareholders were primarily the result of improved
property operations, the acquisition of additional real estate facilities
during 1995 and 1994, and the acquisition of additional partnership interests
during 1995 and 1994. Net income per common share was $0.26 per share (based
on weighted average shares outstanding of 34,792,185) for the three months
ended June 30, 1995 compared to $0.28 per share (based on weighted average
shares outstanding of 23,887,332) for the same period in 1994. The decrease
in net income per share was principally due to increasing depreciation
expense allocable to the common stock shareholders, including depreciation
allocable to the limited partnership interests acquired by the Company.
During the three months ended June 30, 1995, property net operating
income (rental income less cost of operations and depreciation expense)
improved compared to the same period in 1994. Rental income increased
$12,146,000 or 36% from $33,948,000 for the three months ended June 30, 1994
to $46,094,000 for the same period in 1995, cost of operations increased
$3,773,000 or 30% from $12,762,000 for the three months ended June 30, 1994
to $16,535,000 for the same period in 1995 and depreciation expense increased
by $2,115,000 from $6,642,000 for the three months ended June 30, 1994 to
$8,757,000 for the same period in 1995, resulting in a net increase in
property net operating income of $6,258,000 or 43%. Property net operating
income prior to the reduction for depreciation expense increased by
$8,373,000 or 40% from $21,186,000 for the three months ended June 30, 1994
to $29,559,000 for the same period in 1995.
The Company generally analyzes the operating results of its real estate
portfolio in three different categories; (i) mini-warehouse properties owned
since December 31, 1991 (referred to as "Same Stores"), consisting of 246
mini-warehouses, (ii) mini-warehouse facilities acquired subsequent to
December 31, 1991 (referred to as "Newly Acquired"), consisting of 208 mini-
warehouses, and (iii) 19 business park facilities. The Company's revenues are
generated principally through the operation of its real estate facilities.
The Company's core business, however, is the operation of mini-warehouse
facilities which, during the six months ended June 30, 1995, represented
approximately 90% of the Company's property operations (based on 1995 rental
income).
15
<PAGE>
Property net operating income for the Same Store facilities increased
by $281,000 or 2.7% from $10,415,000 for the three months ended June 30, 1994
to $10,696,000 for the three months ended June 30, 1995. Property net
operating income prior to the reduction for depreciation expense for the Same
Store facilities increased by $581,000 or 4.0% from $14,694,000 for the three
months ended June 30, 1994 to $15,275,000 for the three months ended June 30,
1995. These increases are principally due to increased average rental rates.
Weighted average occupancy levels were 90% for the Same Store facilities for
each of the three months ended June 30, 1995 and 1994. Realized monthly rent
per square foot for these facilities was $0.60 and $0.58 for the three months
ended June 30, 1995 and 1994, respectively. Property operating expenses prior
to the reduction for depreciation increased by $95,000 or 1% from $8,223,000
for the three months ended June 30, 1994 to $8,318,000 for the three months
ended June 30, 1995.
The Newly Acquired facilities contributed approximately $9,030,000 and
$3,474,000 of property net operating income for the three months ended June
30, 1995 and 1994, respectively ($11,969,000 and $4,612,000 of property net
operating income prior to the reduction for depreciation expense for the
three months ended June 30, 1995 and 1994, respectively). These increases
reflect the acquisition of 85 and 71 mini-warehouses in 1995 and 1994,
respectively. Property net operating income for Newly Acquired facilities
which were owned throughout each of the three months ended June 30, 1995 and
1994 (52 facilities), were $2,727,000 and $2,449,000 respectively,
representing an increase of $278,000 or 11% ($3,582,000 and $3,297,000 of
property net operating income prior to the reduction for depreciation expense
for the three months ended June 30, 1995 and 1994, respectively, representing
an increase of $285,000 or 9%). These increases are principally due to
increased weighted average occupancy levels combined with an increase in
average rental rates. Weighted average occupancy levels were 89% for these 52
facilities for the three months ended June 30, 1995 compared to 88% for the
same period in 1994. Realized monthly rent per square foot for these
facilities was $0.65 and $0.63 for the three months ended June 30, 1995 and
1994, respectively. Property operating expenses for these 52 facilities
(prior to the reduction for depreciation) decreased by $33,000 or 1.8% from
$1,830,000 for the three months ended June 30, 1994 to $1,797,000 for the
three months ended June 30, 1995.
Property net operating income of the Company's business park operations
increased by $421,000 from $655,000 for the three months ended June 30, 1994
to $1,076,000 for the same period in 1995. Property net operating income
prior to the reduction for depreciation expense with respect to the Company's
business park operations increased by $435,000 from $1,880,000 for the three
months ended June 30, 1994 to $2,315,000 for the same period in 1995. The
increase is due principally to the acquisition of a business park facility
during the second quarter of 1994 which contributed approximately $194,000 to
the increase in the property net operating income. Weighted average occupancy
levels were 96% for the business park facilities for the three months ended
June 30, 1995 compared to 94% for the same period in 1994. The monthly
average realized rent per square foot for the business park facilities was
$0.73 and $0.69 for the three months ended June 30 1995 and 1994,
respectively.
16
<PAGE>
Interest and other income increased from $1,643,000 for the three
months ended June 30, 1994 to $1,818,000 for the same period in 1995 for a
net increase of $175,000. The increase is primarily attributable to increased
interest income on cash balances invested in short-term interest bearing
securities partially offset with reduced interest income from mortgage notes
receivable.
On May 31, 1994, the Company completed a public offering of its common
stock raising net proceeds of approximately $82 million. Throughout the month
of June 1995, the net proceeds remained invested in short-term interest
bearing securities (with weighted average yields of approximately 5.6% per
annum). As a result interest income from cash balances increased by
approximately $668,000. SEE LIQUIDITY AND CAPITAL RESOURCES.
The Company canceled approximately $8,466,000 and $24,441,000 of
mortgage notes receivable during 1995 and 1994, respectively, in connection
with the acquisition of real estate facilities securing such notes. As a
result, interest income from mortgage notes receivable decreased from
$1,352,000 to $494,000 for the three months ended June 30, 1994 and 1995,
respectively, as the average outstanding mortgage notes receivable balance
was significantly lower ($15,911,000) during the three months ended June 30,
1995 compared to the same period in 1994 ($48,109,000).
Depreciation and amortization expense was $8,779,000 and $6,730,000 for
the three months ended June 30, 1995 and 1994, respectively, representing an
increase of $2,049,000 which is due to the acquisition of additional
properties in 1994 and 1995. Net income allocable to the common shareholders
includes net depreciation and amortization expense of approximately
$6,133,000 ($0.18 per common share) and $3,232,000 ($0.14 per common share)
for the three months ended June 30, 1995 and 1994, respectively. This
increase is due to increased depreciation from the acquisition of real estate
facilities combined with increased allocations of depreciation from the
consolidated PSP Partnerships to the Company's shareholders. During 1994 and
1995, the Company acquired additional partnership interests in the PSP
Partnerships (see below) and as a result an increasing amount of depreciation
expense from the existing real estate portfolio has been allocated to the
Company rather than to the minority interest.
"Minority interest in income" represents the income allocable to
equity (partnership) interests in the PSP Partnerships (whose accounts are
consolidated with the Company) which are not owned by the Company. Since
1990, the Company has acquired portions of these equity interests through its
acquisition of limited and general partnership interests in the PSP
Partnerships. These acquisitions have resulted in reductions to the "Minority
interest in income" from what it would otherwise have been in the absence of
such acquisitions, and accordingly, have increased the Company's share of the
consolidated PSP Partnerships' income. In determining income allocable to the
minority interest for the three months ended June 30, 1995 and 1994
consolidated depreciation and amortization expense of approximately
$2,619,000 and $3,241,000, respectively, was allocated to the minority
interest. The decrease in
17
<PAGE>
depreciation allocated to the minority interest was principally the result of
the acquisition of limited partnership units by the Company.
The acquisition of these partnership interests has provided the Company
with increased liquidity through cash distributions from the PSP
Partnerships. The Company has and expects to continue to acquire additional
partnership interests in the PSP Partnerships during 1995.
Advisory fees increased by $579,000 from $1,237,000 for the three
months ended June 30, 1994 to $1,816,000 for the same period in 1995. The
advisory fee, which is based on a contractual computation, increased as a
result of increased adjusted net income (as defined) per common share
combined with the issuance of additional preferred and common stock during
1994 and 1995.
Six months ended June 30, 1995 compared to the six months ended June 30,
------------------------------------------------------------------------
1994
----
Net income for the six months ended June 30, 1995 was $29,751,000
compared to $18,940,000 for the same period in 1994, representing an increase
of $10,811,000. Net income allocable to common shareholders increased to
$16,443,000 for the six months ended June 30, 1995 from $11,642,000 for the
six months ended June 30, 1994. The increase in net income and net income
allocable to common shareholders were primarily the result of improved
property operations for the Same Store facilities, the acquisition of
additional real estate facilities during 1995 and 1994, and the acquisition
of additional partnership interests during 1995 and 1994. Net income per
common share was $.50 per share (based on weighted average shares outstanding
of 32,707,556) for the six months ended June 30, 1995 compared to $.52 per
share (based on weighted average shares outstanding of 22,436,885) for the
same period in 1994. The decrease in net income per share was principally due
to increasing depreciation expense allocable to the common stock
shareholders, including depreciation allocable to the limited partnership
interests acquired by the Company.
During the six months ended June 30, 1995, property net operating
income (rental income less cost of operations and depreciation expense)
improved compared to the same period in 1994. Rental income increased
$22,821,000 or 35% from $65,247,000 for the six months ended June 30, 1994 to
$88,068,000 for the same period in 1995, cost of operations increased
$7,654,000 or 31% from $24,688,000 for the six months ended June 30, 1994 to
$32,342,000 for the same period in 1995 and depreciation expense increased by
$3,451,000 from $13,453,000 for the six months ended June 30, 1994 to
$16,904,000 for the same period in 1995, resulting in a net increase in
property net operating income of $11,716,000 or 43%. Property net operating
income prior to the reduction for depreciation expense increased by
$15,167,000 or 37% from $40,559,000 for the six months ended June 30, 1994 to
$55,726,000 for the same period in 1995.
18
<PAGE>
Property net operating income for the Same Store facilities increased
by $785,000 or 4.0% from $19,758,000 for the six months ended June 30, 1994
to $20,543,000 for the six months ended June 30, 1995. Property net operating
income prior to the reduction for depreciation expense for the Same Store
facilities increased by $1,302,000 or 4.6% from $28,484,000 for the six
months ended June 30, 1994 to $29,786,000 for the six months ended June 30,
1995. These increases are principally due to increased average rental rates.
Weighted average occupancy levels were 89% for the Same Store facilities for
each of the six months ended June 30, 1995 and 1994. Realized monthly rent
per square foot for these facilities was $.60 and $.58 for the six months
ended June 30, 1995 and 1994, respectively. Property operating expenses prior
to the reduction for depreciation increased by $286,000 or 2% from
$16,503,000 for the six months ended June 30, 1994 to $16,789, 000 for the
six months ended June 30, 1995.
The Newly Acquired facilities contributed approximately $16,364,000 and
$6,420,000 of property net operating income for the six months ended June 30,
1995 and 1994, respectively ($21,472,000 and $8,457,000 of property net
operating income prior to the reduction for depreciation expense for the six
months ended June 30, 1995 and 1994, respectively). These increases reflect
the acquisition of 85 and 71 mini-warehouses in 1995 and 1994, respectively.
Property net operating income for Newly Acquired facilities which were owned
throughout each of the six months ended June 30, 1995 and 1994 (52
facilities), were $5,314,000 and $4,955,000 respectively, representing an
increase of $359,000 or 7% ($6,997,000 and $6,542,000 of property net
operating income prior to the reduction for depreciation expense for the six
months ended June 30, 1995 and 1994, respectively, representing an increase
of $455,000 or 7%). These increases are principally due to increased weighted
average occupancy levels combined with an increase in average rental rates.
Weighted average occupancy levels were 88% for these 52 facilities for the
six months ended June 30, 1995 compared to 87% for the same period in 1994.
Realized monthly rent per square foot for these facilities was $0.65 and
$0.63 for the six months ended June 30, 1995 and 1994, respectively.
Property operating expenses for these 52 facilities (prior to the reduction
for depreciation) increased by $89,000 or 2.5% from $3,542,000 for the six
months ended June 30, 1994 to $3,631,000 for the six months ended June 30,
1995.
Property net operating income with respect to the Company's business
park operations increased by $987,000 from $928,000 for the six months ended
June 30, 1994 to $1,915,000 for the same period in 1995. Property net
operating income prior to the reduction for depreciation expense with respect
to the Company's business park operations increased by $850,000 from
$3,618,000 for the six months ended June 30, 1994 to $4,468,000 for the same
period in 1995. The increase is due principally to the acquisition of a
business park facility during the second quarter of 1994 which contributed
approximately $469,000 to the increase in the property net operating income.
Weighted average occupancy levels were 96% for the business park facilities
for the six months ended June 30, 1995 compared to 95% for the same period in
1994. The monthly average realized rent per square foot for the business park
facilities was $0.73 and $0.68 for the six months ended June 30 1995 and
1994, respectively.
19
<PAGE>
Interest and other income decreased from $3,293,000 for the six months
ended June 30, 1994 to $3,042,000 for the same period in 1995 for a net
decrease of $251,000. The decrease is primarily attributable to the reduction
in interest income from mortgage notes receivable partially offset by
increased interest income on the cash balances. The Company canceled
approximately $8,466,000 and $24,441,000 of mortgage notes receivable during
1995 and 1994, respectively, in connection with the acquisition of real
estate facilities securing such notes. As a result, interest income from the
mortgage notes receivable decreased from $2,641,000 to $1,120,000 for the six
months ended March 31, 1994 and 1995, respectively, as the average
outstanding mortgage notes receivable balance was significantly lower
($18,950,000) during the six months ended June 30, 1995 compared to the same
period in 1994 ($48,055,000). As of June 30, 1995, the mortgage notes bear
interest at stated rates ranging from 8.5% to 11.97% and effective interest
rates ranging from 10.0% to 14.8%.
As noted above, on May 31, 1995, the Company completed a public
offering of its common stock raising net proceeds of approximately $82
million. Throughout the month of June 1995, the net proceeds remained
invested in short-term interest bearing securities (with weighted average
yields of approximately 5.6% per annum). SEE LIQUIDITY AND CAPITAL RESOURCES.
Depreciation and amortization expense was $16,926,000 and $13,541,000
for the six months ended June 30, 1995 and 1994, respectively, representing
an increase of $3,385,000 which is due to the acquisition of additional
properties in 1994 and 1995. Net income allocable to the common shareholders
includes net depreciation and amortization expense of approximately
$11,467,000 ($0.35 per common share) and $5,741,000 ($0.26 per common share)
for the six months ended June 30, 1995 and 1994, respectively. This increase
is due to increased depreciation from the acquisition of real estate
facilities combined with increased allocations of depreciation from the
consolidated PSP Partnerships to the Company's shareholders. During 1994 and
1995, the Company acquired additional partnership interests in the PSP
Partnerships (see below) and as a result an increasing amount of depreciation
expense from the existing real estate portfolio has been allocated to the
Company rather than to the minority interest.
General and administrative expense was $1,736,000 and $1,380,000 for
the six months ended June 30, 1995 and 1994, respectively, representing an
increase of $356,000. This increase is due to the growth in the Company's
capital base combined with certain costs incurred in connection with the
acquisition of additional real estate facilities.
"Minority interest in income" represents the income allocable to
equity (partnership) interests in the PSP Partnerships (whose accounts are
consolidated with the Company) which are not owned by the Company. Since
1990, the Company has acquired portions of these equity interests through its
acquisition of limited and general partnership interests in the PSP
Partnerships. These acquisitions have resulted in reductions to the "Minority
interest in income" from what it would otherwise have been in the absence of
such acquisitions, and accordingly, have increased the Company's share of the
consolidated PSP Partnerships' income. In determining income allocable to the
minority
20
<PAGE>
interest for the six months ended June 30, 1995 and 1994 consolidated
depreciation and amortization expense of approximately $5,392,000 and
$7,294,000, respectively, was allocated to the minority interest. The
decrease in depreciation allocated to the minority interest was principally
the result of the acquisition of limited partnership units by the Company.
Advisory fees increased by $1,070,000 from $2,356,000 for the six
months ended June 30, 1994 to $3,426,000 for the same period in 1995. The
advisory fee, which is based on a contractual computation, increased as a
result of increased adjusted net income (as defined) per common share
combined with the issuance of additional preferred and common stock during
1994 and 1995.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Capital structure
-----------------
The Company's financial profile is characterized by a low level of
debt to total capitalization, increasing net income, increasing cash flow
from operations, increasing funds from operations ("FFO") and a
conservative dividend payout ratio with respect to its common stock. These
attributes reflect management's desire to "match" asset and liability
maturities, to minimize refinancing risks and to retain capital to take
advantage of acquisition opportunities and to provide financial
flexibility.
Since 1992 the Company has taken a variety of steps to enhance its
capital structure, including:
. The public issuance of approximately $335 million of Preferred
Stock. The Preferred Stock does not require redemption or sinking
fund payments by the Company.
. The public issuance of approximately $197 million of common stock.
. The issuance of approximately $138.4 million of common stock in
connection with the mergers with Public Storage Properties VIII,
Inc., Public Storage Properties VI, Inc., and Public Storage
Properties VII, Inc.
. The retention of approximately $34.7 million of funds available for
debt payments or investment.
The Company does not believe it has any significant refinancing risks
with respect to its mortgage debt and nominal interest rate risks
associated with its variable rate mortgage debt which had a principal
balance of $16.7 million at June 30, 1995. During the second quarter of
1995, the Company replaced its $115 million credit facility with a $125
million credit facility. The Company uses the credit facility primarily to
fund acquisitions and provide financial flexibility and liquidity. The new
credit facility (i) is unsecured, (ii) provides for interest rates ranging
from LIBOR plus .75% to LIBOR plus 1.50%, based upon interest coverage
levels attained by the Company, and (iii) matures in April 1998, with two
one-year extensions. At June 30, 1995, the Company had no borrowings under
the credit facility.
As a result of these transactions, the Company's capitalization has
increased. Shareholders' equity increased from $188,112,500 on December 31,
1991 to $892,664,000 on June 30, 1995. The increased equity combined with
reductions in total debt has resulted in an improvement in the Company's
debt to equity ratio from 55% at December 31, 1991 to 6.6% at June 30,
1995. The Company's ratio of debt to total assets also decreased from 19%
at December 31, 1991 to 5.2% at June 30, 1995.
Funds Available for Principal Payments and Investment:
------------------------------------------------------
The Company believes that important measures of its performance as
well as its liquidity are funds available for principal payments and
investment and funds provided by operating activities.
22
<PAGE>
The Company believes that its rental revenues, distributions from real
estate partnership interests and interest income will be sufficient over at
least the next 12 months to meet the Company's operating expenses, capital
improvements, debt service requirements and distributions to shareholders.
Net cash provided by operations (as determined in accordance with
generally accepted accounting principles) reflects the cash generated from
the Company's business before distributions to various equity holders,
including the preferred shareholders, capital expenditures or mandatory
principal payments on debt. Net cash provided by operations has increased
from $36,484,000 to $49,474,000 for the six months ended June 30, 1994 and
1995, respectively.
The following table summarizes the Company's ability to pay the
minority interests' distributions, its dividends to the preferred
shareholders and capital improvements to maintain the facilities through
the use of funds provided by operating activities. The remaining cash flow
is available to the Company to make both scheduled and optional principal
payments on debt, pay distributions to common shareholders and for
investment.
23
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1995 1994
--------------- ------------
<S> <C> <C>
Net Income $ 29,751,000 $ 18,940,000
Depreciation and amortization 16,926,000 13,541,000
Minority interest in income 3,715,000 4,791,000
Amortization of discounts on
mortgage notes receivable (67,000) (506,000)
--------------- ------------
Funds provided by operating
activities 50,325,000 36,766,000
Distributions from operations to
minority interests (9,107,000) (12,085,000)
--------------- ------------
Funds from operations allocable
to the Company's shareholders 41,218,000 24,681,000
Less: preferred stock dividends (13,308,000) (7,298,000)
--------------- ------------
Funds from operations available
to common shareholders 27,910,000 17,383,000
Capital improvements to maintain
facilities:
Mini-warehouses (2,397,000) (1,468,000)
Business parks (909,000) (830,000)
Add back: minority interest share
of capital improvements to
maintain facilities 859,000 849,000
--------------- ------------
Funds available for principal
payments on debt, common
dividends and reinvestment 25,463,000 15,934,000
Cash distributions to common
shareholders (14,886,000) (9,931,000)
--------------- ------------
Funds available for principal
payments on debt and investment $ 10,577,000 $ 6,003,000
=============== ============
</TABLE>
24
<PAGE>
The increases in cash provided by operating activities and funds
available for principal payments on debt, common dividends and investment
over the past three years is primarily due to (i) increasing property net
operating income at the Same Store facilities, (ii) the acquisition of
limited and general partnership interests in the PSP Partnerships and (iii)
the leverage created through the issuance of preferred stock and the
utilization of the net proceeds in real estate investments which have
provided net cash flows in excess of the preferred stock dividend
requirements. These factors have improved the cash flow position of the
common shareholders as FFO applicable to the common shareholders has
increased over the same period at a rate greater than the increase in
number of common shares. See the consolidated statements of cash flows for
the each of the six months ended June 30, 1995 and 1994 for additional
information regarding the Company's investing and financing activities.
FFO increased to $41,218,000 for the six months ended June 30, 1995
compared to $24,681,000 for the same period in 1994 ($22,684,000 for the
three months ended June 30, 1995 compared to $13,426,000 for the same
period in 1994). FFO applicable to the common shareholders (after deducting
preferred stock dividends) increased to $27,910,000 for the six months
ended June 30, 1995 compared to $17,383,000 for the same period in 1994
($15,353,000 for the three months ended June 30, 1995 compared to
$9,777,000 for the same period in 1994). FFO is defined by the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. NAREIT has recently adopted
revisions to the definition of funds from operations which will become
effective in 1996. The most material impact of the new guidelines will be
(i) amortization of deferred financing costs will be treated as an
expense - i.e. it will no longer be treated as an add-back to net income
and (ii) certain gains on sales of land will be included in funds from
operations if deemed to be recurring. These changes will have no impact on
the way the Company currently computes its FFO. FFO is a supplemental
performance measure for equity real estate investment trusts used by
industry analysts. 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 discussed above) as a measure of the Company's
liquidity or operating performance.
On May 31, 1995, the Company issued 5,482,200 shares of its common
stock in a public offering, raising net proceeds of approximately $82
million to be invested into real estate assets. Due to the timing of
investing in real estate assets, the net proceeds remained substantially
invested in interest bearing accounts throughout June 1995. The interest
bearing accounts generated yields which were less than the cash yields
generated by the Company's portfolio of real estate assets. Approximately
$75 million and $33 million remained invested in interest bearing accounts
at June 30, 1995 and July 31, 1995, respectively. The Company expects that
substantially all the remaining net proceeds will be invested into real
estate assets by the end of the third quarter.
25
<PAGE>
During 1995, the Company has budgeted approximately $8 million for
capital improvements ($2 million of which is directly attributable to the
minority interest in respect of its ownership interest) to maintain its
facilities. During the first six months of 1995, the Company incurred
capital improvements of approximately $3.3 million. The Company believes
that it is not subject to any significant refinancing risks. During 1993
and 1994, the Company either repaid or extended the maturities of its
mortgage notes such that in no year, until 1999, will there be more than
$9 million of principal payments on mortgage notes becoming due and
payable.
The Company believes its geographically diverse portfolio has resulted
in a relatively stable and predictable investment portfolio with increasing
overall property performance over the past four years.
Distributions
-------------
Over the past three years, the Company has established a conservative
distribution policy that is, among other things, supported by its cash flow
from operations (after capital expenditures and debt service), availability
of cash to make such distributions and the Company's ability to maintain
its REIT status. The Company's policy is also conservative with respect to
FFO. The Company's conservative distribution policy permits it after
funding its distributions and capital improvements, to retain significant
funds to make additional investments and debt reductions. For the six
months ended June 30, 1995 and 1994, the Company distributed to common
shareholders 53%, and 57% of its FFO available to common shareholders,
respectively. Distributions to shareholders during the first six months of
1995 were as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1995
---------------------------------------------
Distributions Per Share Total Distributions
----------------------- -------------------
<S> <C> <C>
Series A $1.250 $ 2,282,000
Series B $1.150 2,744,000
Series C $1.066 1,279,000
Series D $1.188 1,426,000
Series E $1.042 2,286,000
Series F $0.400 919,000
Convertible $1.031 2,372,000
-----------
13,308,000
Common $0.440 14,886,000
-----------
$28,194,000
===========
</TABLE>
Dividends with respect to the Series E and Series F Preferred Stock
are pro rated from the date of issuance (February 1, 1995 and May 3, 1995,
respectively). The annual distribution requirement with respect to the
Series E and Series F Preferred stock are $2.50 and $2.44 per share,
respectively. The dividend rate on the Series C Preferred Stock is adjusted
quarterly such that the dividend rate per annum will be equal to the
highest of one of three U.S. Treasury indices (Treasury Bill Rate, Ten Year
Constant Maturity Rate, and Thirty Year Constant Maturity Rate) multiplied
by 110%. However, the dividend rate for any dividend period will not be
less than 6.75% per annum nor greater than 10.75% per annum. The
26
<PAGE>
dividend rate with respect to the second quarter of 1995 was equal to
8.393% per annum and is 7.249% per annum for the third quarter of 1995.
REIT Distribution Requirement
-----------------------------
As a REIT, the Company is not taxed on that portion of its taxable
income which is distributed to its shareholders provided that at least 95%
of its taxable income is so distributed prior to filing of the Company's
tax return. The Company has satisfied the REIT distribution requirement
since 1980.
Increasing Ownership of Real Estate Assets
------------------------------------------
The Company's growth strategies have focused on improving the
operating performance of its existing properties (as discussed above) and
on increasing its ownership of mini-warehouses through additional
investments.
During 1995, the Company acquired 84 mini-warehouse facilities, three
business park facilities and one combination mini-warehouse/business park
facility for an aggregate cost of $222,540,000. The acquisitions were
financed through a combination of the issuance of equity securities,
cancellation of mortgage notes receivable, assumption of debt and payment of
cash. Sixty-one of these facilities were acquired pursuant to merger
transactions.
On February 28, 1995, the Company completed a merger transaction with
Public Storage Properties VI, Inc. ("Properties 6") whereby the Company
acquired all the outstanding stock of Properties 6 in exchange for cash and
common stock of the Company. In the merger, Properties 6 was merged with and
into the Company, and the outstanding Properties 6 common stock (2,716,223
shares) was converted into an aggregate of approximately (i) 3,147,015
shares of the Company's common stock (with a value of approximately
$43,915,000) and (ii) $21,427,000 in cash. Properties 6, a real estate
investment trust and an affiliate of the Company's investment adviser, owned
and operated 22 mini-warehouse facilities and one combination mini-
warehouse/business park facility prior to the merger.
On June 30, 1995, the Company completed a merger transaction with
Public Storage Properties VII, Inc. ("Properties 7") whereby the Company
acquired all the outstanding stock of Properties 7 in exchange for cash and
common stock of the Company. In the merger, Properties 7 was merged with and
into the Company, and the outstanding Properties 7 common stock (3,806,491
shares) was converted into an aggregate of approximately (i) 3,517,272
shares of the Company's common stock (with a value of approximately
$56,057,000) and (ii) $14,007,000 in cash. Properties 7, a real estate
investment trust and an affiliate of the Company's investment adviser, owned
and operated 34 mini-warehouse facilities, three business park facilities
and one combination mini-warehouse/business park facility prior to the
merger.
In March 1995, the Company acquired two parcels of land located in
Atlanta, Georgia on which the Company is currently developing mini-warehouse
facilities. One of the facilities is scheduled to open in late August 1995
and the other is schedule to open in December 1995. The estimated aggregate
cost of these facilities is approximately $8 million.
27
<PAGE>
Future Transactions
-------------------
The Company intends to continue to expand its asset and capital base
through the acquisition of real estate assets and interests in real estate
assets from unaffiliated parties and affiliates of the Adviser through
direct purchases, mergers, tender offers or other transactions. The Company
expects to fund these transactions with borrowings under its $125 million
credit facility combined with undistributed operating cash flow. The
Company intends to repay amounts borrowed under the credit facility from
undistributed operating cash flow or from the public or private placement
of securities.
Proposed Merger and Restructure
-------------------------------
The Company has entered into an Agreement and Plan of Reorganization
by and among PSI, PSMI and the Company, dated as of June 30, 1995. The
Company's Form 8-K dated June 30, 1995 (filed July 19, 1995) is
incorporated herein by this reference.
28
<PAGE>
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held a special meeting of shareholders on June 14, 1995.
Proxies for the special meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. The special meeting involved
the approval of Agreement and Plan of Reorganization between the Company
and Public Storage Properties VII, Inc. described in the Joint Proxy
Statement and Prospectus dated April 28, 1995 - approval of this proposal
required the affirmative vote of the holders of a majority of the shares of
the Company's Common Stock voting (provided that the total votes cast
represented a majority of all shares of Common Stock entitled to vote), and
this proposal was approved by the following vote:
For Against Abstain
---------- ------- -------
21,791,422 496,604 432,992
Item 5 Other Information
-----------------
On May 22, 1995, the Company entered into a $125 million Amended and
Restated Credit Agreement with a group of banks, which replaces the Credit
Agreement dated as of September 2,1994, as amended. The Amended and
Restated Credit Agreement is attached hereto as Exhibit 10 and is
incorporated herein by this reference.
29
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are included herein:
(10) Amended and Restated Credit Agreement by and among the Company,
Wells Fargo Bank, National Association as agent, and the
financial institutions as party thereto dated as of May 22, 1995
(11) Statement re: Computation of Earnings per Share
(12) Statement re: Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Form 8-K
The Company filed a Current Report on Form 8-K dated April 25, 1995
(filed April 26, 1995), pursuant to Item 5, which filed certain
exhibits relating to the Company's public offering of the Series F
Preferred Stock.
The Company filed a Current Report on Form 8-K dated May 22, 1995
(filed May 22, 1995), pursuant to Item 5, which filed certain exhibits
relating to the Company's public offering of Common Stock.
The Company filed a Current Report on Form 8-K dated June 30, 1995
(filed July 19, 1995), pursuant to Item 5, which filed the following
exhibits and financial information relating to the Company's proposed
merger with PSMI:
-Agreement and Plan of Reorganization by and among PSI, PSMI and
the Company dated as of June 30, 1995
-Historical Financial Statements of Operating Companies to be
Acquired
-Combined Summaries of Historical Information Relating to Real
Estate Interests to be Acquired
-Pro Forma Consolidated Financial Statements
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: August 11, 1995
STORAGE EQUITIES, INC.
BY: /s/ Ronald L. Havner, Jr.
--------------------------------
Ronald L. Havner, Jr.
Vice President and
Chief Financial Officer
31
<PAGE>
EXHIBIT 10
AMENDED AND RESTATED CREDIT AGREEMENT
By and Among
STORAGE EQUITIES, INC.,
as the Borrower,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Agent,
and
THE FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of May 22, 1995
____________________
$125,000,000
Schedules to this Agreement will be furnished to the Securities and
Exchange Commission upon request.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions.................................................. 1
ARTICLE 2 Loans........................................................ 26
2.1 Revolving Credit............................................. 26
(a) Revolving Loans.......................................... 26
(b) Commitment Limits........................................ 26
(c) Borrowing Procedures..................................... 27
(d) Notes.................................................... 28
2.2 Interest and Fees............................................ 28
(a) Interest................................................. 28
(b) Extensions and Conversions............................... 28
(c) Commitment Fee........................................... 29
(d) Computation of Interest and Commitment Fee............... 30
(e) Illegality, Taxation and Additional Interest Rate
Provisions............................................... 30
(f) Capital Adequacy Requirements............................ 31
2.3 Payments..................................................... 32
(a) Payment of Loans......................................... 32
(b) Optional Prepayment...................................... 32
(c) Mandatory Prepayments.................................... 32
(d) Payments Prior to Interest Period Expiration............. 33
(e) Payments by the Borrower................................. 33
(f) Payments by the Banks to the Agent....................... 34
(g) Sharing of Payments, etc................................. 35
(h) Offset................................................... 35
(i) Allocation of Payments................................... 36
2.4 Swing Line................................................... 36
(a) Swing Line............................................... 36
(b) Borrowing and Repayment.................................. 36
ARTICLE 3 Transition Provisions; Release of Collateral................. 38
3.1 Exchange of Notes............................................ 38
3.2 Transfer of Loan Balances.................................... 38
3.3 Release of Collateral........................................ 39
ARTICLE 4 Conditions Precedent......................................... 39
4.1 Conditions to Initial Borrowing.............................. 39
(a) Delivery of Documents.................................... 39
(b) Reports, Certificates and Other Information.............. 39
(c) Opinions of Counsel...................................... 40
(d) Payment of Fees.......................................... 40
(e) No Existing Default...................................... 41
(f) Representations and Warranties Correct................... 41
(g) Legality of Transactions................................. 41
(h) Insurance................................................ 41
(i) Solvency................................................. 41
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(j) Notice of Authorized Representatives..................... 41
(k) Other Documents.......................................... 41
4.2 Conditions to Each Loan...................................... 41
(a) Initial Closing Date..................................... 41
(b) No Existing Default...................................... 41
(c) Representations and Warranties Correct................... 42
(d) Loan Request............................................. 42
(e) No Material Adverse Change............................... 42
4.3 Conditions to Acquisition Loans.............................. 42
4.4 Conditions for the Benefit of the Agent and the Banks........ 42
4.5 Failure of Conditions........................................ 43
ARTICLE 5 Representations and Warranties of the Borrower............... 43
5.1 Due Organization............................................. 43
5.2 Organization, Standing and Qualification of Subsidiaries..... 43
5.3 Ownership Structure of Partnerships.......................... 44
5.4 Requisite Power.............................................. 44
5.5 Authorization................................................ 45
5.6 Officer Authorization........................................ 45
5.7 Binding Nature............................................... 45
5.8 No Conflict.................................................. 45
5.9 No Event of Default.......................................... 46
5.10 Financial Statements......................................... 46
5.11 Projected Financial Statements and Projections............... 46
5.12 Real Property................................................ 46
5.13 Equipment.................................................... 47
5.14 Contracts.................................................... 47
5.15 Intellectual Property........................................ 47
5.16 Litigation and Contingent Liabilities........................ 48
5.17 Tax Returns and Tax Matters.................................. 48
5.18 Partnership Interests........................................ 48
5.19 REIT Status.................................................. 48
5.20 No Subordination............................................. 48
5.21 Employee Benefits............................................ 48
(a) Plans Maintained......................................... 48
(b) Reporting and Disclosure................................. 49
(c) Qualification of Plans................................... 49
(d) Contributions and Premiums............................... 50
(e) Litigation and Extraordinary Claims...................... 50
(f) Prohibited Transactions.................................. 50
(g) COBRA.................................................... 50
5.22 Environmental Matters........................................ 50
5.23 Insurance.................................................... 51
5.24 Compliance with Laws......................................... 51
5.25 Statutory Regulation......................................... 52
5.26 Use of Proceeds; Regulation U................................ 52
5.27 Solvency..................................................... 52
5.28 Fiscal Year.................................................. 52
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 6 Affirmative Covenants........................................ 53
6.1 Accounting Records........................................... 53
6.2 Financial Statements and Notices............................. 53
6.3 Inspection of Property, Books and Records.................... 57
6.4 Maintenance of Existence..................................... 57
6.5 Tax Returns.................................................. 58
6.6 Qualifications To Do Business................................ 58
6.7 Compliance with Laws......................................... 58
6.8 Key Contracts................................................ 58
6.9 REIT Status.................................................. 58
6.10 Material Agreements.......................................... 58
6.11 Insurance.................................................... 58
6.12 Facilities................................................... 59
6.13 Taxes and Other Liabilities.................................. 59
6.14 Governmental Approvals....................................... 59
6.15 Compliance with Governmental Approvals and Governmental
Requirements................................................. 59
6.16 Compliance with Environmental Laws........................... 59
6.17 Prevent Contamination........................................ 60
6.18 Tax Qualification............................................ 60
6.19 Funding...................................................... 60
6.20 Financial Tests.............................................. 61
6.21 Unencumbered Assets.......................................... 61
6.22 Borrower's Account........................................... 61
6.23 Accounting Policies.......................................... 61
ARTICLE 7 Negative Covenants........................................... 61
7.1 Mergers...................................................... 62
7.2 Change of Business........................................... 62
7.3 Distributions................................................ 62
7.4 Accounting Policies.......................................... 62
7.5 Investments.................................................. 62
7.6 Liens........................................................ 62
7.7 Contingent Obligations....................................... 63
7.8 Indebtedness................................................. 63
7.9 Sale of Assets............................................... 63
7.10 Sale-Leaseback Transactions.................................. 64
7.11 [Reserved]................................................... 64
7.12 Transactions with Affiliates................................. 64
7.13 Restrictive Agreements....................................... 64
7.14 Key Contracts................................................ 64
7.15 Certain ERISA Payments....................................... 65
7.16 Compliance with ERISA........................................ 65
7.17 Changes in Partnerships...................................... 65
7.18 Other Contracts.............................................. 65
ARTICLE 8 Events of Default............................................ 66
8.1 Events of Default............................................ 66
(a) Payments................................................. 66
(b) Certain Covenants in This Agreement...................... 66
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(c) Other Covenants and Agreements........................... 66
(d) Representations and Warranties........................... 66
(e) Monetary Judgment........................................ 66
(f) Non-Monetary Judgments................................... 66
(g) Liens for Pension Contributions.......................... 67
(h) ERISA.................................................... 67
(i) Cross-Default............................................ 67
(j) Bankruptcy............................................... 68
(k) Material Adverse Change.................................. 69
(l) Invalidity of Loan Documents............................. 69
(m) Change of Control........................................ 69
(n) Loss of REIT Status...................................... 69
8.2 Termination of Commitment and Acceleration................... 69
ARTICLE 9 The Agent.................................................... 70
9.1 Appointment and Authorization................................ 70
9.2 Delegation of Duties......................................... 70
9.3 Liability of Agent........................................... 70
9.4 Reliance by Agent............................................ 71
9.5 Notice of Default............................................ 71
9.6 Credit Decision.............................................. 72
9.7 Indemnification.............................................. 72
9.8 Agent in Individual Capacity................................. 73
9.9 Successor Agent.............................................. 73
9.10 Borrower's Reliance.......................................... 74
ARTICLE 10 Miscellaneous................................................ 74
10.1 Successors and Assigns and Sale of Interests................. 74
10.2 No Implied Waiver............................................ 76
10.3 Amendments and Waivers....................................... 76
10.4 Remedies Cumulative.......................................... 77
10.5 Severability................................................. 77
10.6 Costs, Expenses and Attorneys' Fees.......................... 77
10.7 General Indemnification...................................... 77
10.8 Environmental Indemnification................................ 78
10.9 Notices...................................................... 79
10.10 Entire Agreement............................................. 80
10.11 Governing Law and Consent to Jurisdiction.................... 80
10.12 Counterparts................................................. 80
10.13 Waiver of Jury Trial......................................... 80
10.14 Headings..................................................... 81
10.15 Supersession................................................. 81
</TABLE>
-iv-
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.3 Specified Affiliates
Schedule 5.2(a) Subsidiaries and Controlled Partnerships
Schedule 5.3 Ownership Structure
Schedule 5.10 Financial Statements
Schedule 5.12 Real Property
Schedule 5.14 Key Contracts
Schedule 5.16 Litigation
Schedule 5.18 Partnership Agreements
Schedule 5.21(i) Qualified Benefit Plans
Schedule 5.21(ii) Non-qualified Benefit Plans
Schedule 5.22 Environmental Matters
Schedule 5.23 Insurance Policies
Schedule 6.20(a) Certain Excluded Contingent Obligations
Schedule 7.1 PSMI Merger Transactions
Schedule 7.6 Permitted Liens
Schedule 7.8 Permitted Indebtedness
Schedule 7.12 Transactions with Affiliates
Exhibit 2.1(c) Form of Loan Request
Exhibit 2.1(d) Form of Note
Exhibit 2.2(b) Form of Notice of Conversion/Extension
Exhibit 2.4(a) Form of Swing Line Note
Exhibit 4.1(c) Form of Opinion of Borrower's Counsel
Exhibit 4.1(j) Form of Notice of Authorized Representatives
Exhibit 6.2(b) Form of Letter from Auditor
Exhibit 6.2(c) Form of Compliance Certificate
Exhibit 10.1(b) Form of Assignment and Acceptance
-v-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of May 22,
1995, by and among STORAGE EQUITIES, INC., a California corporation (the
----------------------
"Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
--------------------------------------
association, as agent for the financial institutions party hereto (in such
capacity, the "Agent"), and THE FINANCIAL INSTITUTIONS PARTY TO THIS AGREEMENT
--------------------------------------------------
(collectively, the "Banks"; individually, a "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Banks (excepting Commerzbank,
A.G.) entered into that certain Credit Agreement, dated as of September 2, 1994,
which was amended by that certain First Amendment to Credit Agreement dated as
of December 22, 1994 (such Credit Agreement, as so amended, the "Original Credit
Agreement"), whereunder the Banks (excepting Commerzbank, A.G.) agreed to extend
credit to the Borrower and the Borrower, pursuant to the Pledge Agreement,
granted a security interest in the Collateral;
WHEREAS, the Agent and the Borrower have entered into the Commitment Letter
and agreed that (a) from and after the Initial Closing Date, the Banks would
extend credit to the Borrower upon and subject to the terms of this Credit
Agreement, (b) as of the Initial Closing Date, the Original Credit Agreement
would be amended and restated in its entirety and superseded by this Credit
Agreement, and (c) as of the Initial Closing Date, the Agent, on behalf of the
Banks, would release and terminate the Liens on the Collateral created pursuant
to the Pledge Agreement:
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
---------
Definitions
-----------
In addition to any terms defined elsewhere in this Agreement, the following
terms have the meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural forms of the
defined term):
"Acceleration" means that the Loans (i) shall not have been paid at the
Final Maturity Date, or (ii) shall have become due and payable prior to their
stated maturity pursuant to Paragraph 8.2 hereof.
-1-
<PAGE>
"Acquisition Property" means any real property which is acquired by the
Borrower in a Permitted Acquisition, encumbered by a Mortgage Note acquired by
the Borrower in a Permitted Acquisition or owned by a corporation or partnership
an interest in which is acquired by the Borrower in a Permitted Acquisition or
an Affiliate Acquisition, as the case may be.
"Affiliate" means with respect to any Person (i) each Person that, directly
or indirectly, owns or controls, whether beneficially, or as a trustee, guardian
or other fiduciary, five percent (5%) or more of the capital stock having
ordinary voting power in the election of directors of such Person, or if such
Person is a partnership, five percent (5%) or more of the interests in income or
cash flow of such Person, (ii) each Person that controls, is controlled by or is
under common control with such Person or any Affiliate of such Person or (iii)
each of such Person's officers, directors, joint venturers and general partners.
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Acquisition" means either of (a) a non-hostile acquisition by
the Borrower of (i) all or any portion of the outstanding capital stock of a
Specified Affiliate which is a corporation, or (ii) all or any portion of the
partnership interests of a Specified Affiliate which is a partnership, or (b) a
merger of a Specified Affiliate with and into the Borrower with the Borrower
being the surviving corporation.
"Affiliate Acquisition Loan" means a Loan the proceeds of which are used to
pay the cash consideration for, or expenses incurred in connection with, an
Affiliate Acquisition.
"Affiliate Acquisition Loan Limit" means, as of the date of determination,
the lesser of (a) seventy-five million Dollars ($75,000,000), or (b) the Total
Commitment Amount as of such date, minus the aggregate principal amount of all
Permitted Acquisition Loans and Working Capital Loans outstanding as of such
date.
"Agent" has the meaning specified in the heading to this Agreement and any
successor agent.
"Agent's Letter" means that certain letter dated March 23, 1995 from the
Agent to the Borrower, referred to therein as the Fee Letter.
"Agent-Related Persons" shall have the meaning set forth in Paragraph 9.3
hereof.
"Aggregate Net Asset Value" means Borrower's Combined Percentage Interest
in the pre-depreciation net book value
-2-
<PAGE>
(determined in accordance with GAAP) of Unencumbered Assets of the Borrower and
the Consolidated Affiliates.
"Agreement" or "Credit Agreement" means this Amended and Restated Credit
Agreement, as from time to time amended, modified or supplemented.
"Annual Report" means the Borrower's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the fiscal year ended December 31,
1994.
"Applicable Interest Coverage Ratio" means, as of any date, the Interest
Coverage Ratio for the period of four consecutive full fiscal quarters most
recently ended as of such date.
"Applicable Margin" means, on any date that Borrower's Preferred Stock is
rated Investment Grade and with respect to each Loan, the applicable margin set
forth below based on the type of Loan and the Applicable Interest Coverage Ratio
on such date:
<TABLE>
<CAPTION>
Applicable Interest Base Rate
Coverage Ratio Loans LIBOR Loans
------------------- --------- -----------
<S> <C> <C>
Less than 7.0 to 1.0 0.00% 1.50%
Equal to or greater than
7.0 to 1.0, but less
than 10.0 to 1.0 0.00% 1.25%
Equal to or greater than
10.0 to 1.0, but less
than 13.0 to 1.0 0.00% 1.125%
Equal to or greater than
13.0 to 1.0, but less
than 15.0 to 1.0 0.00% 1.00%
Equal to or greater than
15.0 to 1.0 0.00% 0.75%
</TABLE>
provided, however, that, irrespective of the Applicable Interest Coverage Ratio
but subject to the immediately following sentence, on any date that Borrower's
Preferred Stock is not rated Investment Grade, the Applicable Margin for Base
Rate Loans shall be 0.50% and the Applicable Margin for LIBOR Loans shall be
2.00%. If a determinative rating by any one or more Rating Agencies shall
change (other than as a result of a change in the rating system used by any
applicable Rating Agency) such that Borrower's Preferred Stock would cease to be
rated Investment Grade as a result, such change shall effect a change in
Applicable Margin(s) (A) in the case of all Base Rate Loans, as of the date that
is five days after the applicable Rating Notice Date, and (B) in the case of
LIBOR Loans, as of the first
-3-
<PAGE>
day of the Interest Period immediately following such Rating Notice Date.
"Assignment and Acceptance" has the meaning specified in Paragraph 10.1
hereof.
"Authorized Officer" means each officer of a corporation authorized by the
board of directors of that corporation to act on behalf of that corporation or
on behalf of any Partnership of which that corporation is a general partner,
under this Agreement or any of the other Loan Documents.
"Authorized Representatives" shall mean those officers and employees
designated by the Borrower on the most current Notice of Authorized
Representatives delivered to the Agent as being authorized to request any
borrowing, to make any interest rate designation on behalf of the Borrower
hereunder, or to give the Agent any other notice hereunder which is contemplated
by the terms hereof.
"Average Life" means, as of the date of any determination thereof, the
number of years obtained by dividing the then Remaining Dollar-Years of the
principal amount of such New Non-recourse Indebtedness by the aggregate amount
of such principal. The term "Remaining Dollar-Years" means the sum of the
amounts obtained by multiplying (i) the principal amount due on each scheduled
payment date (not taking into account any prepayments of principal) by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
the date of determination and such scheduled payment date.
"Bank Indemnitees" shall have the meaning set forth in Paragraph 10.7
hereof.
"Bank" or "Banks" shall have the meaning specified in the heading of this
Agreement and any successors thereto.
"Banking Day" means a day other than a Saturday or a Sunday when commercial
banks are open for business in San Francisco, California and, with respect to
LIBOR Loans, when commercial banks are open for business in London, England.
"Base LIBOR" shall mean, for any Interest Period pertaining to a LIBOR
Loan, the rate per annum at which the Agent is offered dollar deposits in the
London interbank Eurodollar market at approximately 9:00 a.m. San Francisco time
two (2) Banking Days prior to the beginning of the Interest Period for such
Loan, for delivery on the first day thereof for the number of months comprised
therein and in an amount equal to the amount of the LIBOR Loan to be outstanding
during such Interest Period.
"Base Rate" means on any day the greater of (a) the Prime Rate in effect on
that day, or (b) the Federal Funds Rate in effect on that day plus 0.5% per
annum.
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<PAGE>
"Base Rate Loans" means all Loans bearing interest at a rate based on the
Base Rate.
"Borrower" has the meaning specified in the heading to this Agreement.
"Borrower's Account" means the wholesale demand deposit account (Account
No. 4648-059228) maintained by the Borrower with the Agent at the Agent's
Regional Commercial Banking Office in El Monte, California, or such other
account of the Borrower with the Agent as the Borrower and the Agent may agree
in writing.
"Borrower's Preferred Stock" means the "Senior Preferred Stock" of the
Borrower described in the Annual Report.
"Borrowing" means an extension of a Loan by the Banks to the Borrower
pursuant to Article 2 hereof.
"Business Park Property" means a property generally of the type (a)
described in the Annual Report as "business parks", and (b) owned by the
Borrower, a Subsidiary of the Borrower or a Controlled Partnership as of
December 31, 1994.
"Business of Borrower" means the business of the Borrower as described in
the Annual Report, consisting of the ownership, management and operation of
Business Park Properties, Mini-storage Properties and Combination Properties in
the United States or Canada; ownership and collection or enforcement of Mortgage
Notes; and ownership of partnership interests in partnerships which own, manage
and operate Business Park Properties, Mini-storage Properties and/or Combination
Properties.
"Capital Expenditure" means any expenditure in respect of any depreciable
asset, including expenditures for repair and maintenance of real property or for
the acquisition of equipment (including any portion of any payment under any
Capitalized Lease), that would be capitalized on the consolidated balance sheet
of the Borrower and its Consolidated Affiliates as of the end of that period, in
conformity with GAAP, other than payment of the purchase price in connection
with a Permitted Acquisition or an Affiliate Acquisition or payments for any
reconstruction or renovation project involving costs in excess of one hundred
thousand dollars ($100,000).
"Capitalized Lease" means any lease under which the obligation of the
lessee is required by GAAP to be shown as a liability on the financial
statements of the lessee.
"Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statements of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP so to be shown.
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"Cash Flow Coverage Ratio" means for any period the ratio of (a) the sum of
(i) Funds from Operation for such period, plus (ii) Borrower's Combined
Percentage Interest in Consolidated Interest Expense for such period, to (b) the
sum of (i) Borrower's Combined Percentage Interest in Consolidated Interest
Expense for such period, plus (ii) Borrower's Combined Percentage Interest in
scheduled principal payments (excluding balloon payments) during such period in
respect of Long-term Indebtedness of the Borrower and the Consolidated
Affiliates on a consolidated basis in accordance with GAAP, plus (iii)
Borrower's Combined Percentage Interest in scheduled principal payments during
such period in respect of Capitalized Lease Obligations of the Borrower and the
Consolidated Affiliates on a consolidated basis in accordance with GAAP, plus
(iv) Consolidated Capital Expenditures for such period, plus (v) the amount of
all cash dividends in respect of any capital stock of the Borrower.
"Change of Control" means the occurrence of any of the following events:
(a) all or substantially all of the assets of the Borrower are sold, leased,
exchanged or otherwise transferred to any Person or group of persons or entities
acting in concert as a partnership or other group; (b) the Borrower is merged or
consolidated with or into another corporation (other than a Specified Affiliate)
with the effect that the common stockholders immediately prior to such merger or
consolidation hold less than seventy-five percent (75%) of the ordinary voting
power of the outstanding securities of the surviving corporation of such merger
or the corporation resulting from such consolidation; (c) a change in the
composition of the board of directors of the Borrower after the Initial Closing
Date as a result of which fewer than a majority of the incumbent directors are
directors who either (i) had been directors of the Borrower 24 months prior to
such change, or (ii) were elected, or nominated for election, to the board of
directors with the affirmative votes of a majority of the directors who had been
directors of the Borrower 24 months prior to such change and who were still in
office at the time of the election or nomination; or (d) a Person or group (as
such term is used in Rule 13d-5 under the Securities Exchange Act of 1934) of
Persons (other than B. Wayne Hughes; members of the immediate family of B. Wayne
Hughes; any foundation, trust, or other Person controlled by B. Wayne Hughes
and/or his immediate family; any partnership controlled by B. Wayne Hughes
and/or members of his immediate family (including Public Storage Partners, Ltd.,
Public Storage Partners II, Ltd., Public Storage Properties, Ltd., Public
Storage Properties IV, Ltd., and Public Storage Properties V, Ltd.); and any
Person eligible to file a statement on Schedule 13G pursuant to Rule 13d-1(b)(1)
of the Securities Exchange Act of 1934) shall, as a result of a tender or
exchange offer, open market purchases, merger, privately negotiated purchases or
otherwise, have become, directly or indirectly, the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities
having twenty-
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<PAGE>
five percent (25%) or more of the ordinary voting power of then outstanding
securities of the Borrower.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means, collectively, all of the assets and property
constituting collateral under the Pledge Agreement.
"Collateral Documents" means the Pledge Agreement and all of the "Other
Assurances" and any other documents or instruments executed pursuant to the
Pledge Agreement.
"Combination Property" means a property part of which is a Mini-storage
Property and part of which is a Business Park Property.
"Combined Percentage Interest" means, as to any asset, liability or item of
income, gain, loss, deduction or expense on the consolidated financial
statements of the Borrower and the Consolidated Affiliates, the Borrower's
allocable share of such asset, liability or item, for the relevant period or as
of the date of determination, taking into account (a) the relative proportion of
each such item constituting or derived from assets directly owned by the
Borrower and constituting or derived from assets owned by the respective
Controlled Partnerships, and (b) Borrower's Percentage Interests in the
respective Controlled Partnerships.
As an example, assume that there are two Controlled Partnerships:
Partnership A, in which the Borrower's Percentage Interest is 55%; and
Partnership B, in which the Borrower's Percentage Interest is 40%. Further
assume that, for fiscal year 1994, depreciation derived from assets directly
owned by the Borrower is $40,000; depreciation derived from assets owned by
Partnership A is $20,000; and depreciation derived from assets owned by
Partnership B is $30,000. For fiscal year 1994, the Borrower's Combined
Percentage Interest of all depreciation derived from the consolidated assets of
the Borrower and the Consolidated Affiliates would be 70%, calculated as
follows:
(55% of $20,000) + (40% of $30,000) + (100% of $40,000) / $90,000 = 63
----
90
"Commitment" means the obligation of the Banks severally to extend Loans to
the Borrower pursuant to the terms and conditions of Paragraph 2.1 hereof.
"Commitment Amount" means, with respect to each Bank, an amount equal to
such Bank's Commitment Percentage multiplied by the Total Commitment Amount as
of the date of determination.
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<PAGE>
"Commitment Fee" shall have the meaning set forth in Paragraph 2.2(c)
hereof.
"Commitment Letter" means the letter agreement dated March 23, 1995 from
the Agent to the Borrower, countersigned by the Borrower March 29, 1995.
"Commitment Percentage" means as to any Bank the percentage set forth after
such Bank's signature at the end of this Agreement, plus the aggregate of any
Commitment Percentages thereafter acquired by such Bank as the Assignee pursuant
to any Assignment and Acceptance to which such Bank is a party, less the
aggregate of any Commitment Percentages assigned by such Bank pursuant to any
Assignment and Acceptance to which such Bank is a party, and, as to any new
Bank, the aggregate of any Commitment Percentages acquired by such new Bank as
the Assignee pursuant to any Assignment and Acceptance to which such new Bank is
a party, less the aggregate of any Commitment Percentages assigned by such new
Bank as the Assignor pursuant to any Assignment and Acceptance to which such new
Bank is a party.
"Consolidated Affiliates" means, collectively, the Subsidiaries of the
Borrower and the Controlled Partnerships.
"Consolidated Capital Expenditures" means, for any period, the aggregate
Capital Expenditures of the Borrower and the Consolidated Affiliates, on a
consolidated basis in accordance with GAAP, minus the amount paid or reimbursed
by minority interests with respect to such Capital Expenditures during such
period.
"Consolidated Funded Debt" means, for the Borrower and the Consolidated
Affiliates on a consolidated basis in accordance with GAAP, all Obligations and
all other interest-bearing Indebtedness (including any Indebtedness or
Contingent Obligation with respect to outstanding letters of credit and any
Contingent Obligation (excluding the Contingent Obligations described in
Schedule 6.20(a)) with respect to any interest-bearing indebtedness of any other
Person).
"Consolidated Interest Expense" means, for any period, gross consolidated
interest expense for the period (including all commissions, discounts, fees and
other charges in connection with standby letters of credit and similar
instruments, such portion of payments under Capitalized Leases as may be
characterized as interest expense in accordance with GAAP; but excluding
Commitment Fees, amortization of loan origination costs and other one-time or
non-cash charges related to the incurrence of Indebtedness) for the Borrower and
the Consolidated Affiliates, on a consolidated basis in accordance with GAAP,
plus the portion of the up-front costs and expenses for Rate Contracts (to the
extent not included in gross interest expense) fairly allocated to such Rate
Contracts as expenses for such period; as determined in accordance with GAAP.
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<PAGE>
"Consolidated Net Income" means, for any period, the net income of the
Borrower and the Consolidated Affiliates for such period determined on a
consolidated basis in accordance with GAAP; provided, however, that in
determining Consolidated Net Income, (a) there shall not be included in gross
revenues any revenues of a Non-consolidated Affiliate, but there shall be
included any dividends or distributions from any Non-consolidated Affiliate
received by the Borrower or any Consolidated Affiliate; and (b) there shall not
be included in gross revenues any of the following items: (i) if the Borrower
or one of the Consolidated Affiliates shall have acquired the assets and
business of any Person or any substantial part of the assets and business of any
Person, any earnings properly attributable to such assets and business or part
thereof prior to the date of such acquisition; and (ii) any earnings of, and
dividends payable to, the Borrower or one of the Consolidated Affiliates in a
currency which at the time may not be converted into Dollars under the laws of
the nation issuing such currency.
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation for which that Person is in effect liable through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet item, level of income or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation, services or lease regardless of the
nondelivery or nonfurnishing thereof, in any such case if the purpose or intent
of such agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the actual amount of the obligation so guaranteed or otherwise
supported. Without limitation, Contingent Obligation shall include any
environmental indemnity or other agreement with respect to the environmental
condition of any property (whether or not entered into in connection with the
issuance of Non-recourse Indebtedness).
"Continuing Loan" shall have the meaning set forth in Section 3.2(a)
hereof.
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<PAGE>
"Controlled Group" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrower pursuant to section 414(b) or (c) of the Code.
"Controlled Partnership" means any of the following: (a) any Joint Venture,
(b) any PS Partnership, or (c) as of any date, any other general or limited
partnership whose financial statements are required, as of such date, to be
consolidated with those of the Borrower in accordance with GAAP.
"Controlled Partnership Interest" means any direct or indirect interests of
the Borrower (a) as a partner in any Controlled Partnership, or (b) in the
income or cash flow of any Controlled Partnership.
"Controlled Property" means any real property owned, leased, managed,
operated or occupied by the Borrower, any Subsidiary of the Borrower or any
Controlled Partnership.
"Debt Rating" means and is determined by the most recent rating issued from
time to time by S & P as would hypothetically be applicable to the Borrower's
senior secured long-term debt (i.e., an implied rating). For purposes of the
foregoing, (i) if, at any time, no implied rating for the Borrower's senior
secured long-term debt shall have been issued or confirmed in writing by S & P
within the previous three hundred seventy (370) days, or if the Agent receives
notice that the Rating Agency will cease to issue such rating on at least an
annual basis, then the Borrower and the Banks shall negotiate in good faith to
amend promptly the terms of this Agreement relating to Debt Rating and pending
such amendment, the Debt Rating then in effect shall continue to apply; and (ii)
if the rating system of S & P shall change prior to the date all Obligations
have been paid and the Commitment cancelled, the Borrower and the Banks shall
negotiate in good faith to amend promptly the references to specific ratings in
this definition to reflect such changed rating system, and pending such
amendment, if no Debt Rating is otherwise determinable based upon the foregoing,
the Debt Rating in effect as of the date of such change shall continue to apply.
"Dollars" and "$" mean United States Dollars.
"EBITDA" means, in respect of any fiscal period, Consolidated Net Income,
increased by extraordinary losses, decreased by extraordinary gains, and
increased by depreciation, amortization, interest (including the portion of
payments under any Capitalized Lease that may be characterized as interest), and
federal and state income taxes, all for such period for the Borrower and the
Consolidated Affiliates on a consolidated basis in accordance with GAAP.
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<PAGE>
"Employee Benefit Plan" means any Pension Plan or any other employee
benefit plan (as defined in section 3(3) of ERISA) which the Borrower or any
member of the Controlled Group maintains, or to which it makes or is obligated
to make contributions.
"Environmental Claim" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in or from property,
whether or not owned by the Borrower, any Subsidiary of the Borrower or any
Controlled Partnership, or (b) any other circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means any Governmental Requirement pertaining to land
use, air, soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter; including without limitation, the following laws
as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. (S) 7401, et seq.);
-------
(2) Clean Water Act (33 U.S.C. (S) 1251, et seq.);
-------
(3) Resource Conservation and Recovery Act (42 U.S.C. (S) 6901, et seq.);
-------
(4) Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S) 9601, et seq.);
-------
(5) Safe Drinking Water Act (42 U.S.C. (S) 300f, et seq.);
-------
(6) Toxic Substances Control Act (15 U.S.C. (S) 2601, et seq.);
-------
(7) Rivers and Harbors Act (33 U.S.C. (S) 401, et seq.);
-------
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<PAGE>
(8) Endangered Species Act (16 U.S.C. (S) 1531, et seq.); and
-------
(9) Occupational Safety and Health Act (29 U.S.C. (S) 651, et seq.);
-------
together with any other foreign or domestic laws (federal, state, provincial or
local) relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance into ambient air, land, surface water, groundwater, personal
property or structures, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, discharge or
handling of any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliated Group" means any entity that, together with the Borrower
or other member of the Controlled Group, is treated as a single employer under
sections 414(m) and 414(o) of the Code.
"Existing Non-recourse Indebtedness" means Indebtedness which is either (a)
listed in Schedule 7.8 or (b) described in clause (e) of Section 7.8.
"Event of Default" shall have the meaning set forth in Article 8 hereof.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Board (including any such successor,
"H.15(519)") for such day opposite the caption "Federal Funds (Effective)." If
on any relevant day such rate is not yet published in H.15(519), the rate for
such day will be the rate set forth in the daily statistical release designated
as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, the "Composite 3:30 p.m. Quotations") for such
day under the caption "Federal Funds Effective Rate." If on any relevant day
the appropriate rate for such day is not yet published in either H.15(519) or
the Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic
mean of the rates for the last transaction in overnight federal funds arranged
prior to 9:00 a.m. New York time on that day by each of three leading brokers of
federal funds transactions in New York City, selected by the Agent.
"Final Maturity Date" means April 30, 1998.
"Funded Debt Ratio" means, as of any day, the ratio of Net Funded Debt as
of such day to the sum of (a) Net Funded Debt as of such day, plus (b) Total
Shareholders' Equity as of such day.
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<PAGE>
"Funds from Operation" means, for any period, (a) Borrower's Combined
Percentage Interest in Consolidated Net Income (which is the same as
Consolidated Net Income net of minority interest in Consolidated Net Income) for
such period, excluding gains (or losses) on early extinguishment of debt and
gains (or losses) on dispositions of real property, plus (b) depreciation,
amortization and other noncash charges for the Borrower and the Consolidated
Affiliates for such period, minus (c) distributions to minority interests in
excess of minority interest in income for such period, minus (d) Borrower's
Combined Percentage Interest in amortization of discounts on mortgage notes
receivable for such period, all determined in accordance with the methodology
utilized in preparation of the Annual Report.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Approvals" means any consent, right, exemption, concession,
permit, license, authorization, certificate, order, franchise, determination or
approval of any federal, state, provincial, municipal or governmental
department, commission, board, bureau, agency or instrumentality required for
the ownership of, or activities of the Borrower, any of its Subsidiaries or any
Controlled Partnership, or any other Person in connection with the business of
the Borrower, any of its Subsidiaries or any Controlled Partnership.
"Governmental Authority" means any nation or government, any state,
province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirements" means all legal requirements in effect from
time to time including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including but not limited to any change in any law, regulation or
the interpretation thereof by any foreign or domestic governmental or other
authority (whether or not having the force of law), relating now or at any time
heretofore or hereafter to the business or operations of the Borrower, any of
its Subsidiaries or any Controlled
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<PAGE>
Partnership or to any of the Controlled Property, including, without limitation,
the development, design, construction, acquisition, start-up, ownership,
operation and maintenance of property.
"Hazardous Substance" means any pollutant, contaminant, toxic or hazardous
substance, material, constituent or waste as such terms are defined in or
pursuant to any Environmental Law.
"Hazardous Waste Facility Permit" means any permit, license or other
governmental authorization relating to the storage, treatment or disposal of any
Hazardous Substance required pursuant to any Environmental Law.
"Incipient Default" shall have the meaning set forth in Paragraph 4.1(e)
hereof.
"Indebtedness" means (a) any obligation for borrowed money; (b) any
obligation evidenced by bonds, debentures, notes or other similar instruments;
(c) any obligation to pay the deferred purchase price of property or for
services (other than in the ordinary course of business); (d) any Capitalized
Lease Obligation; (e) any obligation under any Rate Contract; (f) any obligation
or liability of others secured by a Lien, whether or not such obligation or
liability is assumed; and (g) any Contingent Obligation (other than those
incurred in the ordinary course of business).
"Initial Closing Date" means the date on which all of the conditions set
forth in Paragraph 4.1 hereof have been satisfied or waived and the initial
Borrowing occurs.
"Initial Commitment Amount" means, with respect to each Bank, an amount
equal to such Bank's Commitment Percentage multiplied by one hundred twenty-five
million Dollars ($125,000,000).
"Insolvency Proceeding" means (a) any case, action or proceeding before any
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors; or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other, similar arrangement.
"Intellectual Property Rights" shall have the meaning set forth in
Paragraph 5.15 hereof.
"Interest Coverage Ratio" means for any period the ratio of (a) Borrower's
Combined Percentage Interest in EBITDA for such period, to (b) Borrower's
Combined Percentage Interest in Consolidated Interest Expense for such period.
-14-
<PAGE>
"Interest Period" means, with respect to any LIBOR Loan, a period from the
borrowing date with respect to such Loan (or the date of the expiration of the
then current Interest Period with respect to such Loan) to a date up to one (1),
two (2), three (3) or six (6) months thereafter, subject to the following:
(a) if any Interest Period would otherwise end on a day which is not
a Banking Day, that Interest Period shall be extended to the next
succeeding Banking Day, unless the result of such extension would be to
extend such Interest Period into another calendar month, in which event
such Interest Period shall end on the immediately preceding Banking Day;
(b) no Interest Period may be extended beyond a principal payment
date unless at the time of such extension the aggregate amount of any Base
Rate Loans plus the aggregate amount of all LIBOR Loans having Interest
Periods expiring on or before such principal payment date is at least equal
to the principal payment due on such date; and
(c) any Interest Period that would otherwise extend beyond the Final
Maturity Date shall end on the Final Maturity Date or, if the Final
Maturity Date shall not be a Banking Day, on the next preceding Banking
Day.
"Investment," as applied to any Person, means any direct or indirect
ownership or purchase or other acquisition by that Person of any capital stock,
equity interest, obligations or other securities, or of a beneficial interest in
any capital stock, equity interest, obligations or other securities, or all or
substantially all of the assets of any other Person (including any Subsidiary)
or of the assets which comprise a separate or separable line of business, or any
direct or indirect loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other Person,
including all indebtedness and accounts receivable from that other Person which
are not current assets or did not arise from sales to that other Person in the
ordinary course of business.
"Investment Grade" means a rating by two or more of the Rating Agencies
each of which ratings is equal to or more favorable than BBB- (or, in the case
of Rating Agencies other than S & P, a rating equivalent to a BBB- rating by
S & P). If the rating system of any Rating Agency shall change prior to the date
all Obligations have been paid and the Commitment cancelled, the Borrower and
the Banks shall negotiate in good faith to amend promptly the references to
specific ratings in this definition to reflect such changed rating system, and
pending such amendment, if it cannot be determined whether the
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<PAGE>
Borrower's Preferred Stock is rated Investment Grade based upon the foregoing,
the applicable rating by such Rating Agency in effect as of the date of such
change shall continue to apply.
"Joint Venture" means any one of SEI/PSP I Joint Ventures, a California
general partnership; SEI/PSP II Joint Ventures, a California general
partnership; SEI/PSP III Joint Ventures, a California general partnership;
SEI/PSP IV Joint Ventures, a California general partnership; SEI/PSP V Joint
Ventures, a California general partnership; SEI/PSP VI Joint Ventures, a
California general partnership; SEI/PSP VII Joint Ventures, a California general
partnership; and "Joint Ventures" means all such partnerships collectively.
"Joint Venture Agreement" means any one of the General Partnership
Agreements of the respective Joint Ventures, each dated December 31, 1990, as
heretofore amended and as the same may be amended, modified or supplemented
hereafter.
"Key Contracts" means those contracts listed in Schedule 5.14 hereto.
"LIBOR Loan" means any Loan bearing interest at a rate based upon Base
LIBOR.
"LIBOR Rate" means the rate (rounded upwards if necessary to the nearest
whole one-sixteenth of 1%) equal to the product of Base LIBOR times Statutory
Reserves.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest, right to purchase,
prescriptive right or preferential arrangement of any kind or nature whatsoever
(including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capitalized Lease, any financing lease having substantially the
same economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the UCC or any comparable law) and any contingent or other agreement to
provide any of the foregoing.
"Loan" shall have the meaning set forth in Paragraph 2.1(a) hereof
(including any and all Base Rate Loans and LIBOR Loans), and "Loans" means all
such Loans (including any and all Base Rate Loans and LIBOR Loans) at any time
outstanding.
"Loan Documents" means this Agreement, the Notes, the Swing Line Note, the
Agent's Letter, and all agreements, instruments and documents (including,
without limitation, any security agreements, loan agreements, notes, fee
agreements, guaranties, mortgages, deeds of trust, subordination agreements,
pledges, assignments of intellectual property, powers of attorney,
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<PAGE>
consents, assignments, contracts, notices, leases, financing statements,
certificates reports and notices and all other writings) heretofore, now or
hereafter executed by, on behalf of or for the benefit of the Borrower, any of
its Subsidiaries or any Controlled Partnership and delivered to the Agent or any
of the Banks pursuant to or in connection with this Agreement or the
transactions contemplated hereby, together with all amendments, modifications
and supplements thereto.
"Loan Request" shall have the meaning set forth in Paragraph 2.1(c) hereof.
"Long-term Indebtedness" means, as to any fiscal year, Indebtedness as to
which some or all principal payments are due in a later fiscal year.
"Majority Banks" means at any time two or more Banks which together hold in
excess of fifty percent (50%) of the then aggregate unpaid principal amount of
the Loans, or, if no such principal amount is then outstanding, two or more
Banks which together hold in excess of fifty percent (50%) of the Commitment
Percentages.
"Material Adverse Change" shall mean a material adverse change in the
ability of the Borrower to pay the Obligations in accordance with their terms.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations, prospects or financial condition of the Borrower
and the Consolidated Affiliates considered as a whole, or (ii) the ability of
the Borrower to pay the Obligations in accordance with their terms.
"Maturity" means any date on which a Loan or any portion thereof becomes
due and payable whether as stated, by virtue of mandatory prepayment, by
acceleration or otherwise.
"Mini-storage Property" means a property generally of the type (a)
described in the Annual Report as "mini-warehouse facilities", and (b) owned by
the Borrower, a Subsidiary of the Borrower or a Controlled Partnership as of
December 31, 1994.
"Mortgage Note" means a promissory note secured by a mortgage or deed of
trust encumbering a Mini-Storage Property or by a Business Park Property or by a
Combination Property.
"Multiemployer Plan" means a "multiemployer plan" as defined in section
4001(a)(3) of ERISA) and to which the Borrower or any other member of the
Controlled Group makes, is obligated to make or at any time since December 31,
1988 has made or been obligated to make contributions.
"Net Funded Debt" means the Borrower's Combined Percentage Interest in
Consolidated Funded Debt.
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"New Debt Date" means, as to any New Non-recourse Indebtedness, the date on
which such Indebtedness is incurred, created, refinanced or extended.
"New Non-recourse Indebtedness" means Non-recourse Indebtedness (a) which
is incurred, created, refinanced or extended during the term of this Agreement,
(b) which matures by its terms not earlier than the date eight (8) years after
the applicable New Debt Date, (c) has an Average Life of not less than six (6)
years as of the applicable New Debt Date, and (d) the existence of which will
not cause the aggregate outstanding balance of all New Non-recourse Indebtedness
to exceed the New Non-recourse Indebtedness Limit, determined as of the New Debt
Date for such Indebtedness. A refinancing of, extension of the maturity of, or
increase in the principal amount of any Existing Non-recourse Indebtedness shall
be deemed to be an incurrence of New Non-recourse Indebtedness and shall be
subject to the limitations effected by the foregoing definition.
"New Non-recourse Indebtedness Limit" shall mean an amount equal to fifteen
percent (15%) of the Total Shareholders' Equity as of the date of determination.
"Non-Consolidated Affiliate" means a partnership, corporation or other
entity in which the Borrower owns a direct or indirect equity interest but which
is not a Consolidated Affiliate.
"Non-recourse Indebtedness" means, as to any Person, Indebtedness of such
Person, secured by specified collateral, the obligation to pay which
Indebtedness is nonrecourse to such Person and in respect of which obligation no
Affiliate of such Person is contingently or otherwise liable; provided that
Indebtedness shall not be deemed to be other than Nonrecourse Indebtedness
solely by reason of the obligor's personal liability (a) for fraud,
misappropriation of rents, waste or similar intentional conduct, or (b)
environmental matters.
"Note" shall have the meaning set forth in Paragraph 2.1(d) hereof.
"Notice of Authorized Representatives" has the meaning set forth in
Paragraph 4.1(n) hereof.
"Obligations" means all loans, advances, debts, liabilities, obligations,
covenants and duties owing to the Agent or the Banks by the Borrower of any kind
or nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, arising under this Agreement, any of the Notes, the Swing Line
Note, the Collateral Documents, the Agent's Letter, or any of the other Loan
Documents, whether or not for the payment of money, arising by reason of an
extension of credit, absolute or contingent, due or to become due, now existing
or hereafter arising, including all principal, interest, charges,
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expenses, fees, attorneys' fees and disbursements and any other sum chargeable
to the Borrower under this Agreement or any other Loan Document.
"Old Commitment Percentage" shall mean, as to each Bank, the "Commitment
Percentage" (as defined in the Original Credit Agreement) of such Bank in effect
on the Banking Day immediately preceding the Initial Closing Date.
"Old Notes" shall have the meaning set forth in Section 3.1 hereof.
"Operating Lease" means a lease of real or personal property which is not a
Capitalized Lease.
"Operating Lease Payments" means payments made under Operating Leases.
"Original Credit Agreement" shall have the meaning specified in the first
recital at the beginning of this Agreement.
"Participant" shall have the meaning set forth in Paragraph 10.1(e) hereof.
"Partnership Agreement" means any of the Joint Venture Agreements, any of
the partnership agreements of the PS Partnerships, and any partnership agreement
of any other Controlled Partnership, as amended, modified and supplemented from
time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any successor to
all or any part of such corporation's functions under ERISA.
"Pension Plan" means any Multiemployer Plan or any other employee pension
benefit plan (as defined in section 3(2) of ERISA) that is subject to Title IV
of ERISA and which the Borrower or any member of the Controlled Group maintains,
or to which it makes, is obligated to make or at any time during the preceding
five calendar years has made or has been obligated to make contributions.
"Percentage Interest" means, as to each Subsidiary of the Borrower and each
Controlled Partnership, the cumulative percentage ownership interest (direct and
indirect) of the Borrower in such Subsidiary's or Controlled Partnership's
income.
"Permitted Acquisition" means any non-hostile acquisition of (i) a Mini-
storage Property; (ii) a Business Park Property; (iii) a Combination Property;
(iv) a Mortgage Note; (v) all or substantially all of the equity interests in a
partnership or corporation which (A) is engaged in the Business of Borrower and
is not engaged substantially in any other business, and (B) has
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<PAGE>
no material liabilities which are not related to its assets owned as of the time
of such acquisition; or (vi) a limited partnership interest in a limited
partnership which is, immediately prior to such acquisition, an Affiliate of the
Borrower and which is engaged in the Business of Borrower and is not engaged
substantially in any other business, provided that, as to any such acquisition:
(a) As of the time of such acquisition, the Debt Rating is equal to
or more favorable than BBB-, provided that the condition set forth in this
clause (a) shall not apply to an acquisition if either (i) at the time the
Borrower entered into a binding contract to make such acquisition (or, in
the case of a tender offer, at the time the Borrower filed a statement on
Form 14d-1 with the Securities Exchange Commission respecting such tender
offer), the Debt Rating was equal to or more favorable than BBB- or (ii)
Majority Banks approve such acquisition in the sole discretion of such
Banks; and
(b) no Event of Default or Incipient Default shall exist at the time
of such acquisition or would result on a pro forma basis after completion
of such acquisition; and
(c) except as to acquisitions of the type described in clause (vi)
above, the Agent shall have received evidence reasonably satisfactory to
the Agent that (i) the Borrower has completed an appropriate investigation
of the environmental condition of each proposed Acquisition Property,
including preparation of a "Phase I" report and, if appropriate, a "Phase
II" report, in each case prepared by a recognized environmental engineer in
accordance with customary standards, and (ii) such environmental
investigation has disclosed no evidence that (A) any proposed Acquisition
Property is in violation of any applicable Environmental Laws in any
material respect (as determined by the Agent in its reasonable judgment);
(B) any proposed Acquisition Property may be subject to a judicial or
administrative proceeding alleging the violation of any Environmental Law
in any material respect (as determined by the Agent in its reasonable
judgment); (C) any proposed Acquisition Property is the subject of a
federal or state investigation concerning any use or release of any
Hazardous Substance; (D) any proposed Acquisition Property has been used in
any material respect (as determined by the Agent in its reasonable
judgment) for the generation, transportation, treatment, storage or
disposal of Hazardous Substances, except for the generation of Hazardous
Substances in the ordinary course of business; or (E) there are present in,
on, under or about any
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proposed Acquisition Property any Hazardous Substances in reportable
quantities or concentrations, unless satisfactory remediation actions are
being taken (as determined by the Agent in its reasonable judgment); and
(d) of the aggregate number of Acquisition Properties acquired in the
then current fiscal quarter (including those included in the proposed
acquisition) and the three (3) immediately preceding fiscal quarters, fewer
than ten percent (10%) shall constitute Business Park Properties (but, for
purposes of calculating such percentage, Acquisition Properties acquired by
the Borrower in transactions described in clause (vi) above shall be
excluded).
"Permitted Acquisition Loan" means a Loan the proceeds of which are used to
pay the cash consideration for, or expenses incurred in connection with, a
Permitted Acquisition.
"Permitted Encumbrances" means: (a) carriers', warehousemen's, mechanics',
landlords', materialmen's, suppliers', tax, assessment, governmental and other
like liens and charges arising in the ordinary course of business securing
obligations that are not incurred in connection with the obtaining of any
advance or credit and which are not overdue, or are being contested in good
faith by appropriate proceedings, provided that, in accordance with GAAP,
adequate reserves have been established; (b) liens arising in connection with
worker's compensation, unemployment insurance, appeal and release bonds and
progress payments under government contracts; (c) judgment or attachment liens
in existence less than forty-five (45) days after the entry of the judgment, or
with respect to which execution has been stayed, or the payment of which is
covered in full by insurance; (d) zoning restrictions, easements, licenses or
other restrictions on the use of real property, so long as the same do not
materially impair the use of such real property by the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships or the value thereof to the
owner of such real property; (e) any lien existing or arising by operation of
law in the ordinary course of business, such as a "banker's lien" or similar
right of offset; (f) liens on the property of the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships securing (i) the performance
of bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) obligations on surety and appeal bonds, and (iii) other
obligations of a like nature incurred in the ordinary course of business,
provided all such liens in the aggregate have no reasonable likelihood of
causing a Material Adverse Effect; (g) liens covering equipment, which liens
secure purchase money financing for such equipment, provided that (A) any such
lien covers only the equipment so acquired, and (B) the indebtedness secured
thereby is permitted pursuant to Paragraph 7.8 hereof; (h) liens identified on
Schedule 7.6
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attached hereto and any renewals, extensions or replacements thereof, provided
that by any such renewal, extension or replacement no lien is extended to
additional property and that no monetary amount secured by any such lien is
increased; (i) liens securing Non-recourse Indebtedness permitted under clause
(e) of Paragraph 7.8 hereof; and (j) other liens securing obligations in an
aggregate amount not exceeding $500,000 at any time.
"Person" means any individual, corporation, partnership, trust, association
or other entity or organization, including any government, political
subdivision, agency or instrumentality thereof.
"Pledge Agreement" means the Partnership Interest Pledge Agreement dated as
of September 2, 1994 by the Borrower in favor of the Agent, as Agent for the
Banks.
"Prime Rate" shall be the rate most recently announced by the Agent at its
principal office in San Francisco as its "Prime Rate." Prime Rate is one of the
Agent's base rates and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto, and is
evidenced by the reporting thereof after its announcement in such internal
publication or publications as the Agent may designate. Any change in the
interest rate resulting from a change in such Prime Rate shall become effective
as of 12:01 a.m. of the Banking Day on which each change in Prime Rate is
announced by the Agent.
"Projected Balance Sheet" shall have the meaning set forth in Paragraph
5.11 hereof.
"PS Partnerships" means, collectively, PS Partners, Ltd., a California
limited partnership; PS Partners II, Ltd., a California limited partnership; PS
Partners III, Ltd., a California limited partnership; PS Partners IV, Ltd., a
California limited partnership; PS Partners V, Ltd., a California limited
partnership; PS Partners VI, Ltd., a California limited partnership; and PS
Partners VII, Ltd., a California limited partnership.
"PSI" means Public Storage, Inc., a California corporation.
"PSMI" means Public Storage Management, Inc., a California corporation.
"PSMI Merger" means a series of merger transactions substantially as
described in Schedule 7.1 attached hereto.
"PSMI Merger Conditions" shall mean the following:
(a) The Agent shall have received evidence satisfactory to it that all
corporate and shareholder action necessary to approve and adopt the agreement
effecting the PSMI Merger and to
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authorize the PSMI Merger shall have been taken by Borrower and all other
parties to the PSMI Merger;
(b) The Agent shall have received evidence satisfactory to it that all
Governmental Approvals necessary for the consummation of the PSMI Merger shall
have been obtained;
(c) The Agent shall have been furnished with (a) a pro forma consolidated
balance sheet for Borrower and the Consolidated Affiliates and (b) projected
statements of income and operations of Borrower and the Consolidated Affiliates
for, and as at the end of, the fiscal year in which the closing of the PSMI
Merger occurs, in each case giving effect to the PSMI Merger;
(d) No Event of Default or Incipient Default shall exist at the time of the
PSMI Merger or would, in the Agent's reasonable judgment, be likely to result,
directly or indirectly, from consummation of the PSMI Merger; and
(e) The Agent shall have received such other documents, certificates and
legal opinions as may be reasonably required relating to the PSMI Merger.
"PSMI Note Agreement" means the Note Agreement, dated as of November 1,
1993, among PSMI, PSI and certain note purchasers signatory thereto.
"PSMI Term Notes" means the promissory notes in the aggregate principal
amount of $70,500,000 on the date hereof issued by PSMI pursuant to the PSMI
Note Agreement.
"Rate Contracts" means interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"Rating Agencies" means, collectively, S & P, Moody's Investor Service and
Duff & Phelps Credit Rating Co.
"Rating Notice" shall have the meaning set forth in paragraph 6.2(m)
hereof.
"Rating Notice Date" means the earlier of (a) the date a Rating Notice is
sent to the Agent, or (b) the date the Agent, having received actual notice of a
change in rating by a Rating Agency of its rating applicable to Borrower's
Preferred Stock, sends notice to the Borrower of such change, provided that
nothing contained herein shall imply any obligation of the Agent to monitor such
ratings changes, or to send such notice except at the instruction of Majority
Banks.
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"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of thirty (30) days' notice to the PBGC is waived under applicable
regulations, a withdrawal from a plan described in Section 4063 of ERISA, or a
cessation of operations described in Section 4062(e) of ERISA.
"Responsible Officer" means the Borrower's Chief Executive Officer, Chief
Financial Officer or any Vice President or, with respect to any other Person,
such Person's Chief Executive Officer or Chief Financial Officer or, as to a
partnership, the Chief Executive Officer or Chief Financial Officer of such
Person's general partner.
"S & P" means Standard and Poors Corporation.
"Sale-Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Borrower, one of its Subsidiaries or one
of the Controlled Partnerships transfers such property to a Person and the
Borrower, one of its Subsidiaries or one of the Controlled Partnerships leases
it from such Person.
"Solvent" means, when used with respect to any Person, that at the time of
determination:
(i) the fair value of its assets (both at fair valuation and at
present fair salable value) is in excess of the total amount of all of its
debts and liabilities, including contingent, subordinated, unmatured and
unliquidated liabilities; and
(ii) it is then able to pay its debts as they become due; and
(iii) it owns property having a value (both at fair valuation and at
present fair salable value) in excess of the total amount required to pay
its debts; and
(iv) it has capital sufficient to carry on its business.
"Specified Affiliate" means any of the Affiliates of the Borrower listed in
Schedule 4.3 attached hereto which, at the time of an Affiliate Acquisition, is
principally engaged in the Business of Borrower.
"Statutory Reserves" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency or supplemental reserves, and
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expressed as a decimal) established by the Federal Reserve Board or any other
United States banking authority to which the Agent or any Bank is subject for
Eurocurrency Liabilities (as defined in Regulation D of the Federal Reserve
Board). Such reserve percentages shall include, without limitation, those
imposed under said Regulation D. LIBOR Loans shall be deemed to constitute
Eurocurrency Liabilities and as such shall be deemed to be subject to such
reserve requirements without benefit of or credit for proration, exceptions or
offsets which may be available from time to time to the Banks under said
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"Subsidiary" of a Person means any corporation, association or other
business entity of which such Person now or hereafter owns, directly or
indirectly, securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other governing body thereof.
"Swing Line" shall mean the line of credit referred to in Paragraph 2.4(a).
"Swing Line Loan" shall have the meaning set forth in Paragraph 2.4(a).
"Swing Line Loan Refund" shall have the meaning set forth in Paragraph
2.4(b).
"Swing Line Note" shall have the meaning set forth in Paragraph 2.4(a).
"Termination Date" means the Final Maturity Date or any earlier date on
which the Total Commitment Amount is reduced to zero pursuant to Paragraph
2.1(b) hereof.
"Total Commitment Amount" means, subject to Paragraph 2.1(b) hereof, one
hundred twenty-five million Dollars ($125,000,000).
"Total Shareholders' Equity" means the total shareholders' equity of the
Borrower, determined in accordance with GAAP as of any day.
"Unencumbered Assets" means Controlled Properties which are free and clear
of Liens, provided that a Controlled Property owned by a Consolidated Affiliate
shall not be considered an Unencumbered Asset unless the Borrower's ownership
interests (direct and indirect) in such Consolidated Affiliate are free and
clear of Liens.
"Unfunded Bank" means, with respect to any Swing Line Loan,
a Bank which shall not have paid to Agent the Swing Line Loan Refund in
accordance with Paragraph 2.4(b).
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"Wells Fargo" means Wells Fargo Bank, National Association, for itself and
not in its capacity as the Agent.
"Wholly Owned Subsidiary" means any direct or indirect Subsidiary of the
Borrower where the Borrower's ownership of such Subsidiary is through ownership
of 100% of all issued and outstanding capital stock and warrants, options or
rights to purchase capital stock at all levels.
"Working Capital Loan" means any Loan which is neither an Affiliate
Acquisition Loan nor a Permitted Acquisition Loan.
Each accounting term not defined herein and each accounting term partly defined
herein to the extent not defined shall have the meaning given to it under GAAP.
ARTICLE 2
---------
Loans
-----
2.1 Revolving Credit.
----------------
(a) Revolving Loans. Subject to the terms and conditions of this
---------------
Agreement, each Bank severally agrees to make loans to the Borrower on a
revolving basis (each herein called a "Loan") from time to time on and after the
Initial Closing Date until the Termination Date, in an aggregate principal
amount not to exceed at any time outstanding such Bank's Commitment Amount. The
Borrower shall use the proceeds of the Loans exclusively for payment of cash
consideration and expenses incurred in Permitted Acquisitions, for payment of
cash consideration and expenses incurred in Affiliate Acquisitions or for
general working capital purposes. All of the Loans in the aggregate shall
consist of one or more Base Rate Loans and LIBOR Loans. Subject to the terms
and conditions of this Agreement, Loans which are repaid may be reborrowed prior
to the Termination Date. Each Borrowing of a Base Rate Loan hereunder shall be
in an amount equal to an integral multiple of ten thousand Dollars ($10,000) and
in a minimum amount of two hundred fifty thousand Dollars ($250,000), and each
Borrowing of a LIBOR Loan hereunder shall be in an amount equal to an integral
multiple of ten thousand Dollars ($10,000) and in a minimum amount of two
million Dollars ($2,000,000).
(b) Commitment Limits. The aggregate principal amount of Loans outstanding
-----------------
shall not at any one time exceed the Total Commitment Amount then in effect.
The Borrower may reduce the Total Commitment Amount upon not less than five (5)
Banking Days' telephone notice, confirmed by an Authorized Representative on the
date of such notice by electronic facsimile transmission, to the Agent and by
repaying to the Banks any Loans outstanding in excess of the limits specified in
the immediately preceding sentence. Any such reduction of the Total
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Commitment Amount requested by the Borrower shall be in an amount equal to at
least two million Dollars ($2,000,000), shall be an integral multiple of ten
thousand Dollars ($10,000), and shall be permanent. The Borrower may, by notice
to Agent no later than May 22, 1996 and no earlier than ninety (90) days before
such date, request that the Banks extend the Final Maturity Date from April 30,
1998 to April 30, 1999. The Final Maturity Date shall be so extended if, but
only if, all of the Banks, in the sole and absolute discretion of each Bank, so
agree in writing. If the Banks shall have agreed to extend the Final Maturity
Date in accordance with the immediately preceding sentence, then the Borrower
may, by notice to Agent no later than May 22, 1997 and no earlier than ninety
(90) days before such date, request that the Banks extend the Final Maturity
Date from April 30, 1999 to April 30, 2000. The Final Maturity Date shall be so
extended if, but only if, all of the Banks, in the sole and absolute discretion
of each Bank, so agree in writing.
(c) Borrowing Procedures. For any proposed Borrowing which is to be a Base
--------------------
Rate Loan, an Authorized Representative shall give the Agent telephone notice
not later than 9:00 a.m. (San Francisco time) at least one (1) Banking Day prior
to the date of the proposed Borrowing, confirmed by a written borrowing request
in substantially the form attached hereto as Exhibit 2.1(c) (a "Loan Request"),
executed by an Authorized Representative and received by the Agent by facsimile
on the day of such telephone notice. For any proposed Borrowing which is to
consist of at least one LIBOR Loan, an Authorized Representative shall give the
Agent telephone notice not later than 9:00 a.m. (San Francisco time) at least
three (3) Banking Days prior to the date of the proposed Borrowing, confirmed by
a Loan Request executed by an Authorized Representative and received by the
Agent by facsimile on the day of such telephone notice. Each Loan Request shall
specify the purpose for which the Borrower intends to use the proceeds of the
requested Loan and, in the case of a Loan Request for an Affiliate Acquisition
Loan or a Permitted Acquisition Loan shall describe the proposed acquisition in
sufficient detail to allow the Agent to determine that the conditions applicable
to such Loans have been satisfied. Upon the Agent's receipt of the Loan
Request, the Agent shall on the same Banking Day notify each Bank of the
proposed Borrowing, including the date and amount thereof. Each Bank will make
an amount equal to its respective Commitment Percentage of the Borrowing
available to the Agent for the account of the Borrower at the office of the
Agent for payment by 10:00 a.m. (San Francisco time) on the borrowing date
requested by the Borrower in funds immediately available to the Agent. Unless
any applicable condition specified in Article 4 has not been satisfied, the
proceeds of all such Loans will then be made available to the Borrower by the
Agent by crediting the Borrower's Account with the aggregate of the amounts made
available to the Agent by the Banks in like funds as received by the Agent.
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(d) Notes. The Borrower's obligations to repay all Loans made by the Banks
-----
shall be evidenced by a promissory note in favor of each Bank in the form
attached hereto as Exhibit 2.1(d) (the "Notes"). On the Initial Closing Date,
the Borrower shall deliver to the Agent Notes payable to the respective Banks in
the Initial Commitment Amount of each Bank, executed by an Authorized
Representative.
2.2 Interest and Fees.
-----------------
(a) Interest. Subject to all other provisions of this Paragraph 2.2, all
--------
or a part of each Loan may, at the option of the Borrower, be a Base Rate Loan
or a LIBOR Loan. Subject to Paragraph 2.2(f) hereof, the Loans shall bear
interest from the date of disbursement on the unpaid principal amount thereof
until such amount shall become due and payable (whether upon Maturity, by
Acceleration or otherwise) (i) in the case of each Base Rate Loan, at a
fluctuating rate per annum equal to the Base Rate, as from time to time in
effect, plus the Applicable Margin in effect from time to time, and (ii) in the
case of each LIBOR Loan, at a rate per annum equal to the LIBOR Rate for the
applicable Interest Period plus the Applicable Margin in effect from time to
time. Interest on each Base Rate Loan shall be payable in arrears on the last
Banking Day of each calendar quarter, commencing with the quarter ending June
30, 1995, on any date that such Base Rate Loan is converted to a LIBOR Loan, on
the date of any prepayment as to the amount of such prepayment, and on the
Termination Date. Interest on each LIBOR Loan shall be payable in arrears on
the last day of the applicable Interest Period (provided, however, that interest
on each LIBOR Loan with an Interest Period of six (6) months shall be paid three
(3) months after commencement of such Interest Period), on any date when such
LIBOR Loan is converted to a Base Rate Loan, on the date on which any LIBOR Loan
is prepaid as to the amount of such prepayment, and on the Termination Date.
While any Event of Default exists or after Acceleration, the Loans shall
bear interest at a rate equal to the applicable rate provided above plus two
percent (2%) per annum. All other Obligations, if not paid when due, shall bear
interest from the date when due until paid, at a rate equal to the Base Rate
plus the Applicable Margin plus two percent (2%) per annum.
(b) Extensions and Conversions. Subject to the terms and conditions
--------------------------
hereof, the Borrower shall have the option at any time to convert all or any
part of a Loan into a Base Rate Loan or a LIBOR Loan; provided, however, that a
LIBOR Loan may be converted only as of the last day of the applicable Interest
Period. Subject to the terms and conditions hereof, the Borrower may extend a
LIBOR Loan beyond its current Interest Period. In the case of a proposed
conversion of a Base Rate Loan into a LIBOR Loan or an extension of a LIBOR
Loan, an Authorized Representative shall give the Agent telephone notice not
later than 9:00 a.m. (San Francisco time) at least three (3)
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<PAGE>
Banking Days prior to the date of the proposed conversion or extension,
confirmed by a written notice in the form of Exhibit 2.2(b) attached hereto (a
"Notice of Conversion/Extension") executed by an Authorized Representative and
received by the Agent by facsimile on the day of such telephone notice. In the
case of a proposed conversion into a Base Rate Loan, an Authorized
Representative shall give the Agent telephone notice not later than 9:00 a.m.
(San Francisco time) at least one (1) Banking Day prior to the end of the
applicable Interest Period confirmed by a Notice of Conversion/Extension
executed by any Authorized Representative and received by the Agent by facsimile
the day of such telephone notice. Any notice given by an Authorized
Representative under this Paragraph 2.2(b) shall be irrevocable.
Notwithstanding anything to the contrary in this Paragraph 2.2(b), if an Event
of Default shall have occurred and be continuing on the last day of an Interest
Period for a LIBOR Loan, then such Loan shall automatically be converted to a
Base Rate Loan. Unless the Agent receives notice of a proposed conversion or
extension as and when required hereunder, then at the end of an Interest Period
for a LIBOR Loan, such Loan shall automatically convert to a Base Rate Loan.
(c) Commitment Fee. The Borrower shall pay to the Agent for the account of
--------------
each Bank a commitment fee (the "Commitment Fee") on the average daily unused
portion of such Bank's Commitment Amount at a rate per annum determined as set
forth below for each calendar quarter based upon the Applicable Interest
Coverage Ratio determined as of the first Banking Day of such calendar quarter:
Applicable Interest
Coverage Ratio Commitment Fee
------------------- --------------
Less than 7.0 to 1.0 0.375%
Equal to or greater than
7.0 to 1.0, but less
than 10.0 to 1.0 0.325%
Equal to or greater than
10.0 to 1.0, but less
than 13.0 to 1.0 0.300%
Equal to or greater than
13.0 to 1.0, but less
than 15.0 to 1.0 0.275%
Equal to or greater than
15.0 to 1.0 0.250%
provided, however, that, irrespective of the Applicable Interest Coverage Ratio,
if on the first Banking Day of any calendar
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<PAGE>
quarter Borrower's Preferred Stock is not rated Investment Grade, the Commitment
Fee payable in respect of such quarter shall be calculated at a rate per annum
equal to 0.50%.
Such commitment fee shall (i) be computed on a daily basis based on the
respective Commitment Amount of each Bank in effect on each day, (ii) accrue
from the Initial Closing Date to the Termination Date and (iii) be payable
quarterly in arrears on the last Banking Day of each quarter commencing with the
quarter ending June 30, 1995 and on the Termination Date.
For purposes of calculating the Commitment Fee payable to Wells Fargo,
amounts outstanding under the Swing Line shall not be considered outstanding
Loans, and shall not reduce the "unused portion" of Wells Fargo's Commitment
Amount. The Borrower acknowledges that the effect of the preceding sentence is
to require the Borrower to pay both interest and a Commitment Fee with respect
to any Swing Line Loan outstanding on any day.
(d) Computation of Interest and Commitment Fee. Interest and the
------------------------------------------
Commitment Fee shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days.
(e) Illegality, Taxation and Additional Interest Rate Provisions.
------------------------------------------------------------
(i) In the event the Agent shall have reasonably determined (which
reasonable determination shall be conclusive and binding) that by reason of
circumstances affecting the interbank Eurodollar market, adequate and
reasonable means do not exist for ascertaining Base LIBOR, the Agent shall
forthwith give notice of such determination, confirmed in writing, to the
Borrower. If such notice is given, and until such notice has been
withdrawn by the Agent, no additional LIBOR Loans shall be made and no
additional conversions of Loans to LIBOR Loans shall be permitted, and at
the end of the Interest Period relating to any outstanding LIBOR Loans,
such Loans shall become Base Rate Loans.
(ii) Notwithstanding any other provisions herein, if any law, treaty,
rule or regulation, or determination of a court or other Governmental
Authority, or any change therein or in the interpretation or application
thereof, shall make it unlawful for a Bank to make or maintain LIBOR Loans,
as contemplated by this Agreement, the obligation of such Bank hereunder to
make LIBOR Loans shall forthwith be canceled, and each LIBOR Loan of such
Bank then outstanding shall immediately become a Base Rate Loan.
(iii) In the event that any adoption or modification of any law,
treaty, rule or regulation, or
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<PAGE>
determination of a court or other Governmental Authority, or that any
change in the interpretation or application thereof, which adoption,
modification or change becomes effective after the Initial Closing Date, or
in the event that compliance by a Bank with any request or directive issued
after the date hereof (whether or not having the force of law) from any
Governmental Authority:
(A) does or shall subject a Bank or any of its foreign offices
to any tax of any kind whatsoever with respect to this Agreement, the
Notes, the Loans or any payments made to and received by such Bank of
principal, interest, fees or any other amount payable hereunder; or
(B) does or shall impose, modify, or hold applicable any reserve,
special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, deposits or other liabilities in
or for the account of, advances or loans by, other credit extended by
or any other acquisition of funds by, any office of a Bank (other than
to the extent previously taken into account in determining the Base
Rate or Statutory Reserves); or
(C) does or shall impose on a Bank any other condition;
and the result of any of the foregoing is to increase the cost to a Bank of
making, renewing or maintaining such Bank's Commitment Amount or the Loans,
or to reduce any amount receivable in respect thereof or under any of the
Loan Documents; then, in any such case, such Bank shall notify the Borrower
of any such event of which it has knowledge and shall deliver to the Agent
and the Borrower a written statement in reasonable detail of the losses or
expenses sustained or incurred, and any reasonable allocation made by such
Bank of such losses and expenses shall be conclusive. The Borrower shall,
upon demand, pay the amount of such losses and expenses.
(f) Capital Adequacy Requirements. If any Bank shall have determined that
-----------------------------
the adoption of any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein or any change in the interpretation or
administration thereof by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or compliance by such
Bank (or its lending office) or any corporation controlling such Bank, with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of law) of any such central bank or other authority,
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<PAGE>
affects the amount of capital required or expected to be maintained by such Bank
or any corporation controlling such Bank, and such Bank determines that the
amount of such capital is increased as a consequence of its obligation under
this Agreement, then, upon demand of such Bank, the Borrower shall immediately
pay to such Bank, from time to time as specified by the Bank, additional amounts
sufficient to compensate such Bank for such increase as set forth in a
reasonably detailed statement.
2.3 Payments.
--------
(a) Payment of Loans. The Borrower shall repay all Loans then outstanding
----------------
on the Termination Date.
(b) Optional Prepayment. Subject to the following and the provisions of
-------------------
Paragraph 2.3(d) hereof, the Borrower may at any time prepay, upon not less than
one (1) Banking Day's prior notice to the Agent in the case of Base Rate Loans,
or three (3) Banking Days' prior written notice to the Agent as to any LIBOR
Loans, any or all of the Loans in whole or in part, without penalty or premium.
Each such prepayment shall include interest accrued to the date of prepayment on
the amount of such prepayment. Any such notice of prepayment shall specify the
amount of the prepayment. Any such prepayment shall be in a minimum principal
amount of two million Dollars ($2,000,000) and in a principal amount which is an
integral multiple of ten thousand Dollars ($10,000).
(c) Mandatory Prepayments. (i) If at any time the aggregate principal
---------------------
amount of the Loans outstanding exceeds the Total Commitment Amount then in
effect, or if the aggregate principal amount of Affiliate Acquisition Loans
outstanding exceeds the Affiliate Acquisition Loan Limit then in effect, then
the Borrower shall immediately pay to the Agent for the account of each Bank the
amount of such excess (as a prepayment in respect of the Loans), plus any amount
due under Paragraph 2.3(d) hereof as a result of such prepayment.
(ii) The Borrower shall make prepayments to the Banks in respect of the
Loans in amounts equal to:
(A) one hundred percent (100%) of all net cash proceeds in excess of
five million dollars ($5,000,000) in the aggregate during any fiscal year
received by the Borrower from sales of assets by the Borrower, any
Subsidiary of the Borrower or any Controlled Partnership (and, for purposes
of this subparagraph, the Borrower shall be deemed to have received its
Percentage Interest of net proceeds of any such sale by a Subsidiary or a
Controlled Partnership);
(B) one hundred percent (100%) of all net cash proceeds received by
Borrower from any issuance by the
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<PAGE>
Borrower, any of its Subsidiaries or any Controlled Partnership of debt or
equity securities; and
(C) one hundred percent (100%) of all net cash proceeds received by
the Borrower from or as a result of the dissolution of any of the
Borrower's Subsidiaries or any Controlled Partnership (and, for purposes of
this sub-paragraph, the Borrower shall be deemed to have received its
Percentage Interest of any net cash proceeds of any such dissolution).
Notwithstanding the foregoing, if in any fiscal year, the Borrower receives or
is deemed to receive an amount in excess of fifteen percent (15%) of the
consolidated assets of the Borrower and the Consolidated Subsidiaries
(determined as of the last day of the immediately preceding fiscal year) in the
aggregate from all transactions described in clauses (A) and (C) of this
Section, then (to the extent required by the terms of the PSMI Term Notes) such
excess shall be paid pro rata to the Banks and the holders of the PSMI Term
Notes in accordance with the respective outstanding principal amounts thereof.
(d) Payments Prior to Interest Period Expiration. The Borrower hereby
--------------------------------------------
agrees to indemnify and hold the Banks free and harmless from any loss or
expense (including, without limitation, any loss or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired by the
Banks to fund or maintain any LIBOR Loan and in addition to any interest or
other payments which may be due the Banks under this Agreement) which the Banks
may incur as a result of (i) the termination of this Agreement without the
occurrence of the Initial Closing Date, other than by reason of a default by the
Banks, (ii) the failure by the Borrower to accept or complete a borrowing,
conversion or extension with respect to a LIBOR Loan after making a request
therefor, (iii) the failure of the Borrower to make any prepayment after notice
has been given in accordance with Paragraph 2.3(b) hereof, (iv) a prepayment in
whole or in part (whether optional or mandatory) of any LIBOR Loan prior to the
expiration of a related Interest Period, or (v) the conversion of a LIBOR Loan
as a result of any of the events indicated in Paragraph 2.2(e) hereof. The
Agent shall deliver to the Borrower a written statement in reasonable detail of
any amounts due the Banks as provided above, and such statement, in the absence
of manifest error, shall be fixed and binding on both parties. In no event
shall any amounts be payable by the Banks to the Borrower under this Paragraph
2.3(d).
(e) Payments by the Borrower. All payments (including prepayments)
------------------------
required to be made to the Banks on account of principal, interest, fees or
other Obligations shall be made without set-off or counterclaim and shall be
made to the Agent, for the account of the Banks, at the Agent's Regional
Commercial Banking Office in El Monte, California, in Dollars and in
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<PAGE>
immediately available funds no later than 12:00 noon (San Francisco time). The
Agent will promptly distribute to each Bank its Commitment Percentage of such
principal, interest, fees or other amounts, in like funds as received. Any such
amount payable to the Banks which is received by the Agent and is not
distributed to a Bank within two (2) Banking Days after receipt shall be payable
to such Bank with interest for the period from and after such second Banking Day
until paid at the daily Federal Funds Rate. Any payment which is received by the
Agent later than 12:00 noon (San Francisco time) shall be deemed to have been
received on the immediately succeeding Banking Day. Whenever any payment
hereunder shall be stated to be due on a day other than a Banking Day, such
payment shall be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be. Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may (but shall not be so required), in reliance upon such assumption, cause to
be distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent such payment has not been made in full to
the Agent, each Bank shall repay to the Agent on demand such amount distributed
to such Bank, together with interest thereon for each day from the date such
amount is distributed to such Bank until the date such Bank repays such amount
to the Agent, at the Federal Funds Rate as in effect from time to time. The
Borrower irrevocably authorizes the Agent to debit the Borrower's Account or any
other account maintained by the Borrower with the Agent for any payment due the
Agent or the Banks hereunder.
(f) Payments by the Banks to the Agent. Each Bank shall make available to
----------------------------------
the Agent in immediately available funds for deposit to the Borrower's Account
the amount of such Bank's Commitment Percentage of any Borrowing. Unless the
Agent shall have received notice from a Bank at least one Banking Day prior to
the date of any proposed Borrowing that such Bank will not make available to the
Agent for the account of the Borrower the amount of that Bank's Commitment
Percentage of the proposed Borrowing, the Agent may assume that each Bank has
made such amount available to the Agent on the borrowing date and the Agent may
(but shall not be so required), in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent any
Bank shall not have made its full amount available to the Agent and the Agent in
such circumstances has made available to the Borrower such amount, that Bank
shall within two (2) Banking Days following the date of such Borrowing make such
amount available to the Agent, together with interest at the Federal Funds Rate
as in effect for each day during such period. A notice from the Agent submitted
to any Bank with respect to amounts owing under this Paragraph 2.3(f) shall be
conclusive, absent manifest error. If
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<PAGE>
such amount is so made available, such payment to the Agent shall constitute
such Bank's Loan on the date of the Borrowing for all purposes of this
Agreement. If such amount is not made available to the Agent within two (2)
Banking Days following the date of such Borrowing, the Agent shall notify the
Borrower of such failure to fund and, upon demand by the Agent, the Borrower
shall pay such amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing. The failure of any Bank to make any Loan on any date
of any proposed Borrowing shall not relieve any other Bank of its obligation
hereunder to make its Loan on such date, but no Bank shall be responsible for
the failure of any other Bank to make the Loan to be made by such other Bank on
such date.
(g) Sharing of Payments, etc. If at any time any Bank shall obtain on
-------------------------
account of the Loans made by it, any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) in excess of its
Commitment Percentage of payments on account of the Loans obtained by all the
Banks, such Bank shall forthwith (a) notify the Agent of such fact, and (b)
purchase from the other Banks such participations in the Loans made by them as
shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from the purchasing Bank, such purchase
shall to that extent be rescinded and each other Bank shall repay to the
purchasing Bank the purchase price paid thereto together with an amount equal to
such paying Bank's Commitment Percentage (according to the proportion of (i) the
amount of such paying Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
pursuant to this Paragraph 2.3(g) may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of offset in Paragraph
2.3(h) hereof), with respect to such participation as fully as if such Bank were
the direct creditor of the Borrower in the amount of such participation. The
Agent shall keep records (which shall be conclusive and binding in the absence
of manifest error), of participations purchased pursuant to this Paragraph
2.3(g) and shall in each case notify the Banks following any such purchases.
(h) Offset. In addition to and not in limitation of all rights of offset
------
that the Banks may have under applicable law, the Banks, upon the occurrence and
during the continuance of an Acceleration, shall have the right to appropriate
and apply to the payment of all Obligations any and all balances, credits,
deposits, accounts or moneys of the Borrower then or thereafter with the Banks.
Each Bank agrees promptly to notify the
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<PAGE>
Borrower and the Agent after any such offset and application made by such Bank;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such offset and application. The rights of each Bank under this
Paragraph 2.3(h) are in addition to the other rights and remedies which such
Bank may have.
(i) Allocation of Payments. Except as otherwise provided in Section
----------------------
3.2(c), all payments made by the Borrower to the Agent which are allocable to
principal amounts of outstanding Loans shall be allocated in accordance with the
Borrower's instructions; or in the absence of such instructions, such payments
shall be allocated first to Permitted Acquisition Loans and Affiliate
Acquisition Loans, pro rata in accordance with the respective outstanding
amounts thereof, and then to other Loans.
2.4 Swing Line.
----------
(a) Swing Line. In the event that Agent receives a Loan Request for a Base
----------
Rate Loan which Loan Request expressly requests funds on the same Banking Day
that the Agent receives such Loan Request, then, upon and subject to the terms
and conditions of this Agreement, Wells Fargo hereby agrees to make a portion of
Wells Fargo's Commitment available to the Borrower by making loans under the
Swing Line (each a "Swing Line Loan"), in accordance with this Paragraph 2.4,
the proceeds of which shall be used exclusively for the purposes permitted
pursuant to Paragraph 2.1(a) hereof. Each Swing Line Loan shall be made on the
same Banking Day that the Agent receives a Loan Request in accordance with
Paragraph 2.1(c) hereof. The Borrower's obligations to repay all Swing Line
Loans shall be evidenced by a promissory note in favor of the Agent in the form
attached hereto as Exhibit 2.4(a) (the "Swing Line Note").
(b) Borrowing and Repayment. The Borrower may from time to time during the
-----------------------
term of the Swing Line, borrow, partially or wholly repay outstanding borrowings
and reborrow, subject to all of the limitations, terms and conditions contained
in this Agreement; provided, however, that no Swing Line Loan shall be available
if such Swing Line Loan would cause (i) the sum of the aggregate principal
balance of all outstanding Swing Line Loans to exceed thirty million Dollars
($30,000,000), (ii) the sum of the aggregate principal balance of all
outstanding Swing Line Loans and the aggregate principal balance of all other
Loans to exceed the Total Commitment Amount then in effect, or (iii) the sum of
the aggregate principal balance of all outstanding Swing Line Loans and the
aggregate principal balance of all other Loans by Wells Fargo to exceed Wells
Fargo's Commitment Amount then in effect. All Swing Line Loans shall, except as
otherwise set forth in this Paragraph 2.4, be upon and subject to all of the
terms and conditions (including, without limitation, interest terms) of this
Agreement applicable to Base Rate Loans, and, if not repaid or refunded earlier
(as set forth hereinbelow), shall be due and payable on the Termination Date.
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<PAGE>
With respect to any Swing Line Loans which have not been voluntarily repaid
by the Borrower or refunded by a Bank as provided herein, such Bank shall, on
the Banking Day immediately following the day on which such Swing Line Loan was
made, pay to the Agent, for the account of Wells Fargo, an amount equal to its
Commitment Percentage of the subject Swing Line Loan (the "Swing Line Loan
Refund"). On the Banking Day on which a Swing Line Loan Refund is received by
the Agent, (i) the Swing Line Loan shall be deemed to be repaid in an amount
equal to the amount of such Swing Line Loan Refund, and (ii) the Bank paying
such Swing Line Loan Refund shall be deemed to have made a Base Rate Loan in the
amount of such Swing Line Loan Refund. Nothing in this Paragraph 2.4 shall
reduce any of the obligations of any Bank under Paragraphs 2.1 or 2.3(f) hereof.
If, as a result of any bankruptcy or similar proceeding with respect to the
Borrower, payments of Swing Line Loan Refunds are not made pursuant to this
Paragraph 2.4(b) in an amount sufficient to repay any amounts owed to the Agent
in respect of any outstanding Swing Line Loans, each Unfunded Bank shall be
deemed to have purchased and hereby agrees to purchase a participation in such
outstanding Swing Line Loans in an amount equal to the amount payable by such
Unfunded Bank to the Agent in accordance with this Paragraph 2.4(b). Upon one
Banking Day's notice from the Agent, any such Unfunded Bank shall pay to the
Agent for the account of Wells Fargo an amount equal to the amount of such
participation in same day funds at the Agent's Regional Commercial Banking
Office in El Monte, California. In the event any such Unfunded Bank fails to
pay to the Agent the amount of such Unfunded Bank's participation as provided in
this paragraph, interest shall accrue on the amount due at the daily Federal
Funds Rate for a period ending on the third Banking Day following the date such
amount was due, and at the Base Rate thereafter.
Anything contained herein to the contrary notwithstanding, each Bank's
obligation to make Base Rate Loans for the purpose of paying any Swing Line Loan
Refund and each Bank's obligation to purchase a participation in any unpaid
Swing Line Loans shall be absolute and unconditional and shall not be affected
by any circumstance, including without limitation (A) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Agent,
the Borrower or any other person or entity for any reason whatsoever; (B) the
occurrence or continuance of an Event of Default or an Acceleration; (C) any
Material Adverse Change; (D) any breach of this Agreement or any other Loan
Document by any party thereto; or (E) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided that no
Bank shall be obligated to pay any Swing Line Loan Refund if such Bank
demonstrates that, without such Bank's consent or an effective waiver by
Majority Banks, Wells Fargo advanced the relevant Swing Line Loan with actual
knowledge that any applicable condition set
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<PAGE>
forth in Article 4 was not satisfied at the time such Swing Line Loan was
advanced.
ARTICLE 3
---------
Transition Provisions; Release of Collateral
--------------------------------------------
3.1 Exchange of Notes. Prior to the Initial Closing Date, each Bank shall
-----------------
deposit with the Agent the promissory note (including the "Swing Line Note" as
defined in the Original Credit Agreement) issued pursuant to the Original Credit
Agreement (collectively, the "Old Notes") held by such Bank, and the Agent shall
hold the Old Notes, as bailee for the account of such respective Banks pending
the Initial Closing Date. On the Initial Closing Date, upon the Borrower's
delivery to the Agent of the Notes pursuant to Section 2.1(d) and the Swing Line
Note, the Agent shall cancel the Old Notes, return the cancelled Old Notes to
the Borrower and deliver the Notes to the respective Banks and the Swing Line
Note to Wells Fargo.
3.2 Transfer of Loan Balances. (a) As of the Initial Closing Date, all
-------------------------
Loans made pursuant to the Original Credit Agreement and not theretofore repaid
in full ("Continuing Loans") shall constitute Loans under this Agreement and,
subject to Sections 3.2(b) and 3.2(c), shall be subject to all of the terms and
conditions of this Agreement. As of the Initial Closing Date, the principal
amount of each such Loan shall be deemed to be outstanding under and evidenced
by the Note to the order of the Bank which advanced such Loan. From and after
the Initial Closing Date, interest on Continuing Loans which were "Base Rate
Loans" (as defined in the Original Credit Agreement) shall constitute Base Rate
Loans, as defined herein, and shall bear interest as such in accordance with
Section 2.2(a).
(b) Notwithstanding anything to the contrary in Section 3.2(a), each
Continuing Loan which is a "LIBOR Loan" (as defined in the Original Credit
Agreement) shall continue to bear interest at the rate determined in accordance
with Section 2.2(a) of the Original Loan Agreement until the last day of the
Interest Period for such Continuing Loan.
(c) Notwithstanding the provisions of Section 2.3(e) to the contrary, until
the principal amount of all Continuing Loans and all other Obligations in
respect of Continuing Loans have been paid in full,
(i) all principal payments by Borrower (unless expressly designated by
the Borrower to be applicable to LIBOR Loans) shall be applied first to the
payment of the outstanding principal balance of Continuing Loans which are
Base Rate Loans, before application to any Loans advanced on or after the
Initial Closing Date;
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<PAGE>
(ii) on the last day of any Interest Period for any Continuing Loans
which are LIBOR Loans, unless the Borrower pays the principal balance of
such LIBOR Loans, such LIBOR Loans shall be extended or converted in
accordance with Section 2.2(b); as among the Banks, such extension or
conversion shall be deemed to be a repayment of the outstanding principal
balance of such Continuing Loans (to be allocated among the Banks according
to the Old Commitment Percentages) and an advance of new Loans (pro rata in
accordance with the Commitment Percentages); and the Banks shall make
appropriate cash adjustments, as determined by Agent, to reflect such
deemed repayment and advance; and
(iii) all payments of interest, principal, fees and other Obligations
in respect of Continuing Loans shall be distributed by the Agent to the
Banks in accordance with the Old Commitment Percentages.
3.3 Release of Collateral. As of the Initial Closing Date, the Pledge
---------------------
Agreement and the Liens granted pursuant thereto shall terminate and be of no
further force or effect (except that the Obligations of the Borrower which arise
under the Pledge Agreement prior to the Initial Closing Date, to the extent not
fully performed, shall remain in effect). On or after the Initial Closing Date,
the Agent, on behalf of the Banks and at the Borrower's sole cost and expense,
shall execute and deliver to the Borrower such documents as the Borrower may
request which are reasonably necessary to evidence the release and termination
of such Liens.
ARTICLE 4
---------
Conditions Precedent
--------------------
4.1 Conditions to Initial Borrowing. The effectiveness of this Agreement
-------------------------------
and the obligation of the Banks to consummate the transactions described in
Article 3 shall be subject to the prior or contemporaneous satisfaction of each
of the following conditions precedent on the Initial Closing Date:
(a) Delivery of Documents. The Notes and the Swing Line Note shall
---------------------
each have been duly executed and delivered to the Agent by the Borrower;
(b) Reports, Certificates and Other Information. The Agent shall have
-------------------------------------------
received the following, dated and in full force and effect on the Initial
Closing Date, and in form and substance satisfactory to the Agent:
(i) a certificate of the Secretary or an Assistant Secretary of
the Borrower as to (A) its corporate charter and by-laws, (B)
authorization
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<PAGE>
of the execution, delivery and performance of this Agreement and all
of the other Loan Documents by the Borrower (including action of
shareholders, where required), and (C) the incumbency and signatures
of persons authorized to act hereunder and thereunder on behalf of the
Borrower;
(ii) a certificate, signed by a Responsible Officer of the
Borrower, stating (A) that the representations and warranties
contained in Article 5 hereof are then true and accurate as though
made on and as of such date, and (B) that there then exists no Event
of Default or Incipient Default;
(iii) a good standing certificate for the Borrower, bearing a
date satisfactory to the Agent, issued by the Secretary of State of
the State of California; and
(iv) such other instruments or documents as the Agent may
reasonably request relating to the existence and good standing of the
Borrower, any of its Subsidiaries, any Controlled Partnership or any
other person, or corporate authority for execution, delivery and
performance of this Agreement, any of the other Loan Documents or any
other document or instrument relating to the Loans.
(c) Opinions of Counsel. There shall have been delivered to the Agent
-------------------
a written opinion dated as of the Initial Closing Date (i) by David
Goldberg, as counsel to the Borrower, substantially in the form of Exhibit
4.1(c) attached hereto, and (ii) by Pillsbury Madison & Sutro, as special
counsel to the Agent, covering such matters as the Agent may request;
(d) Payment of Fees. The Agent shall have received payment of (i) all
---------------
fees required in the Commitment Letter or the Agent's Letter to be paid on
or prior to the Initial Closing Date, and (ii) a reasonable estimate of the
reasonable fees and expenses of the Agent's special counsel, Messrs.
Pillsbury Madison & Sutro, in connection with preparation, negotiation,
execution and closing of this Agreement (provided such estimate shall have
been provided to the Borrower at least three (3) days prior to the Initial
Closing Date), and (iii) any other fee or other payment due the Agent or
the Banks under any of the Loan Documents on or before the Initial Closing
Date;
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(e) No Existing Default. No Event of Default or event which, upon the
-------------------
lapse of time or the giving of notice or both, would constitute an Event of
Default (an "Incipient Default") shall exist on the Initial Closing Date or
after giving effect to the transactions contemplated to take place
hereunder on such date;
(f) Representations and Warranties Correct. The representations and
--------------------------------------
warranties set forth in Article 5 hereof shall be true and correct on the
Initial Closing Date, and after giving effect to the transactions
contemplated to occur on such date;
(g) Legality of Transactions. It shall not be unlawful for the
------------------------
Borrower, the Agent or the Banks to carry out their respective obligations
under this Agreement;
(h) Insurance. The Borrower shall have obtained the insurance called
---------
for in Paragraph 6.11 hereof and the Agent shall have received evidence
satisfactory to it that such insurance is in effect;
(i) Solvency. The Agent shall have received a certificate of the
--------
Chief Financial Officer of the Borrower in form and substance satisfactory
to the Agent that the Borrower, each subsidiary of the Borrower, and each
of the Controlled Partnerships is Solvent on and as of the Initial Closing
Date;
(j) Notice of Authorized Representatives. The Agent shall have
------------------------------------
received a Notice of Authorized Representatives in the form attached hereto
as Exhibit 4.1(j) (a "Notice of Authorized Representatives), duly executed
on behalf of the Borrower;
(k) Other Documents. The Agent shall have received any other
---------------
document, instrument, undertaking or certificate stated in any of the Loan
Documents to be delivered on the Initial Closing Date.
4.2 Conditions to Each Loan. The obligation of the Banks to make any Loan
-----------------------
is subject to the prior or contemporaneous satisfaction of each of the following
conditions precedent on and as of the date of such Borrowing:
(a) Initial Closing Date. The Initial Closing Date shall have
--------------------
occurred.
(b) No Existing Default. No Event of Default or Incipient Default
-------------------
shall exist at the date of such Borrowing, or after giving effect to the
transactions contemplated to take place hereunder on such date;
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(c) Representations and Warranties Correct. The representations and
--------------------------------------
warranties set forth in Article 5 hereof shall be true and correct at the
date of such Borrowing, and after giving effect to the transactions
contemplated to take place hereunder on such date (except that to the
extent that such representations and warranties by their terms relate
solely to an earlier date, in which case such representations and
warranties shall have been true and correct as of the date to which such
representations and warranties relate);
(d) Loan Request. The Agent shall have received in connection with
------------
each Loan a Loan Request, the receipt of which by the Agent shall
constitute a certification by the Borrower that the conditions set forth in
Paragraphs 4.2(b) and 4.2(c) hereof are or will be satisfied on and as of
the date of such Borrowing; and
(e) No Material Adverse Change. No Material Adverse Change shall have
--------------------------
occurred since December 31, 1994.
4.3 Conditions to Acquisition Loans. The obligation of the Banks to make
-------------------------------
any Affiliate Acquisition Loan is subject, in addition to the other conditions
set forth in Paragraph 4.1 or 4.2, as the case may be, to the prior or
contemporaneous satisfaction of the condition that the Agent shall have received
a certificate from an Authorized Representative, in form and substance
satisfactory to the Agent, to the effect that the proposed acquisition is an
Affiliate Acquisition, as defined in this Agreement. The obligation of the
Banks to make any Permitted Acquisition Loan is subject, in addition to the
other conditions set forth in Paragraph 4.1 or 4.2, as the case may be, to the
prior or contemporaneous satisfaction of the following conditions:
(a) The Agent shall have received a certificate from an Authorized
Representative, in form and substance satisfactory to the Agent, to the
effect that the proposed acquisition is a Permitted Acquisition, as defined
in this Agreement; and
(b) The Agent shall have received reasonably satisfactory evidence
that the conditions set forth in the definition of Permitted Acquisition in
Article 1 shall have been satisfied.
4.4 Conditions for the Benefit of the Agent and the Banks. The conditions
-----------------------------------------------------
set forth in this Article 4 are for the exclusive benefit of the Banks and the
Agent and may be waived only by a written waiver signed by all the Banks or the
Agent, as applicable (but the Agent shall not, without the approval of
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Majority Banks, waive any such condition which is for the benefit of the Banks).
4.5 Failure of Conditions. The Borrower shall take any and all actions
---------------------
necessary or appropriate on their part, and shall use their best efforts to
cause others to take necessary or appropriate action on their part, in order to
satisfy the conditions set forth in Paragraph 4.1 hereof and otherwise cause the
Initial Closing Date to occur not later than May 31, 1995. This Agreement
(exclusive of obligations of the Borrower stated herein to survive termination
hereof) shall terminate if the Initial Closing Date does not occur on or before
May 31, 1995. In such event, the Borrower shall pay to Agent on demand such
amounts as may be due under the Commitment Letter or the Agent's Letter. The
obligation of the Borrower to make such payment shall survive termination of
this Agreement.
ARTICLE 5
---------
Representations and Warranties of the Borrower
----------------------------------------------
In order to induce the Agent and the Banks to enter into or become parties
to this Agreement and to extend the Loans, the Borrower makes the following
representations and warranties to the Agent and the Banks:
5.1 Due Organization. The Borrower and each of its Subsidiaries is a
----------------
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and each is duly licensed or
qualified to conduct business, and each is in good standing in each jurisdiction
wherein the character of the property owned or the nature of the business
transacted by it makes such licensing or qualification necessary, except where
the failure to so qualify would not, individually or in the aggregate, have a
Material Adverse Effect.
5.2 Organization, Standing and Qualification of Subsidiaries and
------------------------------------------------------------
Partnerships.
- ------------
(a) Set forth in Schedule 5.2(a) attached hereto is a complete and accurate
list of the Borrower's Subsidiaries and all of the Controlled Partnerships,
showing their respective jurisdictions of incorporation or organization and, as
of the Initial Closing Date, the jurisdictions in which each is qualified to do
business as a foreign corporation.
(b) The corporate charter or articles of incorporation and all amendments
thereto for the Borrower and each of its Subsidiaries have been duly filed and
are in proper order for each corporation. All of the outstanding capital stock
of the Borrower and its Subsidiaries has been validly issued in compliance with
all federal and state securities laws and is fully
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paid and nonassessable. Except as specified in Schedule 5.2(a), all of the
capital stock of each of the Subsidiaries listed in Schedule 5.2(a) attached
hereto is owned by the Borrower or one of its Subsidiaries free and clear of all
mortgages, deeds of trust, pledges, liens, security interests and other charges
or encumbrances. Neither the Borrower nor any of its Subsidiaries nor any of
the Controlled Partnerships is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any Controlled Partnership Interests, as the case may be.
(c) Each of the PS Partnerships is a limited partnership, duly organized,
validly existing and in good standing under the laws of the State of California,
and each is duly licensed or qualified to conduct business and is in good
standing in each jurisdiction wherein the character of the property owned or the
nature of the business transacted by it makes such licensing or qualification
necessary, except where the failure to be so licensed would not, individually or
in the aggregate, have a Material Adverse Effect.
(d) Each of the Joint Ventures is a general partnership, duly organized
and validly existing under the laws of the State of California, and each is duly
licensed in each jurisdiction wherein the character of the property owned or the
nature of the business transacted by it makes such licensing necessary, except
where the failure to be so licensed would not, individually or in the aggregate,
have a Material Adverse Effect.
(e) The chief executive office of the Borrower and each of its Subsidiaries
and each of the Controlled Partnerships is located at 600 N. Brand Boulevard,
Glendale, California 91203-5050.
5.3 Ownership Structure of Partnerships. Set forth in Schedule 5.3
-----------------------------------
attached hereto is an accurate summary description of the ownership interests as
of December 31, 1994 (a) of the Borrower in each of the Joint Ventures, (b) of
the Borrower in each of the PS Partnerships, (c) of the respective PS
Partnerships in the respective Joint Ventures, (d) of the Joint Ventures in the
real property directly owned by the respective Joint Ventures, (e) of the PS
Partnerships in the real property directly owned by the respective PS
Partnerships, and (f) of the Borrower in the real property directly owned by the
Borrower. Except as set forth on Schedule 5.3 attached hereto, neither the
Borrower nor any of its Subsidiaries nor any Controlled Partnership is a partner
in any partnership or a joint venturer in any joint venture.
5.4 Requisite Power. The Borrower and each of its Subsidiaries and each
---------------
of the Controlled Partnerships has all requisite power and all governmental
licenses, permits, authorizations, consents and approvals necessary to own and
operate its respective properties and to carry on its respective business as now
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<PAGE>
conducted and as proposed to be conducted, except any such licenses, permits,
authorizations, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. The Borrower
has all requisite power to borrow the sums provided for in this Agreement and to
execute, deliver, issue and perform this Agreement, the Notes, the Swing Line
Note, and the other Loan Documents.
5.5 Authorization. All corporate action on the part of the Borrower and
-------------
its directors and stockholders necessary for the authorization, execution and
delivery and performance of this Agreement, the Notes, the Swing Line Note, and
the other Loan Documents has been duly taken and is in full force and effect.
5.6 Officer Authorization. Each natural person executing this Agreement
---------------------
or any of the other Loan Documents on behalf of the Borrower is (as of the date
of such execution) duly and properly in office and fully authorized to execute
and deliver the same.
5.7 Binding Nature. This Agreement, the Notes, the Swing Line Note, and
--------------
each of the other Loan Documents is, or upon the execution and delivery thereof
will be, a legal, valid and binding obligation of the Borrower, in full force
and effect and enforceable in accordance with its respective terms, except for
the effect of applicable laws regarding bankruptcy or insolvency and the effect
of equitable principles generally.
5.8 No Conflict. Neither the execution nor delivery of this Agreement,
-----------
the Notes, the Swing Line Note, or any of the other Loan Documents nor
performance of nor compliance with the terms and provisions hereof or thereof
will (a) conflict with or result in a breach of any Governmental Requirement, or
of any other agreement or instrument binding upon the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships, or conflict with or result
in a breach of any provision of the corporate charter or by-laws of the Borrower
or any of its Subsidiaries or the Partnership Agreement of any of the Controlled
Partnerships, except any such conflict or breach as would not, individually or
in the aggregate, result in a Material Adverse Effect, or (b) result in the
creation or imposition of any Lien upon any property of the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships pursuant to any such
agreement or instrument. No authorization, consent or approval or other action
by, and no notice to or filing with, any Governmental Authority is required to
be obtained or made by the Borrower, any of its Subsidiaries or any of the
Controlled Partnerships, other than those which will be obtained or made prior
to the Initial Closing Date, for the due execution, delivery and performance by
the Borrower of this Agreement, the Notes, the Swing Line Note, or any of the
other Loan Documents or for the validity or enforceability thereof.
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<PAGE>
5.9 No Event of Default. No Event of Default or Incipient Default has
-------------------
occurred and is continuing or would result from the execution, delivery or
performance of this Agreement, the Notes, the Swing Line Note, or any of the
other Loan Documents.
5.10 Financial Statements. The Annual Report and the financial statements
--------------------
described in Schedule 5.10 attached hereto, copies of which have been furnished
to the Agent and the Banks, fairly present the financial condition and results
of operations of the Borrower consolidated with the Consolidated Affiliates, as
of the dates or for the periods described therein. All such financial
statements were prepared in accordance with GAAP consistently applied throughout
the respective periods covered thereby, except that financial statements not
dated as of the end of a fiscal year are subject to adjustments upon audit.
Neither the Borrower nor any Subsidiary of the Borrower nor any of the
Controlled Partnerships is liable for any material liability, direct or
contingent, including, but not limited to, liabilities for taxes, long-term
leases or long-term commitments, which would be required to be shown as a
liability or otherwise disclosed in current financial statements.
5.11 Projected Financial Statements and Projections. The Agent and the
----------------------------------------------
Banks have been furnished with (a) projected consolidated balance sheets (the
"Projected Balance Sheet") for the Borrower and the Consolidated Affiliates as
of December 31, 1995-99, assuming the consummation of the transactions
contemplated to occur on the Initial Closing Date, and (b) projections of the
consolidated results of operations for the Borrower and the Consolidated
Affiliates for certain future periods. The Projected Balance Sheet and such
estimates and projections were prepared with reasonable care on the basis of the
assumptions stated therein, and such assumptions are, to the best knowledge and
belief of the Borrower, reasonable and made in good faith. It is understood
that no representation or warranty is made by the Borrower concerning any
predictions, forecasts, estimates, or any other analyses prepared by or on
behalf of the Borrower, which are dependent on future events, except as above
stated. There is no fact actually known to any Responsible Officer of the
Borrower (excluding general economic and political conditions) which may have a
Material Adverse Effect which has not been disclosed or reflected in documents
furnished to the Agent in connection with this Agreement.
5.12 Real Property. The Borrower has good marketable title in fee simple
-------------
to, or a valid and subsisting leasehold interest in, all real property
reasonably necessary for the operation of its business as a whole, free from all
Liens of any nature whatsoever, except for Permitted Encumbrances. The
Borrower, its Subsidiaries and the Controlled Partnerships have good marketable
title in fee simple to all of the real property identified on Schedule 5.12
attached hereto as being owned by the Borrower, a Subsidiary of the Borrower or
a Controlled Partnership, in each case free from all Liens of any nature
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<PAGE>
whatsoever, except for Permitted Encumbrances. The Borrower, Subsidiary of the
Borrower or Controlled Partnership, as the case may be, is the insured under
owner's policies of title insurance covering all real property owned by it, in
each case in an amount not less than the purchase price for such real property.
5.13 Equipment. The Borrower, its Subsidiaries and the Controlled
---------
Partnerships own or have the right to use under valid and subsisting leases, all
equipment and fixtures reasonably necessary for the operation of their business
as a whole.
5.14 Contracts. Schedule 5.14 attached hereto contains a list of all of
---------
the documents and terms which comprise the Key Contracts, showing for each the
date of such contract, the entity or the entities party to such contract, and
identifying all of the documents or terms which comprise such contract. Each of
the Key Contracts was in full force and effect as of the Initial Closing Date.
All information shown on Schedule 5.14 is complete and accurate. The Borrower
has delivered to the Bank accurate and complete copies of each Key Contract, and
any amendment or modification thereof. Performance by the parties to all
contracts and other commitments of the Borrower, its Subsidiaries and the
Controlled Partnerships would not in the aggregate have a Material Adverse
Effect. Except as disclosed in Schedule 5.14 and except where the failure of
the following to be true and correct would not in the aggregate have a Material
Adverse Effect, neither the Borrower nor any of its Subsidiaries nor any
Controlled Partnership, nor to the best knowledge of the Borrower, any other
party to any contract listed in such Schedule 5.14, is in material default under
any Key Contract or under any other contract or commitment, and there are no
presently existing facts or circumstances which, if continued or on notice,
could reasonably be expected to result in such a default on the part of the
Borrower or any of its Subsidiaries or any of the Controlled Partnerships, or,
to the best knowledge of the Borrower, on the part of the other party thereto,
under any such contract.
5.15 Intellectual Property. The Borrower owns or has the right to use all
---------------------
patents, copyrights, trademarks, licenses, service marks, trade names and other
similar rights (the "Intellectual Property Rights") necessary for the operation
of the Borrower's business in the ordinary course. To the best of the
Borrower's knowledge, no proceedings have been instituted or are pending or have
been threatened in writing which challenge the validity, ownership or use of any
such Intellectual Property Rights. To the best knowledge of the Borrower, no
infringement of any Intellectual Property Right of any third party has occurred
or will result in any way from the operations or business of the Borrower or any
of its Subsidiaries or any of the Controlled Partnerships, and no claim has been
made by any such third party based on allegation of any such infringement.
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<PAGE>
5.16 Litigation and Contingent Liabilities. Excepting those matters set
-------------------------------------
forth in Schedule 5.16 attached hereto, there is no action, suit, investigation,
tax claim or proceeding pending or, to the knowledge of the Borrower, threatened
in writing against or affecting the Borrower or any Subsidiary or any of the
Controlled Partnerships or any Controlled Property, before any court, arbitrator
or administrative or governmental body which involves an amount (excluding
amounts covered by insurance) in excess of one million Dollars ($1,000,000) in
any case or five million Dollars ($5,000,000) in the aggregate.
5.17 Tax Returns and Tax Matters. The Borrower and each of its
---------------------------
Subsidiaries and each of the Controlled Partnerships has filed all federal and
state income tax returns which are required to be filed, and each has paid all
taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due. There is no proposed, asserted or
assessed tax deficiency against the Borrower or any of its Subsidiaries or any
of the Controlled Partnerships, except those being contested in good faith and
for which such reserve as is required by GAAP has been created.
5.18 Partnership Interests. The Borrower owns all of the partnership
---------------------
interests in the Controlled Partnerships set forth in Schedule 5.3 attached
hereto, free from all Liens or other adverse claims. Schedule 5.18 attached
hereto contains a complete and accurate description of each Partnership
Agreement of the respective Controlled Partnerships, including all amendments
and modifications thereof. The Borrower has delivered to the Bank accurate and
complete copies of each such Partnership Agreement, amendment and modification,
each of which is in full force and effect. The Borrower has made all
contributions of capital to each of the Controlled Partnerships, and has
performed all obligations of the Borrower, as required under the terms of the
respective Partnership Agreements.
5.19 REIT Status. The Borrower has elected to be qualified as, and
-----------
conducts its business in a manner so as to qualify as, a real estate investment
trust pursuant to sections 856-886 of the Code. There is no proposed, asserted
or assessed federal income tax deficiency against the Borrower arising out of
the Borrower's alleged failure to so qualify as a real estate investment trust.
5.20 No Subordination. The Borrower is not a party to or bound by any
----------------
agreement, instrument or indenture that may require the subordination in right
of payment of any of the Obligations to any other indebtedness or obligation of
the Borrower.
5.21 Employee Benefits.
-----------------
(a) Plans Maintained. Except as provided in Schedule 5.21(i) with respect
----------------
to clauses (i) and (ii), below, or in Schedule 5.21(ii) with respect to clauses
(iii), (iv) and (v),
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<PAGE>
neither the Borrower nor any ERISA Affiliated Group member is a party to,
contributes to or is currently obligated to contribute to any plans, programs,
agreements, policies, commitments or other arrangements (whether or not set
forth in a written document) in the following categories:
(i) Any funded employee pension benefit plan, as defined in section
3(2) of ERISA, including any Multiemployer Plan, other than Multiemployer
Plans with an aggregate withdrawal liability of less than $100,000;
(ii) Any retiree or survivor health care plan (other than COBRA) or
any other retiree or survivor welfare benefit program as defined in section
3(1) of ERISA;
(iii) Any plan that is an excess benefit plan, as defined in section
3(36) of ERISA, and is unfunded, as described in section 4(b)(5) of ERISA,
or any other unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees (as described in sections 201(2) or 301(a)(3) or
ERISA);
(iv) Any bonus, deferred-compensation, incentive, restricted-stock,
stock purchase, stock option, stock appreciation right, phantom stock,
debenture, supplemental pension, profit-sharing, commission, or similar
plan or arrangement; or
(v) Any plan, program, agreement, policy, commitment or other
arrangement relating to severance or termination pay, whether or not
published or generally known.
(b) Reporting and Disclosure. With respect to each Employee Benefit Plan,
------------------------
including employee welfare benefit plans not required to be listed in Schedule
5.21, and which is subject to the reporting, disclosure and record retention
requirements set forth in Part 1 of Subtitle B of Title I of ERISA and the
regulations thereunder, each of such requirements has been fully met on a timely
basis, except where instances of failing to do so could not, considered in the
aggregate, have a Material Adverse Effect. The representation and warranty set
forth in this Paragraph 5.21(b) is made to the best knowledge of the Borrower to
the extent that it applies to a Multiemployer Plan.
(c) Qualification of Plans. Each Employee Benefit Plan which is intended
----------------------
to be qualified under section 401(a) of the Code, including any Multiemployer
Plan not required to be listed in Schedule 5.21(i), has been determined by the
Internal Revenue Service in writing to be so qualified in the past. To the best
knowledge of the Borrower, since the Internal Revenue Service issued its
determination with respect to any such plan, there
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<PAGE>
has been no occurrence (including, without limitation, a plan amendment, the
enactment of legislation or the adoption of regulations) that could cause such
plan not to be so qualified which cannot be corrected by an amendment adopted
within the applicable remedial amendment period. Within the applicable remedial
amendment period described in the regulations under section 401(b) of the Code,
any such amendment shall be adopted and an application for such a determination
will be submitted to the Internal Revenue Service with respect to such amendment
and Borrower will adopt any additional amendments required to maintain such
qualification. Each such plan has in all material respects been administered in
accordance with its terms and the applicable provisions of ERISA and the Code
and the regulations thereunder. The representations and warranties set forth in
this Paragraph 5.21(c) are made to the best knowledge of the Borrower with
respect to any Multiemployer Plan.
(d) Contributions and Premiums. All contributions, premiums or other
--------------------------
payments due from the Borrower or any member of the Controlled Group to (or
under) any Employee Benefit Plan have been fully paid or adequately provided for
on the books and financial statements of the Borrower or such member of the
Controlled Group.
(e) Litigation and Extraordinary Claims. There are no pending or, to the
-----------------------------------
best knowledge of the Borrower, threatened claims, actions or lawsuits, other
than immaterial claims for benefits in the usual and ordinary course, asserted
or instituted against (i) any Employee Benefit Plan, (ii) any member of the
Controlled Group with respect to any Employee Benefit Plan or (iii) any
fiduciary with respect to any Employee Benefit Plan.
(f) Prohibited Transactions. With respect to each Employee Benefit Plan
-----------------------
which is subject to Part 4 of Subtitle B of Title I of ERISA, there does not now
exist, nor has there existed within the six-year period ending on the date
hereof, any act or omission which constitutes a violation of sections 406 or 407
of ERISA and is not exempted by section 408 of ERISA or which constitutes a
violation of section 4975(c) of the Code and is not exempted by section 4975(d)
of the Code, except for violations which, considered in the aggregate, would not
have a Material Adverse Effect.
(g) COBRA. With respect to its Employee Benefit Plans, the Borrower and
-----
all of its Subsidiaries are in compliance with COBRA, except for violations
which, considered in the aggregate, would not have a Material Adverse Effect.
5.22 Environmental Matters. Except as disclosed in Schedule 5.22 attached
---------------------
hereto, (i) to the best knowledge of the Borrower, each of the Controlled
Properties and the operations of the Borrower, and each of its Subsidiaries and
each of the Controlled Partnerships comply in all respects with all applic-
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able Environmental Laws; (ii) to the best knowledge of the Borrower, none of the
Controlled Properties nor the operations of the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships is subject to any judicial or
administrative proceeding alleging the violation of any Environmental Law; (iii)
to the best knowledge of the Borrower, none of the Controlled Properties nor the
operations of the Borrower, any of its Subsidiaries or any of the Controlled
Partnerships is the subject of any federal or state investigation concerning any
use or release of any Hazardous Substance; (iv) neither the Borrower nor any of
its Subsidiaries nor any of the Controlled Partnerships, nor, to the best
knowledge of the Borrower, any predecessor of the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships, has filed any notice under
any federal or state law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a Hazardous
Substance into the environment; (v) to the best knowledge of the Borrower,
neither the Borrower nor any of its Subsidiaries nor any of the Controlled
Partnerships has any contingent liability in connection with any release of any
Hazardous Substance into the environment and no such release which could require
remediation has occurred; (vi) neither the Borrower's nor any of its
Subsidiaries' nor any of the Controlled Partnerships' operations involve the
generation, transportation, treatment, storage or disposal of Hazardous
Substances, except for the generation of Hazardous Substances in the ordinary
course of business and storage by tenants in violation of their leases; (vii)
neither the Borrower nor any of its Subsidiaries nor any of the Controlled
Partnerships has disposed of any material amount of any Hazardous Substance in,
on or about any Controlled Property and, to the best of the knowledge of the
Borrower, neither has any lessee, prior owner, or other Person; (viii) no
surface impoundments or, to the best of the knowledge of the Borrower,
underground storage tanks are located in, on or about any of the Controlled
Property; and (ix) no Lien in favor of any Governmental Authority for (A) any
liability under Environmental Laws, or (B) damages arising from or costs
incurred by such Governmental Authority in response to a release of any
Hazardous Substance into the environment has been filed or attached to any of
the Controlled Property.
5.23 Insurance. Schedule 5.23 attached hereto contains a complete and
---------
accurate list, as of the Initial Closing Date, of all liability insurance
policies maintained by the Borrower, any of its Subsidiaries or any of the
Controlled Partnerships. Such insurance is maintained with insurers duly
licensed in the applicable jurisdictions, in such amounts and against such risks
and losses as is reasonable for their business and properties. All such
insurance is in full force and effect and all premiums due in respect thereof
have been paid.
5.24 Compliance with Laws. The Borrower, each of its Subsidiaries and
--------------------
each of the Controlled Partnerships are in compliance with all Governmental
Requirements applicable to their
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properties, assets and business with only such exceptions as in the aggregate
could not have a Material Adverse Effect. There are no proceedings pending or,
to the best of their knowledge, threatened, to terminate or modify any
Governmental Approvals.
5.25 Statutory Regulation. Neither the Borrower nor any of its
--------------------
Subsidiaries nor any of the Controlled Partnerships is an investment company
within the meaning of the Investment Company Act of 1940, as amended, or is,
directly or indirectly, controlled by or acting on behalf of any person which is
an investment company, within the meaning of said Act. Neither the Borrower nor
any of its Subsidiaries nor any of the Controlled Partnerships is subject to any
state law or regulation regulating public utilities or similar entities, or is,
within the meaning of the Public Utility Holding Company Act of 1935, as
amended, (a) a holding company; (b) a subsidiary or affiliate of a holding
company; or (c) a public utility. Neither the Borrower nor any of its
Subsidiaries nor any of the Controlled Partnerships is subject to regulation
under the Interstate Commerce Act or the Federal Power Act or under any other
federal or state statute or regulation limiting or placing conditions upon their
respective power or right to borrow money.
5.26 Use of Proceeds; Regulation U. Neither the Borrower nor any of its
-----------------------------
Subsidiaries nor any of the Controlled Partnerships is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States). The Loans will not be subject to Regulation U or Regulation X
of said Board of Governors. No part of the proceeds of the Loans will be used
for any purpose which violates, or which is inconsistent with, the provisions of
Regulation G, T, U or X of said Board of Governors.
5.27 Solvency. As of the Initial Closing Date and after giving effect to
--------
the transactions contemplated by this Agreement and the other Loan Documents,
including all of the Loans made and to be made hereunder, the Borrower is
Solvent and each of its Subsidiaries is Solvent and each of the Controlled
Partnerships is Solvent.
5.28 Fiscal Year. The fiscal year of the Borrower ends on December 31.
-----------
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<PAGE>
ARTICLE 6
---------
Affirmative Covenants
---------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding or any Commitment is in effect it will comply with and, if
applicable, cause each of its Subsidiaries and each of the Controlled
Partnerships to comply with the following provisions:
6.1 Accounting Records. The Borrower and each of its Subsidiaries
------------------
and each of the Controlled Partnerships shall maintain adequate books and
accounts in accordance with sound business practices and GAAP consistently
applied.
6.2 Financial Statements and Notices. The Borrower shall furnish to
--------------------------------
the Agent with sufficient copies for each Bank the following financial
statements, information and notices:
(a) Within fifty (50) days after the close of each quarter (other than
the fourth quarter) of each of Borrower's fiscal years, commencing with the
fiscal quarter ending March 31, 1995, a copy of the Borrower's Quarterly
Report on Form 10-Q filed with the Securities Exchange Commission,
including the financial statements of the Borrower for such quarter. All
such financial statements shall be prepared on a consolidated basis for the
Borrower and the Consolidated Affiliates, in reasonable detail, subject to
year-end audit adjustments, shall include appropriate comparisons to the
same period for the prior year, and shall be certified by the Chief
Financial Officer of the Borrower to have been prepared in accordance with
GAAP consistently applied, subject to year-end audit adjustments;
(b) Within one hundred twenty (120) days after the close of each
fiscal year, commencing with the fiscal year ending December 31, 1995, a
copy of the Borrower's Annual Report on Form 10-K filed with the Securities
Exchange Commission, including the consolidated financial statements of the
Borrower and the Consolidated Affiliates for such year. All such financial
statements shall include appropriate comparisons to the prior year. Such
consolidated financial statements shall be audited by Ernst & Young or
another independent certified public accounting firm acceptable to the
Majority Banks, and shall include a report of such accounting firm, which
report shall be unqualified and shall state that such financial statements
fairly present the financial position of the Borrower and the Consolidated
Affiliates as at the dates indicated and the results of their operations
and their cash flows for the
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<PAGE>
periods indicated in conformity with GAAP consistently applied. Such
report shall include a letter from the auditor in the form of Exhibit
6.2(b) attached hereto, confirming compliance (or specifying any
noncompliance) with the covenants set forth in Paragraph 6.20 hereof);
(c) Contemporaneously with each quarterly and year-end financial
report required by the foregoing paragraphs (a) and (b), a certificate in
the form of Exhibit 6.2(c) attached hereto, together with such information
as may be reasonably necessary to permit the Agent and the Banks to confirm
the Borrower's compliance with the covenants referred to in such
certificate;
(d) Contemporaneously with each year-end financial report required by
the foregoing paragraph (b) and at such other times as the Agent may
request, an occupancy report setting forth, for each state in which any
Controlled Property is located, the number of Mini-storage Properties, the
aggregate square footage thereof and the percentage of such square footage
then under lease; the number of Business Park Properties, the aggregate
square footage thereof and the percentage of such square footage then under
lease; the number of Combination Properties, the aggregate square footage
thereof and the percentage of such square footage then under lease;
together with totals for all states for each such category of information;
(e) Contemporaneously with each year-end financial report required by
the foregoing paragraph (b) and at such other times as the Agent may
request, a report setting forth the information in Schedule 5.3 updated to
the last day of the fiscal quarter most recently ended;
(f) Promptly after they are released, sent, made available or filed,
copies of the Reports on Form 10-K or 10-Q filed by the PS Partnerships,
all press releases, material reports, proxy statements and financial
statements that the Borrower sends or makes available to its stockholders
and all registration statements and reports that the Borrower files with
the Securities and Exchange Commission, or any other governmental official,
agency or authority;
(g) Promptly but in no event later than one (1) Banking Day after a
Responsible Officer of the Borrower obtains knowledge of (i) the occurrence
of an Event of Default or an Incipient Default, or (ii) any default or
event of default as defined in any evidence
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<PAGE>
of Indebtedness in excess of two million five hundred thousand Dollars
($2,500,000) or under any agreement, indenture or other instrument under
which such Indebtedness has been created, whether or not such Indebtedness
is accelerated or such default waived, the Borrower shall notify the Agent,
and, within five (5) calendar days after obtaining such knowledge, the
Borrower shall provide the Agent with a statement of a Responsible Officer
setting forth details thereof and the action, if any, which the Borrower
propose to take with respect thereto;
(h) [Intentionally omitted];
(i) Promptly but in no event later than five (5) calendar days after a
Responsible Officer learns thereof, written notice of any actual or
threatened claim, litigation, suit, investigation, proceeding or dispute
against or affecting the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships, which: (i) may have a Material Adverse Effect;
(ii) involves a monetary amount in excess of one million Dollars
($1,000,000) and is not covered by insurance; (iii) could reasonably be
expected materially to limit, prohibit or restrict the manner in which the
Borrower or any of its Subsidiaries or any of the Controlled Partnerships
currently conducts its business; or (iv) concerns any alleged violation by
the Borrower or any of its Subsidiaries or any of the Controlled
Partnerships, or any of their respective predecessors, of any Environmental
Law, where there exists a reasonable possibility that such violation could
materially affect any of the Controlled Properties or the operations of the
Borrower or such Subsidiary or Controlled Partnership or any alleged
material noncompliance of any of the Controlled Properties or the
operations of the Borrower or such Subsidiary or Controlled Partnership
with any Environmental Law;
(j) As soon as possible, and in any event within twenty (20) calendar
days, after a Responsible Officer learns that any of the following events
has occurred, such Responsible Officer shall deliver to the Agent a
statement describing such event and any action that the Borrower proposes
to take with respect thereto: (i) any Reportable Event with respect to a
Pension Plan, other than a Reportable Event for which the 30-day notice
requirement under ERISA has been waived in regulations of the PBGC; (ii)
the institution of proceedings by the PBGC to terminate any Pension Plan to
have a trustee appointed to administer such plan, or receipt of notice of
any intention by the PBGC to do so; (iii) the filing of a request for a
minimum
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<PAGE>
funding waiver under section 412 of the Code with respect to any Pension
Plan or any employee pension benefit plan (as defined in section 3(2) of
ERISA) maintained by any member of the ERISA Affiliated Group; (iv) the
receipt by the Borrower or any member of the Controlled Group of a demand
for withdrawal liability under section 4219 or 4202 of ERISA; or (v) a
failure of any member of the ERISA Affiliated Group to make required
contributions to a Pension Plan subject to section 412 of the Code;
(k) As soon as possible, and in any event within ten (10) days after
receipt of a written request from the Agent or the Majority Banks, the
Borrower shall deliver to the Agent, as requested by the Agent or the
Majority Banks: (i) a copy of any Employee Benefit Plan or summary
description of such plan; (ii) a copy of any report, description or other
document filed with any governmental agency with respect to any Employee
Benefit Plan; or (iii) a copy of any plan (as defined in section 3(3) of
ERISA) maintained by the Borrower or any ERISA Affiliate; or (iv) a copy of
any notice, determination letter, ruling or opinion that the Borrower or
any Controlled Group member receives from any governmental agency with
respect to any Employee Benefit Plan;
(l) Contemporaneously with the Borrower's delivery thereof to the
Rating Agencies, and in any event not later than one hundred twenty (120)
days after commencement of each fiscal year of the Borrower, a copy of the
Borrower's consolidated financial projections for such fiscal year,
including a projected consolidated balance sheet, income statement, and
statement of changes in financial position or statement of cash flows for
and as of the end of such fiscal year;
(m) No later than two (2) Banking Days after the date of promulgation
thereof by any Rating Agency, notice of any change in rating by such Rating
Agency in respect of any debt of the Borrower (including any change in an
implied rating), together with the details thereof, and of any announcement
by any Rating Agency that any such rating is "under review" or that any
such rating has been placed on a "CreditWatch List"(R) or "watch list" or
that any similar action has been taken by such Rating Agency (each such
notice, a "Rating Notice"); and
(n) As soon as possible, and in any event within five (5) calendar
days after a Responsible Officer learns that any of the following events
has occurred, such Responsible Officer shall deliver to the Agent a
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<PAGE>
statement describing such event and any action that the Borrower proposes
to take with respect thereto: (i) the exercise by the Borrower of any
option to require a Joint Venture to sell property pursuant to section
16.1(c) of the Joint Venture Agreement of such Joint Venture; (ii) any
proposed dissolution or liquidation of any of the Controlled Partnerships;
(iii) any disqualification of the Borrower as a real estate investment
trust pursuant to the Code, or any event or circumstance which might
reasonably be expected to be the basis for such disqualification; (iv) any
change in the name or address of any Co-Venturer; (v) the sale, transfer or
other disposition, or proposed sale, transfer or other disposition, of any
Controlled Property; and (vi) any assignment, transfer, pledge or
hypothecation of any interest in any Joint Venture by any Co-Venturer;
(o) Within a reasonable time after a request therefor, such other
information as the Agent or the Majority Banks may reasonably request.
6.3 Inspection of Property, Books and Records. (a) The Borrower and each
-----------------------------------------
of its Subsidiaries and each of the Controlled Partnerships shall permit either
the Agent or any of the Banks, at such reasonable times and intervals as the
Agent or Banks may designate upon reasonable notice, at their own expense, by
and through the representatives of the Agent or any of the Banks, to inspect,
audit and examine their respective books and records, to make copies thereof, to
discuss their respective affairs, finances and accounts with their respective
officers and independent public accountants, and to visit and inspect their
respective properties; provided, however, when an Event of Default has occurred
and is continuing, representatives of the Agent or any of the Banks may visit
and inspect at the expense of the Borrower such properties at any time during
business hours and without advance notice.
(b) The Borrower and its Subsidiaries and the Controlled Partnerships
shall extend their cooperation and assistance and comply with the requests of
the Agent or the Majority Banks or their respective representatives in
connection with any audit regarding the Controlled Properties and will furnish
any information reasonably requested in respect thereof, including, without
limitation, appraisals of the Controlled Properties and lien search reports, if
available. At any time during the continuance of an Event of Default, the
Borrower shall pay the reasonable fees and expenses of such accounting firm as
may be selected by the Agent or Majority Banks to conduct an examination of the
financial affairs of the Borrower and its Subsidiaries and the Controlled
Partnerships.
6.4 Maintenance of Existence. The Borrower and each of its Subsidiaries
------------------------
and each of the Controlled Partnerships shall
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<PAGE>
preserve and maintain their respective existences and all of their licenses,
permits, privileges and franchises and other rights necessary or desirable in
the normal course of their businesses (except to the extent the failure to do so
shall not, individually or in the aggregate, result in a Material Adverse
Effect), and will use reasonable efforts, in the ordinary course and consistent
with past practice, to preserve their respective business organization and
preserve the goodwill and business of the customers, suppliers and others having
business relations with them.
6.5 Tax Returns. The Borrower and each of its Subsidiaries and each of
-----------
the Controlled Partnerships shall file all federal and state income tax returns
which are required to be filed, and shall pay all taxes as shown on said returns
and on all assessments received by it to the extent that such taxes have become
due, except any such assessments which are being contested in good faith and for
which such reserve as is required by GAAP has been created.
6.6 Qualifications To Do Business. The Borrower and each of its
-----------------------------
Subsidiaries and each of the Controlled Partnerships shall qualify to do
business and shall remain in good standing in each jurisdiction in which the
nature of their business requires them to be so qualified, except where the
failure to so qualify could not have a Material Adverse Effect.
6.7 Compliance with Laws. The Borrower and its Subsidiaries and each of
--------------------
the Controlled Partnerships shall comply with all Governmental Requirements,
except where the failure to do so could not have a Material Adverse Effect.
6.8 Key Contracts. The Borrower and its Subsidiaries shall comply in all
-------------
respects with the terms of the Key Contracts to which any of them is a party.
6.9 REIT Status. The Borrower shall elect to be taxed as, and shall
-----------
conduct its affairs in a manner so as to qualify as, a real estate investment
trust pursuant to sections 856 - 886 of the Code.
6.10 Material Agreements. The Borrower and its Subsidiaries and the
-------------------
Controlled Partnerships shall comply in all respects with the terms of each
agreement to which any of them is a party, except where all instances of any
failure to so comply would not, in the aggregate, have a Material Adverse
Effect.
6.11 Insurance. The Borrower and its Subsidiaries and the Controlled
---------
Partnerships shall maintain in full force and effect insurance of such types and
in such amounts as are customarily carried in their respective lines of
business, including, but not limited to, fire, hazard, public liability,
property damage, products liability and workers' compensation insurance. All
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<PAGE>
such insurance policies which insure public liability shall name the Agent as an
additional insured for the benefit of the Agent and each Bank. The Borrower and
its Subsidiaries and the Controlled Partnerships shall deliver or cause to be
delivered to the Agent, as the Agent may from time to time request, schedules
identifying all insurance then in effect and certificates evidencing such
insurance.
6.12 Facilities. The Borrower and its Subsidiaries and the Controlled
----------
Partnerships shall keep the Controlled Properties in good repair, working order
and condition, and from time to time shall make necessary repairs or
replacements thereto so that their property shall be maintained adequately for
its intended use.
6.13 Taxes and Other Liabilities. The Borrower and its Subsidiaries and
---------------------------
the Controlled Partnerships shall pay and discharge when due any and all
indebtedness, obligations, liabilities, assessments and real and personal
property taxes, including, but not limited to, federal and state income and
personal and real property taxes, except as may be subject to good faith contest
or as to which a bona fide dispute may arise; provided, however, that adequate
reserves in accordance with GAAP or other provision is made to the satisfaction
of the Agent for prompt payment thereof in the event that it is found that any
of the above are due and owing.
6.14 Governmental Approvals. Except where the failure to do so could not
----------------------
have a Material Adverse Effect, the Borrower and its Subsidiaries and the
Controlled Partnerships shall apply for, diligently pursue, and obtain or cause
to be obtained, and shall thereafter maintain in full force and effect, all
Governmental Approvals that shall now or hereafter be necessary under any
Governmental Requirement (i) for land use, public and employee health and
safety, pollution or protection of the environment, and (ii) for the operation
of the business of the Borrower and its Subsidiaries and the Controlled
Partnerships. The Borrower shall promptly notify the Agent in the event of any,
and provide the Agent with a copy of all notices of, denial, suspension or
revocation of any material Governmental Approvals.
6.15 Compliance with Governmental Approvals and Governmental Requirements.
--------------------------------------------------------------------
Except where the failure to do so could not have a Material Adverse Effect, the
Borrower and each of its Subsidiaries and each of the Controlled Partnerships
shall comply with all terms and conditions of all Governmental Approvals and
with all other limitations, restrictions, obligations, schedules, timetables and
reporting requirements in any Governmental Requirements.
6.16 Compliance with Environmental Laws. The Borrower shall, and shall
----------------------------------
cause each of its Subsidiaries and each of the Controlled Partnerships to,
conduct its respective operations
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<PAGE>
and keep and maintain its respective properties (including all Controlled
Properties) in compliance with all Environmental Laws.
6.17 Prevent Contamination. The Borrower and its Subsidiaries and the
---------------------
Controlled Partnerships shall conduct their operations in a manner reasonably
designed to prevent material contamination of any part of the Controlled
Properties by any Hazardous Substance. The Borrower and its Subsidiaries and
the Controlled Partnerships shall manage all Hazardous Substances in a manner
that does not require a Hazardous Waste Facility Permit, and in compliance in
all material respects with all Governmental Requirements and Governmental
Approvals. Without limiting the foregoing covenants, the Borrower and its
Subsidiaries and the Controlled Partnerships shall not intentionally or
recklessly, shall endeavor not to unintentionally, and shall not intentionally
or recklessly permit any other Person to, emit, release or discharge into air,
soil, surface water or groundwater, any Hazardous Substance in excess of
permitted levels or reportable quantities, or other concentrations, standards or
limitations under any Governmental Requirements or Governmental Approvals.
6.18 Tax Qualification. For any Employee Benefit Plan of which the
-----------------
Borrower or any member of the ERISA Affiliated Group in the sponsor and which is
intended to be qualified under section 401(a) of the Code, the Borrower shall,
or shall cause the respective member of the Controlled Group to:
(a) Use its best efforts to seek and receive determination letters
from the Internal Revenue Service stating that such plan, or any material
amendment to such plan, meets the requirements for qualification under
section 401(a) of the Code, unless there is no reasonable possibility that
the failure to do so would have a Material Adverse Effect;
(b) Use its best efforts to cause such plan to meet such requirements
in operation and to be administered in all material respects in accordance
with the requirements of the Code and ERISA; and
(c) Refrain from taking any action that would cause such plan to lose
its qualification under section 401(a) of the Code or to violate the
requirements of the Code or ERISA in any material respect.
6.19 Funding. The Borrower shall, and shall cause each member of the
-------
Controlled Group to, make all contributions that it is required to make by law
or by any plan prior to the earliest date when statutory Liens could be imposed
under the Code or ERISA on any assets of the Borrower or such member of the
Controlled Group in order to satisfy payment of such
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<PAGE>
contributions. The Borrower shall not, and shall not permit any member of the
Controlled Group to, allow or suffer any statutory Lien to be placed upon its
assets under the Code or ERISA.
6.20 Financial Tests. The Borrower shall:
---------------
(a) Maintain at all times a Funded Debt Ratio of less than 0.30 to
1.00;
(b) Maintain net income of not less than $1.00 for each fiscal
quarter;
(c) Maintain a Cash Flow Coverage Ratio of not less than 1.00 to 1.00
for the period of four (4) fiscal quarters ending on the last day of each
fiscal quarter, commencing with the quarter ending March 31, 1995;
(d) Maintain an Interest Coverage Ratio of not less than 5.00 to 1.00
for the period of four (4) fiscal quarters ending on the last day of each
fiscal quarter, commencing with the quarter ending March 31, 1995;
(e) Maintain at all times, Total Shareholders' Equity of not less (i)
at any time prior to the PSI Merger, six hundred fifty million Dollars
($650,000,000); and, (ii) at any time after the PSI Merger, an amount equal
to or greater than ninety percent (90%) of the Total Shareholders' Equity
of the Borrower as of the effective date of the PSI Merger and giving
effect thereto.
6.21 Unencumbered Assets. The Borrower shall at all times maintain
-------------------
Unencumbered Assets with an Aggregate Net Asset Value equal to or greater than
$500,000,000.
6.22 Borrower's Account. The Borrower shall maintain the Borrower's
------------------
Account with the Agent.
6.23 Accounting Policies. The Borrower shall continue to maintain its
-------------------
financial records and prepare the financial statements of the Borrower and the
Consolidated Affiliates in accordance with GAAP, consistently applied.
ARTICLE 7
---------
Negative Covenants
------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding or any Commitment is in effect, it will comply with and, if
applicable, cause each of its Subsidiaries to comply with the following
provisions:
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7.1 Mergers. Neither the Borrower nor any of its Subsidiaries shall enter
-------
into any merger, consolidation or reorganization, or any agreement to do any of
the foregoing, except mergers, consolidations or reorganizations with or
involving another corporation, partnership or other entity principally engaged
in the Business of Borrower, provided that, at the time thereof and giving
effect thereto, no Event of Default or Incipient Default has occurred and is
continuing and that the Borrower is the surviving corporation in such merger,
consolidation or reorganization. The Agent and the Banks shall consent to and
approve the PSI Merger, provided that each of the PSI Merger Conditions shall
have been met as of the effective date of the PSI Merger and giving effect
thereto.
7.2 Change of Business. Neither the Borrower nor any of its Subsidiaries
------------------
shall change the nature of its business or engage in any other business other
than the Business of Borrower (provided that the Borrower's ownership of an
Investment shall not, in itself, constitute a change in the nature of the
Borrower's business).
7.3 Distributions. The Borrower shall not, directly or indirectly, make
-------------
or declare any dividend (in cash, securities or any other form of property) on,
or other payment or distribution on account of, or set aside assets for a
sinking or other similar fund for purchase, or redeem, purchase, retire or
otherwise acquire, any capital stock of the Borrower, or make any other
distribution in respect thereof, whether in cash or other property, except if,
at the time of such event, and giving effect thereto, no Event of Default has
occurred and is continuing.
7.4 Accounting Policies. Except in order to comply with GAAP, the
-------------------
Borrower shall not materially change any of its accounting policies or its
fiscal year or the fiscal year of any of its Subsidiaries or any of the Joint
Ventures.
7.5 Investments. Neither the Borrower nor any of its Subsidiaries shall
-----------
make or permit to remain outstanding any Investment, which (a) could reasonably
be expected to result in the Borrower's disqualification as a real estate
investment trust under the Code, or (b) would constitute or result in the
occurrence of an Event of Default or an Incipient Default.
7.6 Liens. Neither the Borrower nor any of its Subsidiaries shall
-----
mortgage, pledge, grant or permit to exist, nor agree to mortgage, pledge or
grant, a security interest in, or Lien upon, any of their respective assets of
any kind now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Encumbrances, or enter into any agreement to refrain from
granting, or an agreement limiting the right to grant, a Lien (other than in
connection with the granting or sufferance of a Permitted Encumbrance, provided
that such
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agreement pertains only to the property covered by the Permitted Encumbrance).
7.7 Contingent Obligations. Neither the Borrower nor any of its
----------------------
Subsidiaries shall become liable, directly or indirectly, for any Contingent
Obligation except: (a) endorsements for collection or deposit in the ordinary
course of business; (b) Contingent Obligations incurred by the Borrower or one
of its Subsidiaries in favor of the Borrower or one of its Wholly Owned
Subsidiaries; (c) Contingent Obligations of the Borrower existing as of the
Initial Closing Date; (d) other Contingent Obligations in an aggregate amount
not exceeding two million five hundred thousand Dollars ($2,500,000) at any
time; and (e) as permitted in Paragraphs 7.6 or 7.8.
7.8 Indebtedness. Neither the Borrower nor any of its Subsidiaries shall
------------
incur, create, assume or permit to exist, nor agree to incur, create or assume,
any Indebtedness except: (a) the Obligations; (b) Indebtedness where payment is
secured by a Permitted Encumbrance; (c) taxes, assessments and governmental
charges or levies which are not delinquent or which are being contested in good
faith and for which, in accordance with GAAP, adequate reserves have been set
aside on the books of the Borrower or the affected Subsidiary of the Borrower;
(d) current liabilities incurred in connection with the obtaining of goods or
services in the ordinary course of business; (e) Non-recourse Indebtedness
encumbering any property at the time of its acquisition; (f) Indebtedness owing
from the Borrower to a Wholly Owned Subsidiary or from a Wholly Owned Subsidiary
or from one Wholly Owned Subsidiary to another Wholly Owned Subsidiary; (g)
Indebtedness shown on Schedule 7.8; (h) New Non-recourse Indebtedness; and (i)
other Indebtedness of the Borrower (A) which is not directly or indirectly
secured by any Lien, (B) which does not exceed $175,000,000 in the aggregate,
and (C) the terms of which do not require any amortization or repayment of the
principal amount thereof on any date prior to the Maturity Date (except that the
principal amount of the PSMI Term Notes may be repaid in accordance with the
amortization schedule or the prepayment provisions set forth in the PSMI Note
Agreement). The exceptions set forth in the preceding sentence shall not be
construed to permit the Borrower or any of its Subsidiaries to incur, create,
assume or permit to exist any Indebtedness which would result in the existence
of an Event of Default or Incipient Default under any other section of this
Agreement.
7.9 Sale of Assets. Other than (a) sales of real property on an arm's-
--------------
length basis to unaffiliated parties (which sales shall be permitted only if, in
connection therewith, the Borrower makes the payment required pursuant to
subparagraph 2.3(c)(ii)(A) hereof), and (b) sales of other assets in an
aggregate amount not exceeding one million Dollars ($1,000,000) in any calendar
year, neither the Borrower nor any of its Subsidiaries shall sell, transfer or
otherwise dispose of any of
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their respective assets (including, but not limited to, sales of stock of
Subsidiaries, sales of Joint Venture Interests, and sales of other Controlled
Partnership Interests).
7.10 Sale-Leaseback Transactions. Neither the Borrower nor any of its
---------------------------
Subsidiaries shall enter into any Sale-Leaseback Transactions, except those
involving equipment financings with an aggregate asset value of less than one
million Dollars ($1,000,000).
7.11 [Reserved].
----------
7.12 Transactions with Affiliates. Excepting the transactions or
----------------------------
arrangements described in Schedule 7.12 attached hereto, neither the Borrower
nor any of its Subsidiaries shall, directly or indirectly, enter into any
transaction or permit to exist any relationship with or for the benefit of an
Affiliate on terms more favorable to the Affiliate than would have been
obtainable in a similar transaction or relationship with a party other than an
Affiliate of the Borrower. Prior to the Borrower or any of its Subsidiaries
engaging in any transaction or relationship permitted by this Paragraph 7.12,
the board of directors of the Borrower shall determine that such transaction has
been negotiated or such relationship will be conducted in good faith and on a
basis that is fair and reasonable and such determination shall be evidenced by a
resolution of the board of directors of the Borrower; provided, however, that no
member of such board of directors affiliated (except by virtue of being members
of the board of directors or by being employed by the Borrower or one of its
Subsidiaries or a Controlled Partnership) with any such Affiliate shall
participate in such determination with respect to transactions or relationships
in which such holder or Affiliate is a participant.
7.13 Restrictive Agreements. The Borrower shall not and shall not permit
----------------------
any of its Subsidiaries or any of the Joint Ventures to enter into any agreement
which restricts the ability or right of any such Subsidiary or Joint Venture to
make payments to the Borrower or another Subsidiary of the Borrower or a Joint
Venture by way of dividends, distributions, returns of capital, advances,
reimbursement or otherwise.
7.14 Key Contracts. The Borrower shall not terminate or fail to renew, or
-------------
permit the termination or non-renewal of, any Key Contract or Joint Venture
Agreement, shall not permit any Key Contract or Joint Venture Agreement to cease
to be effective, shall not permit any material rights thereunder to be
terminated or impaired, and shall not amend, modify or supplement any of the Key
Contracts or Joint Venture Agreements unless, in each such event, (a) the
Borrower shall have given fifteen (15) Banking Days' notice to the Agent
describing the proposed termination, non-renewal, amendment, modification or
supplement and the transactions relating thereto, and (b) Agent shall not have
notified the Borrower, within such fifteen (15)
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day period, that such termination, non-renewal, amendment, modification or
supplement and the related transactions will, in the reasonable judgment of
Majority Banks, result in a Material Adverse Effect.
7.15 Certain ERISA Payments. Neither the Borrower nor any of its
----------------------
Subsidiaries shall make any payment of any liability arising under ERISA or
under the Code of any Controlled Group member which is not a Subsidiary of the
Borrower.
7.16 Compliance with ERISA. The Borrower shall not directly or indirectly
---------------------
and shall not permit any Controlled Group member directly or indirectly to:
(a) Maintain, become a party to, contribute to or become or be
obligated to contribute to a Pension Plan, if the aggregate withdrawal
liability or unfunded liability of the Borrower and all members of the
Controlled Group would exceed five hundred thousand Dollars ($500,000)
following such action;
(b) Maintain, become a party to, contribute to or become obligated to
contribute to a plan maintained outside of the United States primarily for
the benefit of persons substantially all of whom are nonresident aliens, as
described in section 4(b)(4) of ERISA; or
(c) Maintain, become a party to, contribute to or being obligated to
contribute to or otherwise provide health care or other welfare benefits to
retirees or survivors of employees.
7.17 Changes in Partnerships. The Borrower shall not grant any waiver, or
-----------------------
enter into any amendment, modification or supplement of or to any Partnership
Agreement which, in any case or in the aggregate, (a) would adversely affect the
Borrower's rights to receive distributions of any kind, or (b) would otherwise
diminish or impair the rights of the Borrower thereunder. The Borrower shall not
permit or suffer the dissolution or liquidation of any of the Joint Ventures or
voluntarily withdraw as a general partner in any Controlled Partnership in which
the Borrower is a general partner.
7.18 Other Contracts. The Borrower shall not enter into any employment
---------------
contracts or other arrangements whose terms, including salaries, benefits and
other compensation, are not normal and customary in the industry, except for
contracts under which the aggregate compensation payable in any calendar year
does not exceed $200,000.
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ARTICLE 8
---------
Events of Default
-----------------
8.1 Events of Default. Each of the following shall constitute an Event of
------------------
Default under this Agreement:
(a) Payments. The Borrower shall fail to pay not later than two (2)
--------
days after the date when due any installment of principal or interest or
any other sum payable hereunder or under the Agent's Letter or any of the
other Loan Documents;
(b) Certain Covenants in This Agreement. The Borrower shall default
-----------------------------------
in the performance of any of its agreements set forth in Paragraph 6.20
hereof or in Article 7 hereof;
(c) Other Covenants and Agreements. The Borrower shall default in the
------------------------------
performance of any of its agreements set forth in any other provision
herein or in any of the other Loan Documents (and not constituting an Event
of Default under any of the other clauses of this Paragraph 8.1) and
continuation of such default for ten (10) days after written notice thereof
to the Borrower from the Agent;
(d) Representations and Warranties. Any representation, warranty or
------------------------------
certification made by any of the Borrower or any officer of the Borrower,
in or pursuant to any of the Loan Documents, shall be untrue in any
material respect, on any date as of which the facts set forth are stated or
certified;
(e) Monetary Judgment. A judgment shall be entered against the
-----------------
Borrower or any of its Subsidiaries or any of the Controlled Partnerships
in the aggregate amount of five hundred thousand Dollars ($500,000) or more
on an uninsured and unbonded claim or claims, and such judgment shall
remain unstayed, unvacated, undischarged or unsatisfied for thirty (30)
days;
(f) Non-Monetary Judgments. Any final non-monetary judgment, order or
----------------------
decree shall be rendered against the Borrower or any of its Subsidiaries or
any of the Controlled Partnerships which may have a Material Adverse
Effect, and either (i) enforcement proceedings shall have been commenced by
any Person upon such judgment or order or (ii) there shall be any period of
thirty (30) days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect,
unless such judgment, order or decree shall, within
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such thirty-day period, be vacated or discharged (other than by
satisfaction thereof);
(g) Liens for Pension Contributions. Any statutory Lien shall have
-------------------------------
been placed upon the assets of the Borrower or any member of the Controlled
Group under the Code or ERISA;
(h) ERISA. (i) An Employee Benefit Plan that is intended to be
-----
qualified under section 401(a) of the Code shall lose its qualification,
and the resulting loss or cost to the Borrower or any Controlled Group
member can reasonably be expected to exceed five hundred thousand Dollars
($500,000); (ii) the commencement or increase of contributions to, the
adoption of, or the amendment of a plan by, the Borrower or any Controlled
Group member shall result in a net increase in unfunded liabilities to the
Borrower or any Controlled Group member in the aggregate in excess of five
hundred thousand Dollars ($500,000); or (iii) the Internal Revenue Service
asserts a claim against the Borrower or any Controlled Group member in
connection with the unfunded liabilities arising under section 412 of the
Code under the employee pension benefit (as defined in section 3(2) of
ERISA) maintained by any member of the ERISA Affiliated Group, if such
claim can reasonably be expected to impose on the Borrower or any
Controlled Group member liability in the aggregate amount of five hundred
thousand Dollars ($500,000) or more;
(i) Cross-Default. (A) The Borrower or any of its Subsidiaries or any
-------------
of the Controlled Partnerships shall default (unless waived) in the payment
when due, whether by acceleration or otherwise, of any amount of principal
or interest due in respect of Indebtedness other than Nonrecourse
Indebtedness in an aggregate principal amount greater than two million five
hundred thousand Dollars ($2,500,000) or in respect of any guaranty of such
Indebtedness, or shall default (unless waived) in the performance or
observance (subject to any applicable grace period) of any agreement,
covenant or condition with respect to any such Indebtedness or guaranty if
the effect of such default is to accelerate the maturity of any such
indebtedness or to permit the holder or holders of any such Indebtedness or
guaranty, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity or
to call upon such guaranty in advance of nonpayment of the guaranteed
indebtedness; or (B) the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships shall default (unless waived) in the payment when
due, whether by acceleration or otherwise, of any amount of
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principal or interest due in respect of Nonrecourse Indebtedness in an
aggregate principal amount greater than three million Dollars ($3,000,000)
or in respect of any guaranty of such Indebtedness, or shall default
(unless waived) in the performance or observance (subject to any applicable
grace period) of any agreement, covenant or condition with respect to any
such Indebtedness or guaranty if the effect of such default is to
accelerate the maturity of any such indebtedness or to permit the holder or
holders of any such Indebtedness or guaranty, or any trustee or agent for
such holders, to cause such Indebtedness to become due and payable prior to
its expressed maturity or to call upon such guaranty in advance of
nonpayment of the guaranteed indebtedness;
(j) Bankruptcy. The Borrower or any of its Subsidiaries or any of the
----------
Controlled Partnerships shall institute a voluntary case seeking
liquidation or reorganization under Chapter 7 or Chapter 11, respectively,
of the United States Bankruptcy Code, or shall consent to the institution
of an involuntary case thereunder against it; or the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships shall file a petition
initiating or shall otherwise institute any similar Insolvency Proceeding
under any other applicable federal or state law, or shall consent thereto;
or the Borrower or any of its Subsidiaries or any of the Controlled
Partnerships shall apply for, or by consent or acquiescence there shall be
an appointment of, a receiver, liquidator, sequestrator, trustee or other
officer with similar powers, or the Borrower or any of its Subsidiaries or
any of the Controlled Partnerships shall make an assignment for the benefit
of creditors; or the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships shall admit in writing its inability to pay its
debts generally as they become due; or, if an involuntary case shall be
commenced seeking the liquidation or reorganization of the Borrower or any
of its Subsidiaries or any of the Controlled Partnerships under Chapter 7
or Chapter 11, respectively, of the United States Bankruptcy Code, or any
similar proceeding shall be commenced against the Borrower or any of its
Subsidiaries or any of the Controlled Partnerships under any other
applicable federal or state law, and (i) the Borrower, any of its
Subsidiaries or any of the Controlled Partnerships is a party to the
petition commencing the involuntary case; or (ii) the petition commencing
the involuntary case is not timely controverted; or (iii) the petition
commencing the involuntary case is not dismissed within forty-five (45)
days of its filing; or (iv) an interim trustee is appointed to take
possession of all
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or a portion of the property and/or to operate all or any part of the
business of the Borrower or such Subsidiary or Controlled Partnership; or
(v) an order for relief shall have been issued or entered therein; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or other
officer having similar powers over the Borrower or such Subsidiary or
Controlled Partnership, or of all or a part of the property of any of the
foregoing, shall have been entered; or any other similar relief shall be
granted against the Borrower or any of its Subsidiaries or any of the
Controlled Partnerships under any applicable federal or state law;
(k) Material Adverse Change. The Majority Banks or the Agent shall
-----------------------
have determined reasonably and in good faith that a Material Adverse Change
has occurred since December 31, 1994;
(l) Invalidity of Loan Documents. Any of the Loan Documents shall
----------------------------
cease for any reason (other than by reason of the intentional conduct of
the Agent or any Bank) to be in full force and effect or any party thereto
(other than the Agent or the Banks) shall purport to disavow its
obligations thereunder, shall declare that it does not have any further
obligation thereunder or shall contest the validity or enforceability
thereof;
(m) Change of Control. A Change of Control (other than the PSMI
-----------------
Merger) shall occur; or
(n) Loss of REIT Status. The Borrower fails at any time to be
-------------------
qualified as a real estate investment trust under the Code.
8.2 Termination of Commitment and Acceleration. If any Event of Default
------------------------------------------
described in Paragraph 8.1(j) hereof shall occur, the Commitments shall
terminate immediately, and the Notes and all other Obligations shall become
immediately due and payable, all without notice of any kind. If any other Event
of Default shall be continuing, the Agent or the Majority Banks may declare the
Commitments to be terminated and the outstanding Notes and all other Obligations
to be due and payable, or all of the foregoing, whereupon the Commitments shall
be terminated and the Notes and all other Obligations shall immediately become
due and payable, all as so declared by the Agent or the Majority Banks and
without presentment, demand, protest or other notice of any kind. Any such
declaration made pursuant to this Paragraph 8.2 by Agent may be rescinded by the
Agent or the Majority Banks. Any such declaration made pursuant to this
Paragraph 8.2 by Majority Banks may be rescinded only by Majority Banks.
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ARTICLE 9
---------
The Agent
---------
9.1 Appointment and Authorization. Each Bank hereby irrevocably appoints,
-----------------------------
designates and authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document (except for the Swing
Line Note) and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Bank, and no implied covenants, functions, responsibilities, duties, obligations
or liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. The Agent shall exercise the Banks' rights
arising upon the occurrence of an Event of Default only as directed by Majority
Banks, except that the Agent may take such action as it deems to be in the best
interests of the Banks if the delay required to obtain direction from the other
Banks could, in the Agent's judgment, be contrary to the best interests of the
Banks.
9.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.3 Liability of Agent. None of the Agent, its Affiliates, or any of
------------------
their respective officers, directors, employees, agents, or attorneys-in-fact
(collectively, the "Agent-Related Persons") shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement (except for its own gross negligence or willful misconduct) or (b) be
responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Borrower or any Subsidiary of the
Borrower or any of the Controlled Partnerships or any officer thereof contained
in this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any
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obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower or any of its Subsidiaries or any Controlled
Partnership.
9.4 Reliance by Agent.
-----------------
(a) The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions specified
in Paragraphs 4.1, 4.2 and 4.3 hereof, each Bank shall be deemed to have
consented to, approved or accepted or to be satisfied with each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to the Banks unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
a Bank prior to the extension of a Borrowing specifying its objection thereto
and either such objection shall not have been withdrawn by notice to the Agent
to that effect or such Bank shall not have made available to the Agent the
Bank's ratable portion of such Borrowing.
9.5 Notice of Default. The Agent shall not be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees payable to the Agent
for the account of the Banks, unless the Agent shall have received written
notice from a Bank or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, the Agent shall
give notice thereof to the Banks. The Agent shall take such action
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with respect to such Default or Event of Default as shall be requested by the
Majority Banks in accordance with Article 8; provided, however, that unless and
-------- -------
until the Agent shall have received any such request, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks; and provided, further, that, the Agent shall not,
without the approval of Majority Banks, take action to accelerate the
Obligations.
9.6 Credit Decision. Each Bank expressly acknowledges that none of the
---------------
Agent-Related Persons has made any representation or warranty to it and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by the Agent to any Bank. Each Bank represents to the Agent that it
has, independently and without reliance upon the Agent and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of the Borrower and made its
own decision to enter into this Agreement and extend credit to the Borrower
hereunder. Each Bank also represents that it will, independently and without
reliance upon the Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrower. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of any of
the Agent-Related Persons.
9.7 Indemnification. The Banks agree to indemnify the Agent-Related
---------------
Persons (to the extent not reimbursed by or on behalf of the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
the respective amounts of their outstanding Loans, or, if no Loans are
outstanding, their outstanding Commitment Percentages, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind whatsoever which may at any
time (including at any time following the repayment of the Loans) be imposed on,
incurred by or asserted against any such person any way relating to or arising
out of this Agreement or any document contemplated by or referred to herein or
therein or the
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transactions contemplated hereby or thereby or any action taken or omitted by
any such person under or in connection with any of the foregoing; provided,
however, that no Bank shall be liable for the payment to the Agent-Related
Persons of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such person's gross negligence or willful misconduct or resulting from an
action by the Agent which the Agent knows to be in violation of this Agreement
(unless Majority Banks shall have directed Agent to take such action). Without
limitation of the foregoing, each Bank shall reimburse the Agent promptly upon
demand for its ratable share of any costs or out-of-pocket expenses (including
attorneys' fees and the allocated cost of in-house counsel) incurred by the
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower.
9.8 Agent in Individual Capacity. Wells Fargo Bank and any successor
----------------------------
Agent and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from and generally engage in any kind of business
with the Borrower or any of its Subsidiaries or any of the Controlled
Partnerships as though the Agent were not the Agent hereunder and without notice
to the Banks. With respect to its Loans, Wells Fargo Bank and any successor
Agent shall have the same rights and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent, and the terms
"Bank" and "Banks" shall include Wells Fargo Bank and any successor Agent in its
individual capacity.
9.9 Successor Agent. The Agent may, and at the request of the Majority
---------------
Banks shall, resign as Agent upon thirty (30) days' notice to the Banks. If the
Agent shall resign as Agent under this Agreement, the Majority Banks shall
appoint from among the Banks a successor agent for the Banks. If no successor
Agent is appointed prior to the effective date of the resignation of the Agent,
the Agent shall appoint, after consulting with the Banks and the Borrower, a
successor agent from among the Banks. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's rights, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article 9 and Paragraphs 10.6, 10.7 and 10.8 hereof shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
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9.10 Borrower's Reliance. Except as to matters requiring action by
-------------------
Majority Banks or all of the Banks, the Borrower shall be entitled to rely on
any notice, instruction or other communication delivered by the Agent as if such
notice, instruction or other communication were delivered by the Banks. Upon
the Borrower's request, the Agent shall deliver to the Borrower any evidence of
action by Majority Banks or all of the Banks.
ARTICLE 10
----------
Miscellaneous
-------------
10.1 Successors and Assigns and Sale of Interests.
--------------------------------------------
(a) The terms and provisions of this Agreement shall be binding upon, and,
subject to the provisions of this Paragraph 10.1, the benefits thereof shall
inure to, the parties hereto and their respective successors and assigns;
provided, however, that the Borrower may not assign this Agreement or any of the
rights, duties or obligations of the Borrower hereunder without the prior
written consent of all of the Banks.
(b) Any Bank, with the written consent of the Borrower, which shall not be
unreasonably withheld (but which consent shall not be required at any time
during the continuance of an Event of Default of the type described in
Paragraphs 8.1(a) or 8.1(j) hereof), and with the written consent of the Agent,
which shall not be unreasonably withheld, may at any time assign and delegate to
any Person, or, with notice to the Borrower and the Agent but without the
consent of either the Borrower or the Agent, may assign and delegate to any of
its wholly owned Affiliates (each an "Assignee") all or any part of the Loans or
the Commitments or any other rights or obligations of such Bank hereunder in a
minimum amount of ten million Dollars ($10,000,000), representing the principal
amount of the Loans assigned plus the amount of the Commitment Percentage so
assigned multiplied by the Total Commitment Amount; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Bank
in connection with the interests so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been given to the
Borrower and the Agent by such Bank and the Assignee, and (ii) such Bank and its
Assignee shall have delivered to the Borrower and the Agent an Assignment and
Acceptance in the form of Exhibit 10.1(b) ("Assignment and Acceptance") together
with any Note or Notes subject to such assignment; and (iii) the processing fees
of three thousand five hundred Dollars ($3,500) shall have been paid to the
Agent.
(c) From and after the date that the Agent notifies the assignor Bank that
it has received the Assignment and Acceptance, (i) the Assignee thereunder shall
be a party hereto and,
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to the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Bank under the Loan Documents and (ii) assignor Bank shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
(d) Within five (5) Banking Days after its receipt of notice by the Agent
that it has received an executed Assignment and Acceptance, the Borrower shall
execute and deliver to the Agent new Notes evidencing such Assignee's assigned
Loans and Commitment Amount and, if the assignor Bank has retained a portion of
its Loans and its Commitment Amount, replacement Notes in the Commitment Amount
retained by the assignor Bank (such Notes to be in exchange for, but not in
payment of, the Notes held by such Bank). Immediately upon each Assignee's
making its payment under the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent necessary to reflect
the addition of the Assignee and the resulting adjustment of the Assignor's
Commitment Amount arising therefrom. The Commitment Amount allocated to each
Assignee shall reduce the Commitment Amount of the assigning Bank pro tanto.
---------
(e) Any Bank may at any time sell to one or more banks or other entities
(a "Participant") participating interests in any Loans, the Commitment Amount of
that Bank or any other interest of that Bank hereunder; provided, however, that
(i) the selling Bank's obligations under this Agreement shall remain unchanged,
(ii) the selling Bank shall remain solely responsible for the performance of
such obligations, (iii) the Borrower and the Agent shall continue to deal solely
and directly with the selling Bank in connection with such Bank's rights and
obligations under this Agreement, and (iv) no Bank shall transfer or grant any
participating interest under which the Participant shall have rights to approve
any amendment to, or any consent or waiver with respect to, this Agreement
except to the extent such amendment, consent or waiver would require unanimous
consent as described in the first proviso to Paragraph 10.3 hereof. In the case
of any such participation, the Participant shall not have any rights under this
Agreement, or any of the other Loan Documents, and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement.
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10.2 No Implied Waiver. No delay or omission to exercise any right, power
-----------------
or remedy accruing to the Agent or any Bank upon any breach or default of any of
the Borrower under this Agreement or under any of the other Loan Documents shall
impair any such right, power or remedy of the Agent or any Bank, nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default occurring thereafter, nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring theretofore or thereafter.
10.3 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks, and then such waiver shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks, do any of the following:
(a) increase the Commitment Amount of any Bank or subject any Bank to
any additional obligations;
(b) postpone or delay any date fixed for any payment of principal,
interest, fees or other amounts due hereunder or under any Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or of any fees or other amounts payable hereunder or under any
Loan Document;
(d) change the definition of "Majority Banks" or the percentage of
the aggregate Commitment Percentages or of the aggregate unpaid principal
amount of the Loans which shall be required for the Banks or any of them to
take any action hereunder;
(e) amend this Paragraph 10.3; or
(f) amend any provision of this Agreement or any other Loan Document
to eliminate or modify a provision referring to a requirement that all
Banks act unanimously in any matter;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks, affect the
rights or duties of the Agent under this Agreement, and (ii) the definition of
"Majority Banks" or the percentage of the aggregate Commitment Percentages or of
the aggregate principal amount of the Loans which shall be required for the
Banks or any of them to take any action hereunder may be changed without the
consent of the Borrower.
-76-
<PAGE>
10.4 Remedies Cumulative. All rights and remedies, either under this
-------------------
Agreement or any other Loan Document, by law or otherwise afforded to the Agent
or the Banks shall be cumulative and not exclusive, and any single or partial
exercise of any power or right hereunder or thereunder does not preclude other
or further exercise thereof, or the exercise of any other power or right.
10.5 Severability. Any provision of this Agreement, the Notes or any of
------------
the other Loan Documents which is prohibited or unenforceable in any
jurisdiction, shall be, only as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability, but all the remaining provisions of
this Agreement, the Notes and the other Loan Documents shall remain valid.
10.6 Costs, Expenses and Attorneys' Fees. The Borrower shall reimburse
-----------------------------------
the Agent for all costs and expenses, including, but not limited to, reasonable
attorneys' fees and expenses (including the allocated cost of the Agent's
internal counsel) and appraisal, audit, review, search and filing fees and
expenses, expended or incurred by the Agent in connection with the preparation,
negotiation and execution of this Agreement, in connection with the initial
Borrowing, in amending this Agreement, or extending any waiver or consent
hereunder, or in any transaction referred to in Paragraph 10.1(b) hereof, and
shall reimburse the Agent and the Banks for all costs and expenses, including,
but not limited to, reasonable attorneys' fees and expenses (including the
allocated cost of the Agent's internal counsel), expended or incurred by the
Agent or any Bank in collecting any sum which becomes due under the Notes or
under this Agreement or any of the other Loan Documents, or in the protection,
perfection, preservation and enforcement of any and all rights of the Agent or
any Bank in connection with the Loan Documents, including, without limitation,
the fees and costs incurred in any out-of-court work-out or a bankruptcy or
reorganization proceeding. This obligation on the part of the Borrower shall
survive the expiration or termination of this Agreement, with or without
occurrence of the Initial Closing Date.
10.7 General Indemnification. The Borrower shall indemnify and hold each
-----------------------
Bank, the Agent and each of their directors, officers, employees, Affiliates,
attorneys and agents (collectively referred to herein as the "Bank Indemnitees")
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, any expenses
(including attorneys' fees and the allocated cost of in-house counsel) incurred
by any such Bank Indemnitee in connection with any investigation in connection
with any such matter, whether or not any such Bank Indemnitee shall be
designated a party thereto) which may be imposed on, incurred by or asserted
against such Bank
-77-
<PAGE>
Indemnitees by any Person other than the Bank with which such Bank Indemnitee is
affiliated (whether direct, indirect or consequential and whether based on any
federal or state laws or other statutory regulations, including, without
limitation, securities, environmental and commercial laws and regulations, under
common law or at equitable cause, or on contract or otherwise) in any manner
relating to or arising out of this Agreement, any other Loan Documents, or any
act, event or transaction related or attendant thereto; the making of Loans
hereunder, the management of the Loans (including any liability under federal,
state or local environmental laws or regulations), the use or intended use of
the proceeds of the Loans (collectively, the "Indemnified Matters"); provided,
however, that the Borrower shall have no obligation to any Bank Indemnitee under
this Paragraph 10.7 with respect to Indemnified Matters to the extent such
Indemnified Matters were caused by or resulted from the gross negligence or
willful misconduct of a Bank Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute to the payment and satisfaction of all Indemnified Matters
incurred by the Bank Indemnitees the maximum portion which the Borrower is
permitted to pay and satisfy under applicable law. This indemnification shall
survive repayment by the Borrower of all Loans made under this Agreement, and
the termination of this Agreement without occurrence of the Initial Closing
Date.
10.8 Environmental Indemnification. The Borrower hereby agrees to
-----------------------------
indemnify, defend and hold harmless each Bank Indemnitee, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, charges, expenses or disbursements (including
attorneys' fees and the allocated cost of in-house counsel), which may be
incurred by or asserted against such Bank Indemnitee in connection with or
arising out of any pending or threatened investigation, litigation or
proceeding, or any action taken by any Person, with respect to any Environmental
Claim arising out of or related to any Controlled Property or the actions or
omissions of the Borrower or any Subsidiary of the Borrower or any of the
Controlled Partnerships. No action taken by legal counsel chosen by the Agent
or any Bank in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate or in
any way impair the Borrower' obligations and duties hereunder to indemnify and
hold harmless the Agent and each Bank. In no event shall any site visit,
observation, or testing by the Agent or any Bank be a representation that
Hazardous Materials are or are not present in, on, or under the site, or that
there has been or shall be compliance with any law, regulation, or ordinance
pertaining to Hazardous Materials or any other applicable Governmental
Requirement. Neither the Borrower nor any other party is entitled to rely on
any site visit, observation, or testing by the Agent or any Bank.
-78-
<PAGE>
Neither the Agent nor any Bank owes any duty of care to protect the Borrower or
any other party against, or to inform the Borrower or any other party of, any
Hazardous Materials or any other adverse condition affecting any site or
property. Neither the Agent nor any Bank shall be obligated to disclose to the
Borrower or any other party any report or findings made as a result of, or in
connection with, any site visit, observation, or testing by the Agent or any
Bank. This indemnification shall survive repayment of all Loans made under this
Agreement and termination of the Commitments, and the termination of this
Agreement without occurrence of the Initial Closing Date.
10.9 Notices. Any notice which the Borrower, the Agent or any of the
-------
Banks may be required or may desire to give to the other parties under any
provision of this Agreement shall be in writing by electronic facsimile
transmission and shall be deemed to have been given or made when transmitted and
addressed to any Bank at the address set forth on the signature pages hereto or
to the Agent or the Borrower as follows:
To the Borrower: Storage Equities, Inc.
600 N. Brand Boulevard, Suite 300
Glendale, CA 91203-5050
Attention: Ronald L. Havner, Jr.
Facsimile: (818) 548-9288
To the Agent: Wells Fargo Bank, National Association
AS TO LOAN Agency Department
REQUESTS 201 Third Street, 8th Floor
San Francisco, California 94103
Attention: Maggie Miranda
Facsimile: (415) 512-9408
Copy to: Wells Fargo Bank, National Association
Regional Commercial Banking Office
9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attention: Debbie Dillard-Bell
Facsimile: (818) 280-9240
To the Agent: Wells Fargo Bank, National Association
EXCEPT LOAN Regional Commercial Banking Office
REQUESTS 9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attention: Debbie Dillard-Bell
Facsimile: (818) 280-9240
-79-
<PAGE>
Copy to: Pillsbury Madison & Sutro
225 Bush Street
San Francisco, CA 94104
Attention: Glenn Q. Snyder, Esq.
Facsimile: (415) 983-1200
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
10.10 Entire Agreement. This Agreement, together with the schedules and
----------------
exhibits to this Agreement and all of the other Loan Documents, is intended by
the Borrower, the Agent and the Banks as a final expression of their agreement
and, together with all of the other Loan Documents, is intended as a complete
statement of the terms and conditions of their agreement. This Agreement and
the other Loan Documents contain all of the agreements and understandings
between or among the Borrower, the Agent and the Banks concerning the Loans and
the other transactions contemplated hereby. This Agreement and the other Loan
Documents completely supersede the Commitment Letter.
10.11 Governing Law and Consent to Jurisdiction. The validity,
-----------------------------------------
construction and effect of this Agreement, the Notes and all of the other Loan
Documents shall be governed by the laws of the State of California, without
regard to its laws regarding choice of applicable law, but giving effect to
federal laws applicable to national and federally insured banks. All judicial
proceedings brought against the Borrower with respect to this Agreement, the
Notes or any of the other Loan Documents may be brought in any state or federal
court of competent jurisdiction in the State of California, and the Borrower
accepts for itself and its assets and properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts. The Borrower waives, to
the fullest extent permitted by applicable law, any objection (including,
without limitation, any objection to the laying of venue or based on the grounds
of forum non conveniens) which it may now or hereafter have to the bringing of
any such action or proceeding in any such jurisdiction. Nothing herein shall
limit the right of a Bank or the Agent to bring proceedings against the Borrower
in the court of any other jurisdiction.
10.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
10.13 Waiver of Jury Trial. The Borrower waives any right to trial by
--------------------
jury with regard to any action of any type or nature
-80-
<PAGE>
whatsoever under or concerning this Agreement or any of the other Loan Documents
or in any way related to the Loans or the administration or enforcement thereof.
10.14 Headings. Captions, headings and the table of contents in this
--------
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
10.15 Supersession. This Agreement replaces and supersedes the Original
------------
Credit Agreement. Upon the Initial Closing Date, the Original Credit Agreement
shall terminate and be of no further force or effect, except that the terms of
the Original Credit Agreement shall survive and continue to be operative as to
any Obligation (as defined in the Original Credit Agreement) arising on or prior
to the Initial Closing Date.
-81-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by its
duly authorized officers as of the date and year first above written.
STORAGE EQUITIES, INC.
By /s/ Ronald L. Havner, Jr.
----------------------------------
Ronald L. Havner, Jr.
Chief Financial Officer
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent
By /s/ Debbie Dillard-Bell
----------------------------------
Debbie Dillard-Bell
Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as a Bank
By /s/ Debbie Dillard-Bell
----------------------------------
Debbie Dillard-Bell
Vice President
Address: Regional Commercial
Banking Office
9000 Flair Drive, 1st Floor
El Monte, CA 91731
Attn: Debbie Dillard-Bell
Facsimile: (818) 280-9240
Commitment Percentage: 28.00%
-82-
<PAGE>
FIRST INTERSTATE BANK
OF CALIFORNIA
By /s/ Gregory P. Brown
----------------------------------
Gregory P. Brown
Vice President
By /s/ William J. Baird
----------------------------------
William J. Baird
Senior Vice President
Address: 707 Wilshire Blvd. W16-13
Los Angeles, CA 90017
Attn: Gregory P. Brown
Facsimile: (213) 614-2569
Commitment Percentage: 20.80%
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Jeffery L. Warwick
----------------------------------
Jeffrey L. Warwick
Vice President
Address: 115 Perimeter Center Place
Suite 500
Atlanta, GA 30346
Attn: Jeffrey L. Warwick
Facsimile: (404) 390-8434
Commitment Percentage: 16.00%
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ James D. Benko
----------------------------------
James D. Benko
Corporate Banking Officer
Address: 1 First National Plaza
Mail Suite 0151
Chicago, IL 60670
Attn: James D. Benko
Facsimile: (312) 732-1117
Commitment Percentage: 20.80%
-83-
<PAGE>
COMMERZBANK, A.G., Los Angeles Branch
By /s/ Christian Jagenberg
-------------------------
Name Christian Jagenberg
----------------------
Title SVP and Manager
----------------
By /s/ Werner Schmidbauer
-----------------------
Name Werner Schmidbauer
---------------------
Title Vice President
---------------
Address: 660 South Figueroa Street
Suite 1450
Los Angeles, CA 90017
Attn: Werner Schmidbauer
Facsimile: (213) 623-0039
Commitment Percentage: 14.40%
-84-
<PAGE>
STORAGE EQUITIES, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income $16,551,000 $10,194,000 $29,751,000 $18,940,000
Less: Preferred Stock dividends:
10% Cumulative Preferred Stock, Series A (1,141,000) (1,141,000) (2,282,000) (2,282,000)
9.20% Cumulative Preferred Stock, Series B (1,372,000) (1,322,000) (2,744,000) (2,644,000)
Variable Rate Preferred Stock, Series C (629,000) - (1,279,000) -
9.50% Cumulative Preferred Stock, Series D (713,000) - (1,426,000) -
10.0% Cumulative Preferred Stock, Series E (1,372,000) - (2,286,000) -
9.75% Cumulative Preferred Stock, Series F (919,000) - (919,000) -
8.25% Convertible Preferred Stock (1,186,000) (1,186,000) (2,372,000) (2,372,000)
----------- ----------- ----------- -----------
Net income allocable to common shareholders $ 9,219,000 $ 6,545,000 $16,443,000 $11,642,000
=========== =========== =========== ===========
Weighted Average common and common
equivalent shares outstanding:
Weighted average common shares outstanding 34,665,710 23,714,460 32,615,690 22,264,864
Net effect of dilutive stock options - based
on treasury stock method using average
market price 126,475 172,872 91,866 172,021
----------- ----------- ----------- -----------
Total 34,792,185 23,887,332 32,707,556 22,436,885
=========== =========== =========== ===========
Primary earnings per common and common
equivalent share $ 0.26 $ 0.28 $ 0.50 $ 0.52
=========== =========== =========== ===========
</TABLE>
Exhibit 11
<PAGE>
STORAGE EQUITIES, INC.
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FULLY-DILUTED EARNINGS PER
COMMON AND COMMON EQUIVALENT
SHARE:
- --------------------------------
Net income allocable to common
shareholders per Primary
calculation above $ 9,219,000 $ 6,544,000 $16,443,000 $11,642,000
Add: dividends to 8.25%
Convertible Preferred Stock 1,186,000 1,186,000 2,372,000 2,372,000
----------- ----------- ----------- -----------
Net income allocable to common
shareholders for purposes of
determining Fully-diluted
Earnings per Common and Common
Equivalent Share $10,405,000 $ 7,730,000 $18,815,000 $14,014,000
=========== =========== =========== ===========
Weighted average common and
common equivalent shares
outstanding 34,792,185 23,887,332 32,707,556 22,436,885
Pro forma weighted average
common shares assuming
conversion of 8.25%
Convertible Preferred Stock 3,872,054 3,872,054 3,872,054 3,872,054
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares for purposes of
computation of Fully-diluted Earnings
per Common and Common Equivalent Share 38,664,239 27,759,386 36,579,610 26,308,939
=========== =========== =========== ===========
Fully-diluted Earnings per Common and
Common Share (1) $ 0.26 $ 0.28 $ 0.50 $ 0.53
=========== =========== =========== ===========
</TABLE>
(1) Such amounts are not dilutive and are not presented in the Company's
consolidated financial statements
Exhibit 11
<PAGE>
STORAGE EQUITIES, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
June 30, For the Year Ended December 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- --------- ---------- --------- ----------- -----------
(Amount in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $29,751 $18,940 $42,118 $28,036 $15,123 $11,954 $11,994
Add: Minority interest in income 3,715 4,791 9,481 7,291 6,895 6,693 9,154
Less: Gain on disposition of real estate - - - - (398) - (1,146)
Less: Minority interests in income
which do not have fixed charges (2,377) (2,825) (5,906) (737) (694) (501) (470)
------- ------- ------- ------- ------- ------- -------
Income from continuing operations 31,089 20,906 45,693 34,590 20,926 18,146 19,532
Interest expense 3,715 2,844 6,893 6,079 9,834 10,621 10,920
------- ------- ------- ------- ------- ------- -------
Total Earnings Available to Cover Fixed
Charges $34,804 $23,750 $52,586 $40,669 $30,760 $28,767 $30,452
------- ------- ------- ------- ------- ------- -------
Interest expense $ 3,715 $ 2,844 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
------- ------- ------- ------- ------- -------
Total Fixed Charges $ 3,715 $ 2,844 $ 6,893 $ 6,079 $ 9,834 $10,621 $10,920
------- ------- ------- ------- ------- ------- -------
Preferred Stock dividends:
Series A $ 2,282 $ 2,281 $ 4,563 $ 4,563 $ 812 $ - $ -
Series B 2,744 2,645 5,339 4,147 - - -
Series C 1,279 - 1,250 - - - -
Series D 1,426 - 950 - - - -
Series E 2,286 - - - - - -
Series F 919 - - - - - -
Convertible 2,372 2,372 4,744 2,179 - - -
------- ------- ------- ------- ------- ------- -------
Total Preferred Stock dividends $13,308 $ 7,298 $16,846 $10,889 $ 812 $ - $ -
------- ------- ------- ------- ------- ------- -------
Total Combined Fixed Charges and
Preferred Stock dividends $17,023 $10,142 $23,739 $16,968 $10,646 $10,621 $10,920
------- ------- ------- ------- ------- ------- -------
Ratio of Earnings to Fixed Charges 9.37 8.35 7.63 6.69 3.13 2.71 2.79
------- ------- ------- ------- ------- ------- -------
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock dividends 2.05 2.34 2.22 2.40 2.89 2.71 2.79
------- ------- ------- ------- ------- ------- -------
</TABLE>
Exhibit 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 89,759,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 89,759,000
<PP&E> 1,213,655,000
<DEPRECIATION> (219,649,000)
<TOTAL-ASSETS> 1,116,857,000
<CURRENT-LIABILITIES> 34,160,000
<BONDS> 58,497,000
<COMMON> 4,205,000
0
335,150,000
<OTHER-SE> 553,309,000
<TOTAL-LIABILITY-AND-EQUITY> 1,116,857,000
<SALES> 0
<TOTAL-REVENUES> 91,110,000
<CGS> 0
<TOTAL-COSTS> 49,268,000
<OTHER-EXPENSES> 5,162,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,214,000
<INCOME-PRETAX> 29,751,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,751,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,751,000
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
