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As filed with the Securities and Exchange Commission on July 24, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
______________
PUBLIC STORAGE, INC.
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
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95-3551121 6798
(I.R.S. Employer Identification No.) (Primary Standard Industrial
Classification Code Number)
701 Western Avenue, Suite 200 HUGH W. HORNE
Glendale, California 91201-2397 Public Storage, Inc.
(818) 244-8080 701 Western Avenue, Suite 200
(Address, including zip code, and Glendale, California 91201-2397
telephone number, including area code, (818) 244-8080
of registrant's principal executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
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______________
Copies to:
DAVID GOLDBERG, ESQ.
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
______________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
______________
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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====================================================================================================================================
Proposed Proposed
Amount Offering Maximum Maximum
to be Price Aggregate Amount of
Title of Each Class of Securities to be Registered Registered Per Share Offering Price Registration Fee
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Common Stock, $.10 par value per share (1) (1) (1) $15,367(1)(2)
====================================================================================================================================
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(1) This Registration Statement relates to the proposed merger of Public
Storage Properties XII, Inc. ("PSP12") into the Registrant and the
conversion of shares of common stock of PSP12 into either cash (as to up to
20% of the outstanding shares of common stock series A of PSP12) or common
stock of the Registrant. At the merger, there will be a maximum of
1,730,199 shares of common stock series A, and 707,071 shares of common
stock series B and common stock series C, of PSP12 outstanding. The closing
price of the common stock series A of PSP12 on the American Stock Exchange
on July 18, 1996 was $21.125 per share and the book value of the common
stock series B and C of PSP12 at March 31, 1996 was $11.33 per share. The
number of shares of common stock of the Registrant to be issued in the
merger cannot be determined at this time.
(2) Calculated in accordance with rule 457(f)(1) and (f)(2) under the
Securities Act of 1933. $11,000 of the registration fee was previously paid
in connection with PSP12's preliminary proxy materials.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PUBLIC STORAGE, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-4
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Registration Statement Item Location in Prospectus
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A. Information About the Transaction
1. Forepart of Registration Statement and Outside Front Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus See page 1 and pages (iii)-(iv)
3. Risk Factors, Ratio of Earnings to Fixed Charges and Risk Factors and Material
Other Information Considerations
4. Terms of the Transaction Summary and The Merger
5. Pro Forma Financial Information Pro Forma Financial Statements
6. Material Contacts with the Company Being Acquired Risk Factors and Material Considerations,
Conflicts of Interest in the Merger and
The Merger
7. Additional Information Required for Reoffering by *
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinions
9. Disclosure of Commission Position on The Merger -- Comparison of PSP12
Indemnification for Securities Act Liabilities Common Stock with PSI Common Stock --
Management and Duties
B. Information About the Registrant
10. Information with Respect to S-3 Registrants Incorporation of Certain Documents
by Reference
11. Incorporation of Certain Information By Reference Incorporation of Certain Documents
by Reference
12. Information with Respect to S-2 or S-3 Registrants Incorporation of Certain Documents
by Reference
13. Incorporation of Certain Information By Reference Incorporation of Certain Documents
by Reference
14. Information with Respect to Registrants Other than Incorporation of Certain Documents
S-2 or S-3 Registrants by Reference
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_________________
* Omitted as Inapplicable.
(ii)
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C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Incorporation of Certain Documents
by Reference
16. Information with Respect to S-2 or S-3 Incorporation of Certain Documents
Companies by Reference
17. Information with Respect to Companies Other Incorporation of Certain Documents
than S-2 or S-3 Companies by Reference
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents
are to be Solicited by Reference
19. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents
are not to be Solicited or in an Exchange Offer by Reference
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_________________
* Omitted as Inapplicable.
(iii)
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 11, 1996
A special meeting of shareholders of Public Storage Properties XII, Inc., a
California corporation ("PSP12"), will be held at PSP12's offices at 701 Western
Avenue, Suite 200, Glendale, California on September 11, 1996, at the hour of
10:00 a.m. for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
between PSP12 and Public Storage, Inc. ("PSI") described in the
accompanying Proxy Statement and Prospectus pursuant to which PSP12
would be merged with and into PSI (the "Merger"). Upon the Merger,
each outstanding share of PSP12 Common Stock Series A ("PSP12 Common
Stock") (other than shares held by PSI or by holders of PSP12 Common
Stock ("PSP12 Shareholders") who have properly exercised dissenters'
rights under California law ("Dissenting Shares")) would be converted
into the right to receive cash, PSI Common Stock or a combination of
the two, as follows: (i) with respect to a certain number of shares of
PSP12 Common Stock (not to exceed 20% of the outstanding PSP12 Common
Stock, or 346,040 shares, less any Dissenting Shares), upon a PSP12
Shareholder's election, $22.34 in cash, subject to reduction as
described below (a "Cash Election") or (ii) that number (subject to
rounding) of shares of PSI Common Stock determined by dividing $22.34,
subject to reduction as described below, by the average of the per
share closing prices on the New York Stock Exchange of PSI Common
Stock during the 20 consecutive trading days ending on the fifth
trading day prior to the special meeting of the shareholders of PSP12.
If a PSP12 Shareholder does not make a Cash Election, all of his or
her PSP12 Common Stock would be converted into PSI Common Stock in the
Merger. The consideration paid by PSI to PSP12 Shareholders in the
Merger will be reduced on a pro rata basis by the amount of cash
distributions required to be paid to PSP12 Shareholders by PSP12 prior
to completion of the Merger in order to satisfy PSP12's REIT
distribution requirements ("Required REIT Distributions"). The
consideration received by PSP12 Shareholders in the Merger, however,
along with any Required REIT Distributions, will not be less than
$22.34 per share of PSP12 Common Stock, which amount represents the
market value of PSP12's real estate assets at May 31, 1996 (based on
an independent appraisal) and the estimated net asset value of its
other assets at September 30, 1996. Additional distributions would be
made to the PSP12 Shareholders to cause PSP12's estimated net asset
value as of the date of the Merger to be substantially equivalent to
its estimated net asset value as of September 30, 1996. The PSP12
Common Stock, PSP12 Common Stock Series B and PSP12 Common Stock
Series C held by PSI will be cancelled in the Merger.
2. To consider and vote upon a related amendment to PSP12's bylaws to
authorize the Merger in the form of Appendix E to the accompanying
Proxy Statement and Prospectus.
The Board of Directors has determined that holders of record of PSP12
Common Stock, PSP12 Common Stock Series B and PSP12 Common Stock Series C at the
close of business on July 25, 1996 will be entitled to receive notice of, and to
vote at, the meeting or any adjournment of the meeting.
Please complete, date, sign and promptly mail the enclosed proxy in the
stamped return envelope included with these materials.
You are cordially invited to attend the meeting in person. If you do attend
and you have already signed and returned the proxy, the powers of the proxy
holders named in the proxy will be suspended if you desire to vote in person.
Therefore, whether or not you presently intend to attend the meeting in person,
you are urged to complete, date, sign and return the proxy.
By Order of the Board of Directors
OBREN B. GERICH, Secretary
Glendale, California
July ___, 1996
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PUBLIC STORAGE, INC.
PUBLIC STORAGE PROPERTIES XII, INC.
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
PUBLIC STORAGE PROPERTIES XII, INC.
SEPTEMBER 11, 1996
This Proxy Statement and Prospectus is being furnished to holders of shares
of Common Stock Series A, par value $.01 per share (the "PSP12 Common Stock"),
Common Stock Series B, par value $.01 per share and Common Stock Series C, par
value $.01 per share (collectively, the "PSP12 Common Stock Series B and C") of
Public Storage Properties XII, Inc. ("PSP12") and relates to a meeting of
shareholders of PSP12 called to approve the proposed merger of PSP12 with and
into Public Storage, Inc. ("PSI") (the "Merger") pursuant to the Agreement and
Plan of Reorganization attached as Appendix A to this Proxy Statement and
Prospectus (the "Merger Agreement"). Holders of PSP12 Common Stock are referred
to hereafter as the "PSP12 Shareholders" and holders of PSI Common Stock, par
value $.10 per share (the "PSI Common Stock") are referred to hereafter as the
"PSI Shareholders."
PSI and its executive officers have significant relationships with PSP12.
PSI owns 20.65% of the total combined outstanding shares of PSP12 Common Stock
and PSP12 Common Stock Series B and C, and B. Wayne Hughes ("Hughes"), the chief
executive officer of PSI, owns an additional 4.99% of the total combined
outstanding shares of PSP12 Common Stock and PSP12 Common Stock Series B and C.
See "Summary -- Relationships." The Merger Agreement requires that the Merger
be approved by a majority of the outstanding shares of PSP12 Common Stock and
PSP12 Common Stock Series B and C, voting together as a class, with the PSP12
Common Stock Series B and C voted with the holders of a majority of the
unaffiliated shares of PSP12 Common Stock. The Board of Directors of PSP12,
based on a recommendation of a special committee composed of independent
directors, recommends that PSP12 Shareholders vote for the Merger.
The Merger involves certain factors that should be considered by PSP12
Shareholders, including the following:
. The Merger has not been negotiated at arm's length, no unaffiliated
representatives were appointed to negotiate the terms of the Merger on
behalf of PSP12 and no third party proposal for PSP12 or its properties was
solicited.
. The nature of the investment of PSP12 Shareholders who receive shares of
PSI Common Stock is being changed from holding an interest in a specified
portfolio of properties for a finite period to holding an investment in an
ongoing fully-integrated real estate company, whose portfolio of properties
is changed from time to time without approval of shareholders, and which
does not plan to liquidate its assets within a fixed period of time.
. Based on the current price of the PSI Common Stock ($21 per share) and the
current regular quarterly distribution rate for PSP12, the level of
distributions to PSP12 Shareholders who receive PSI Common Stock in the
Merger would be approximately 29% lower after the Merger.
. The properties of PSP12 may continue to appreciate in value and might be
able to be liquidated at a later date for more consideration than in the
Merger.
(Continued on the following page)
__________________
THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENCE.
THE ATTORNEY OF THE STATE OF NEW YORK HAS NOT PASSED ON, OR ENDORSED THE
MERITS OF, THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
July___, 1996
<PAGE>
. Under California law, PSP12 Shareholders will be entitled to dissenters'
rights of appraisal in connection with the Merger only if demands for
payments are filed with respect to 5% or more of the outstanding shares of
PSP12 Common Stock.
. PSI and its affiliates have conflicts of interest in connection with the
Merger.
. The public PSI Shareholders are substantially limited in their ability to
control PSI. Hughes and members of his family (the "Hughes Family") own
approximately 48% of the PSI Common Stock (approximately 53% upon
conversion of the PSI Class B Common Stock), and there are restrictions in
PSI's organizational documents on beneficial ownership. Such ownership
factors should prevent any takeover of PSI not approved by Hughes.
. As a result of a prior business combination, PSI is subject to tax risks,
including additional risks as to PSI's continued qualification as a real
estate investment trust ("REIT").
. In making real estate investments, PSI, unlike PSP12, has incurred, and may
continue to incur, debt.
. The interest of PSI Shareholders can be diluted through the issuance of
additional securities. PSI has outstanding, and intends to issue
additional, securities with priority over PSI Common Stock.
. The market price of PSI Common Stock may fluctuate following establishment
of the number of shares to be issued to PSP12 Shareholders in the Merger
and prior to issuance and could decrease as a result of increased selling
activity following issuance of shares in the Merger and other factors.
. The consideration to be received by PSP12 Shareholders in the Merger is
based on third party appraisals. However, appraisals are opinions as of
the date specified, are subject to certain assumptions and may not
represent the true worth or realizable value of the properties of PSP12.
. PSP12 Shareholders who receive any cash in connection with the Merger may
have a taxable gain.
SEE "RISK FACTORS AND MATERIAL CONSIDERATIONS" BEGINNING ON PAGE 17 OF THIS
PROXY STATEMENT AND PROSPECTUS.
The PSI Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "PSA". On __________, 1996, the closing price of the PSI Common
Stock on the NYSE was $____. The PSP12 Common Stock is traded on the American
Stock Exchange ("AMEX") under the symbol "PSN". On __________, 1996, the closing
price of the PSP12 Common Stock on the AMEX was $______.
This Proxy Statement and Prospectus is first being mailed on or about
___________, 1996 to shareholders of record of PSP12 at the close of business on
July 25, 1996. The special meeting of shareholders of PSP12 which relates to
this Proxy Statement and Prospectus will be held jointly with a special meeting
of shareholders of Public Storage Properties X, Inc. ("PSP10"), an affiliated
REIT, to consider a proposed merger with PSI.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PSI OR PSP12.
THIS PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE REGISTERED SECURITIES TO
WHICH THIS PROXY STATEMENT AND PROSPECTUS RELATES TO OR BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
ii
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TABLE OF CONTENTS
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Page
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Available Information........................................................ 1
Incorporation of Certain Documents by Reference.............................. 1
Summary...................................................................... 2
Overview of Merger...................................................... 2
Meetings and Vote Requirements of PSP12 Shareholders.................... 3
PSP12................................................................... 3
PSI..................................................................... 3
Risk Factors and Material Considerations................................ 4
Background and Reasons for the Merger................................... 5
Potential Advantages of the Merger...................................... 7
Rights of Dissenting Shareholders....................................... 7
Determination of Payments to be Received by PSP12 Shareholders
in Connection with the Merger........................................... 8
Federal Income Tax Matters.............................................. 8
Recommendations; Opinion of Financial Advisor........................... 8
Comparison of PSP12 Common Stock with PSI Common Stock.................. 9
Summary Financial Information........................................... 12
Relationships........................................................... 15
Risk Factors and Material Considerations..................................... 18
No Arm's Length Negotiation or Unaffiliated Representatives............. 18
Change in Nature of Investment.......................................... 18
Lower Level of Distributions to PSP12 Shareholders...................... 18
Potential Loss of Future Appreciation................................... 18
Limitation on Dissenters' Rights of Appraisal........................... 18
Control and Influence by the Hughes Family and Ownership
Limitations............................................................ 19
Tax Risks............................................................... 19
Financing Risks......................................................... 20
Uncertainty Regarding Market Price of PSI Common Stock.................. 18
Merger Consideration Based on Appraisals Instead of Arm's
Length Negotiation..................................................... 21
Tax to PSP12 Shareholders............................................... 21
Operating Risks......................................................... 21
Shares Eligible for Future Sale......................................... 23
Conflicts of Interest in the Merger.......................................... 23
The Merger................................................................... 24
General................................................................. 24
Background.............................................................. 24
Reasons for the Merger and Timing....................................... 27
Alternatives to the Merger.............................................. 27
No Solicitation of Other Proposals...................................... 30
Determination of Payments to be Received by PSP12 Shareholders
in Connection with the Merger.......................................... 30
Potential Advantages of the Merger to PSP12 Shareholders................ 32
Recommendation to PSP12 Shareholders and Fairness Analysis.............. 32
Comparison of Consideration to be Received in the Merger to Other
Alternatives........................................................... 35
Real Estate Portfolio Appraisal by NDRC................................. 37
Fairness Opinion from Stanger........................................... 40
The Merger Agreement.................................................... 44
Cash Election Procedure................................................. 46
Consequences to PSP12 if the Merger is Not Completed.................... 47
Costs of the Merger..................................................... 47
Accounting Treatment.................................................... 48
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iii
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Regulatory Requirements................................................. 48
Comparison of PSP12 Common Stock with PSI Common stock.................. 48
Amendment to Bylaws of PSP12... 52
Approval of the Merger and Bylaw Amendment................................... 53
General................................................................. 53
Security Ownership of Certain Beneficial Owner and Management........... 53
Solicitation of Proxies................................................. 59
Description of PSP12's Properties............................................ 60
Description of PSI's Properties.............................................. 63
Distributions and Price Range of PSI Common Stock............................ 64
Distributions and Price Range of PSP12 Common Stock.......................... 65
Description of PSI Capital Stock............................................. 66
Common Stock............................................................ 66
Ownership Limitations................................................... 66
Class B Common Stock.................................................... 67
Preferred Stock......................................................... 68
Effects of Issuance of Capital Stock.................................... 69
Dissenting Shareholders' Rights of Appraisal................................. 70
Certain Federal Income Tax Matters........................................... 72
The Merger.............................................................. 72
Opinion of Counsel...................................................... 73
General Tax Treatment of PSI............................................ 74
Consequences of the PSMI Merger on PSI's Qualification as
a REIT................................................................. 77
Taxation of PSI Shareholders............................................ 81
State and Local Taxes................................................... 83
Legal Opinions............................................................... 83
Experts...................................................................... 83
Independent Auditors......................................................... 83
Shareholder Proposals........................................................ 83
Glossary..................................................................... 84
Appendix A - Agreement and Plan of Reorganization between P SI and PSP12
dated as of June 20, 1996
Appendix B - Real Estate Appraisal Report by Nicholson-Douglas Realty
Consultants, Inc. for PSP12 dated June 28, 1996
Appendix C - Opinion of Robert A. Stanger & Co., Inc. dated July 24, 1996
Appendix D - Chapter 13 of the California General Corporation Law
Concerning Dis senters' Rights
Appendix E - Proposed Amendment to PSP12's Bylaws
Appendix F - Financial Statements of PSP12
Appendix G - Management's Discussion and Analysis of Financial Condition
and Results of Operations of PSP12
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iv
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AVAILABLE INFORMATION
Each of PSI and PSP12 is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such material can be
inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. and at the Regional Offices of the Commission at
7 World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or by accessing
the Commission's Worldwide Web site at http://www.sec.gov. Such material can
also be inspected, in the case of PSI, at the NYSE, 20 Broad Street, New York,
New York 10005 and, in the case of PSP12, at the AMEX, 86 Trinity Place, New
York, New York 10006.
PSI has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Proxy Statement and Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by PSI with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-8389), are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/As dated April 29, 1996, May 14, 1996 and May 15,
1996; (ii) the Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and (iii) the Current Report on Form 8-K dated January 22, 1996.
All documents filed by PSI pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Proxy Statement and Prospectus
and prior to the date of the special meeting of shareholders of PSP12 shall be
deemed to be incorporated by reference herein from the date of filing such
documents.
The following documents filed by PSP12 with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-10710) are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1995, as amended by a Form 10-K/A dated April 26, 1996; (ii) the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; and (iii) the Current
Report on Form 8-K dated June 20, 1996.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement and Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement and Prospectus.
Also incorporated by reference herein is the Merger Agreement, which is
attached as Appendix A to this Proxy Statement and Prospectus.
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (INCLUDING
DOCUMENTS FILED SUBSEQUENT TO THE DATE HEREOF), EXCEPT THE EXHIBITS TO SUCH
DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS), SHALL BE DELIVERED TO ANY PERSON TO WHOM THIS PROXY STATEMENT
AND PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON AND BY
FIRST CLASS MAIL WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST. REQUESTS
FOR SUCH COPIES SHOULD BE DIRECTED TO INVESTOR SERVICES DEPARTMENT, 701 WESTERN
AVENUE, SUITE 200, GLENDALE, CALIFORNIA 91201-2397 OR BY TELEPHONE AT (818) 244-
8080. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY ____________, 1996.
CAUTIONARY STATEMENT
Statements contained in this Proxy Statement and Prospectus that are not
based on historical fact are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "continue" or similar terms, variations
of those terms or the negative of those terms. Cautionary statements set forth
in "Risk Factors and Material Considerations" and elsewhere in this Proxy
Statement and Prospectus identify important factors that could cause actual
results to differ materially from those in the forward-looking statements.
1
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Proxy Statement and Prospectus. See
"Glossary" for definitions of certain terms used in this Proxy Statement and
Prospectus.
OVERVIEW OF MERGER
Upon consummation of the Merger, PSP12 will be merged into PSI, which will
be the surviving corporation. Each share of PSP12 Common Stock outstanding
immediately prior to the consummation of the Merger (other than shares held by
PSI or by PSP12 Shareholders who have properly exercised dissenter's rights
under California law ("Dissenting Shares")) will be converted into the right to
receive cash, PSI Common Stock or a combination of the two, as follows: (i)
with respect to a certain number of shares of PSP12 Common Stock (not to exceed
20% of the outstanding PSP12 Common Stock, or 346,040 shares, less any
Dissenting Shares), upon a PSP12 Shareholder's election (a "Cash Election"),
$22.34 in cash, subject to reduction as described below, or (ii) that number of
shares of PSI Common Stock (subject to rounding) determined by dividing $22.34,
subject to reduction as described below, by the average of the per share closing
prices on the NYSE of PSI Common Stock during the 20 consecutive trading days
ending on the fifth trading day prior to the special meeting of the shareholders
of PSP12. If a PSP12 Shareholder does not make a Cash Election, all of his or
her PSP12 Common Stock would be converted into PSI Common Stock. The
consideration paid by PSI to PSP12 Shareholders in the Merger will be reduced on
a pro rata basis by the amount of cash distributions required to be paid to
PSP12 Shareholders by PSP12 prior to completion of the Merger (estimated at up
to $1.07 per share) in order to satisfy PSP12's REIT distribution requirements
("Required REIT Distributions"). The consideration received by PSP12
Shareholders in the Merger, however, along with any Required REIT Distributions,
will not be less than $22.34 per share of PSP12 Common Stock, which amount
represents the market value of PSP12's real estate assets at May 31, 1996 (based
on an independent appraisal) and the estimated net asset value of its other
assets at September 30, 1996. PSP12 Shareholders would receive the Required
REIT Distributions upon any liquidation of PSP12, regardless of the Merger.
Additional distributions would be made to the PSP12 Shareholders to cause
PSP12's estimated net asset value as of the date of the Merger to be
substantially equivalent to its estimated net asset value as of September 30,
1996. The PSP12 Common Stock and PSP12 Common Stock Series B and C held by PSI
will be cancelled in the Merger. See "The Merger -- Determination of Payments
to be Received by PSP12 Shareholders in Connection with the Merger." For a
description of the terms of the Merger, see "The Merger -- The Merger
Agreement."
The shares of PSP12 Common Stock Series B and C are owned by PSI and by
certain executive officers of PSI, including Hughes, and members of their
families. Upon consummation of the Merger, each share of PSP12 Common Stock
Series B and C (other than shares held by PSI) will be converted into the right
to receive $17.95 in PSI Common Stock (valued as in the case of the PSP12 Common
Stock) plus any Required REIT Distributions. The PSP12 Common Stock Series B
and C will be voted with the holders of a majority of the unaffiliated shares of
PSP12 Common Stock in the Merger. See "The Merger -- Determination of Payments
to be Received by PSP12 Shareholders in Connection with the Merger" and
"Approval of the Merger -- Security Ownership of Certain Beneficial Owners and
Management -- PSP12."
The PSI Common Stock is listed on the NYSE, and the PSP12 Common Stock is
listed on the AMEX. On June 19, 1996, the last full trading day prior to the
first announcement of the proposed Merger, the reported closing sales prices per
share of PSI and PSP12 Common Stock on the NYSE and AMEX, respectively, were $20
1/2 and $19 1/2. On __________, 1996, the last full trading day prior to the
date of this Proxy Statement and Prospectus, the reported closing sales prices
per share of PSI and PSP12 Common Stock were $_______ and $_______,
respectively.
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MEETINGS AND VOTE REQUIREMENTS OF PSP12 SHAREHOLDERS
Meeting Date September 11, 1996 at 10:00 a.m.
Record Date July 25, 1996
Purpose To Approve the Merger and Proposed Bylaw Amendment
Shares Outstanding 1,730,199 shares of PSP12 Common Stock
707,071 shares of PSP12 Common Stock Series B and C
Vote Required Majority of outstanding shares of
PSP12 Common Stock and PSP 12 Common Stock Seri B
and C, voting together as a class*
Percentage Ownership of Total Combined 25.63%
Outstanding Shares of PSP12 Common Stock
and PSP12 Common Stock Series B and C
by PSI and Hughes
Shareholders List Available upon written demand
- -----------------
* In accordance with PSP12's bylaws, the PSP12 Common Stock Series B and C
will be voted with the holders of a majority of the unaffiliated shares of
PSP12 Common Stock in connection with the Merger.
PSP12
PSP12 is a REIT organized as a California corporation that was formed to
succeed to the business of Public Storage Properties XII, Ltd., a California
limited partnership (the "PSP12 Partnership"), in a reorganization transaction
completed on December 31, 1990. PSP12 owns 13 properties located in six states,
including nine mini-warehouses, two business parks and two properties that
combine mini-warehouse and business park space. All of these facilities are
operated under the "Public Storage" name. See "Description of PSP12's
Properties." The PSP12 Common Stock is traded on the AMEX under the symbol
"PSN."
PSP12's properties are managed by PSI. PSP12's operations are under the
general supervision of its three-member board of directors, consisting of an
executive officer of PSI and two other directors. See "-- Relationships."
The principal executive offices of PSI and PSP12 are located at 701 Western
Avenue, Suite 200, Glendale, California 91201-2397. The telephone number is
(818) 244-8080.
PSI
PSI is a fully integrated, self-administered and self-managed REIT,
organized as a California corporation that acquires, develops, owns and operates
mini-warehouses, which are self-service facilities offering storage space for
personal and business use. PSI is the largest owner and operator of mini-
warehouses in the United States. PSI also owns and operates, to a lesser extent,
business parks containing commercial and industrial rental space. At March 31,
1996, PSI had equity interests (through direct ownership, as well as general and
limited partnership and capital stock interests) in 1,065 properties located in
37 states, consisting of 1,030 mini-warehouse facilities and 35 business parks.
In a series of mergers among Public Storage Management, Inc. and its
affiliates (collectively, "PSMI"), culminating in the November 1995 merger of
PSMI into Storage Equities, Inc. ("SEI") (the "PSMI Merger"), SEI became self-
administered and self-managed, acquired substantially all of PSMI's United
States real estate interests and
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was renamed "Public Storage, Inc." In addition, the outstanding capital stock
of PSMI was converted into an aggregate of 29,449,513 shares of PSI Common Stock
(exclusive of shares of PSI Common Stock held by PSMI prior to the PSMI Merger)
and 7,000,000 shares of PSI Class B Common Stock.
RISK FACTORS AND MATERIAL CONSIDERATIONS
The Merger involves certain factors that should be considered by the PSP12
Shareholders, including the following:
. No Arm's Length Negotiation or Unaffiliated Representatives. The
Merger has not been negotiated at arm's length, and no unaffiliated
representatives were appointed to negotiate the terms of the Merger on
behalf of PSP12. If such persons had been engaged, the terms of the
Merger may have been more favorable to the PSP12 Shareholders. In
addition, no third party proposal for PSP12 or its properties was
solicited. Such a proposal could have generated a higher price.
. Change from Finite Life to Infinite Life. The nature of the investment
of PSP12 Shareholders who receive PSI Common Stock is being changed
from holding an interest in specified properties for a finite period
to holding an investment in an ongoing integrated real estate company,
whose portfolio of properties is changed from time to time without
approval of shareholders, which does not plan to liquidate its assets
within a fixed period of time and which is engaged in all aspects of
the mini-warehouse industry, including property development and
management. PSP12 Shareholders who receive PSI Common Stock in the
Merger will be able to liquidate their investment only by selling
their shares in the market.
. Lower Level of Distributions After the Merger to PSP12 Shareholders.
The level of distributions to PSP12 Shareholders who receive PSI
Common Stock in the Merger is expected to be lower after the Merger.
Based on a market price of PSI Common Stock of $21 and the current
regular quarterly distribution rate for PSI ($.22 per share) and PSP12
($.33 per share), PSP12 Shareholders would receive approximately $.10
(29%) less in regular quarterly distributions per share of PSP12
Common Stock after the Merger from PSI than before the Merger from
PSP12 and approximately $.01 less per share in regular quarterly
distributions for each $1 (4.8%) increase in the market price of PSI
Common Stock above $21.
. Potential Loss of Future Appreciation. The properties of PSP12 may
continue to appreciate in value and might be able to be liquidated at
a later date for more consideration than in the Merger.
. Limitation on Dissenters' Rights of Appraisal. Under California law,
PSP12 Shareholders will be entitled to dissenters' rights of appraisal
in connection with the Merger ("Dissenters' Rights") only if demands
for payment are filed with respect to 5% or more of the outstanding
shares of PSP12 Common Stock.
. Conflicts of Interest. PSI and its affiliates, which are affiliated
with PSP12, have conflicts of interest in connection with the Merger.
. Control and Influence by the Hughes Family and Ownership Limitations.
The public PSI Shareholders are substantially limited in their ability
to control PSI. The Hughes Family owns 48.3% of the PSI Common Stock
(52.6% upon conversion of the PSI Class B Common Stock). Also, there
are restrictions in PSI's Articles of Incorporation on beneficial
ownership of PSI securities. Such ownership factors should prevent
any takeover of PSI not approved by Hughes.
. Tax Risks -- Additional Risks to Continued REIT Qualification. As a
result of the PSMI Merger, PSI is subject to tax risks, including
risks as to PSI's continued qualification as a REIT resulting from a
substantial increase in PSI's nonqualifying income.
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. Financing Risks. In making real estate investments, PSI, unlike PSP12,
has incurred, and may continue to incur, debt. The incurrence of debt
increases the risk of loss of investment.
. Possible Future Dilution. The interest of PSI Shareholders can be
diluted through the issuance of additional securities by PSI. PSI has
outstanding, and intends to issue additional, securities with priority
over PSI Common Stock.
. Uncertainty Regarding Market Price of PSI Common Stock. The market
price of PSI Common Stock may fluctuate following establishment of the
number of shares to be issued to PSP12 Shareholders in the Merger and
prior to issuance and could decrease as a result of increased selling
activity following issuance of shares in the Merger and other factors,
including the issuance of additional shares of PSI Common Stock in
another proposed merger between PSI and PSP10 scheduled at the same
time as the Merger.
. Merger Consideration Based on Appraisals Instead of Arm's Length
Negotiations. The consideration to be paid to the PSP12 Shareholders
is based on third party appraisals of the properties of PSP12.
However, appraisals are opinions as of the date specified and are
subject to certain assumptions and may not represent the true worth or
realizable value of the properties of PSP12. There can be no
assurance that if the properties of PSP12 were sold, they would be
sold at the appraised values; the sales price might be higher or
lower.
. Tax to PSP12 Shareholders Upon Receipt of Cash. PSP12 Shareholders who
receive any cash in connection with the Merger may recognize a taxable
gain. In addition, the Required REIT Distributions will be taxable to
all PSP12 Shareholders as ordinary income.
BACKGROUND AND REASONS FOR THE MERGER
THE MERGER HAS BEEN INITIATED AND STRUCTURED BY INDIVIDUALS WHO ARE
EXECUTIVE OFFICERS OF PSI AND PSP12. A SPECIAL COMMITTEE COMPOSED OF INDEPENDENT
DIRECTORS OF PSP12 (THE "SPECIAL COMMITTEE") HAS REVIEWED THE TERMS OF THE
MERGER, AND THE BOARD OF DIRECTORS OF PSP12, BASED ON RECOMMENDATIONS OF THE
SPECIAL COMMITTEE WHICH THE BOARD OF DIRECTORS HAS ADOPTED, AND ON THE OPINION
OF ITS FINANCIAL ADVISOR IN WHICH IT CONCURS, BELIEVES THAT THE MERGER IS FAIR
TO THE PUBLIC PSP12 SHAREHOLDERS AND RECOMMENDS THAT PSP12 SHAREHOLDERS VOTE FOR
THE MERGER.
PSP12 was organized to succeed to the business of the PSP12 Partnership in
a reorganization transaction completed on December 31, 1990. In response to
changes in the reorganization requested by the unaffiliated dealer manager of
the PSP12 Partnership's original offering of limited partnership interests,
PSP12 added provisions to its bylaws to the effect that its shareholders be
presented with a proposal in 1997 to sell all or substantially all of its
properties, distribute the proceeds from such sale and liquidate the
corporation. Later, in settlement of litigation arising from the reorganization
of PSP12, PSP12's bylaw provision was amended to expand the terms of the
proposal to include a possible financing of its properties. See "The Merger --
Background."
IF APPROVED BY THE SHAREHOLDERS OF PSP12, THE MERGER WOULD OBVIATE PSP12'S
OBLIGATION TO PRESENT A PROPOSAL TO THE SHAREHOLDERS OF PSP12 FOR THE SALE OF
ITS PROPERTIES. IF THE SHAREHOLDERS OF PSP12 DO NOT APPROVE THE MERGER OR IF THE
MERGER IS NOT COMPLETED BECAUSE OTHER CONDITIONS ARE NOT SATISFIED, PSP12 WOULD
CONTINUE TO BE OBLIGATED TO PRESENT A PROPOSAL TO THE SHAREHOLDERS OF PSP12 IN
1997 FOR THE SALE OF ITS PROPERTIES.
The Special Committee and the PSP12 Board of Directors believe that the
proposed Merger is consistent with its bylaw provision. In the Merger, PSP12
would be disposing of its properties to PSI for value, i.e., PSI Common Stock
and cash (if Cash Elections are made), and the corporate existence of PSP12
would cease. Furthermore, the consideration to be received in the Merger is
based on the appraised value of the assets of PSP12, and PSP12 Shareholders have
the right, with respect to up to 20% of the outstanding PSP12 Common Stock (less
any Dissenting Shares), to receive cash in the Merger. The applicable bylaw
provision does not (i) define the terms "sale,"
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"liquidation" or "financing," (ii) specify what types of transactions would
satisfy the requirement imposed by these bylaw provisions or (iii) preclude
sales of the properties of PSP12 to PSI.
PSI, which was organized in 1980, has from time to time taken actions to
increase its asset and capital base and increase diversification. Between
September 1994 and March 1996, PSI merged with five REITs which, like PSP12, had
been organized by PSMI to succeed to the business of predecessor partnerships.
On April 29, 1996, the PSP12 Board of Directors appointed the Special
Committee to consider and make recommendations to the PSP12 Board of Directors
and the PSP12 Shareholders regarding a possible merger with PSI. On June 20,
1996, the PSP12 Board of Directors based on recommendations of the Special
Committee, which were adopted by the PSP12 Board of Directors, approved the
Merger and determined to recommend that the PSP12 Shareholders vote for the
Merger.
The PSP12 Board of Directors and the Special Committee believe that the
consideration being offered in the Merger compares favorably with the trading
price of the PSP12 Common Stock immediately prior to the first announcement of
the Merger and during other periods, a range of estimated going concern values
per share of PSP12 Common Stock, an estimated liquidation value per share of
PSP12 Common Stock and the book value per share of PSP12 Common Stock. The
PSP12 Board of Directors and the Special Committee recognize that this
comparison is subject to significant assumptions, qualifications and
limitations. See "The Merger -- Comparison of Consideration to be Received in
the Merger to Other Alternatives."
Prior to concluding that the Merger should be proposed to PSP12
Shareholders, the PSP12 Board of Directors and the Special Committee considered
several alternatives to the Merger, including liquidation of PSP12, continued
operation of PSP12 and an amendment to the organizational documents of PSP12. In
order to determine whether the Merger or one of the alternatives would be more
advantageous to PSP12 Shareholders, the PSP12 Board of Directors and the Special
Committee compared the potential benefits and detriments of the Merger with the
potential benefits and detriments of other alternatives. Based upon a comparison
of the potential benefits and detriments of the Merger with their alternatives,
the PSP12 Board of Directors and the Special Committee have concluded that the
Merger is more attractive to PSP12 Shareholders than any of the alternatives
considered. The PSP12 Board of Directors did not solicit any other proposals for
the acquisition of PSP12 or its properties. See "The Merger-- No Solicitation of
Other Proposals."
In comparing the Merger to other alternatives, the PSP12 Board of Directors
and the Special Committee noted the following:
Liquidation. The PSP12 Board of Directors and the Special Committee do not
believe this is an opportune time to sell PSP12's properties because they may
continue to appreciate in value. The Merger provides PSP12 Shareholders with the
opportunity either to convert their investment in PSP12 into an investment in
PSI, which like PSP12 primarily owns mini-warehouses, on a tax-free basis (to
the extent that PSP12 Shareholders receive only PSI Common Stock) or to receive
cash based on the appraised value of PSP12's properties as to a portion of their
investment. However, if PSP12 liquidated its assets through asset sales to
unaffiliated third parties, PSP12 Shareholders would not need to rely upon a
real estate portfolio appraisal to estimate the fair market value of PSP12's
properties.
Continued Operation. Nothing requires the liquidation or merger of PSP12 at
this time. PSP12 is operating profitably. Continued operation should provide
PSP12 Shareholders with continued distributions of net operating cash flow and
participation in future appreciation of PSP12's properties, as well as avoiding
many of the risks described under "Risk Factors and Material Considerations."
However, continued operation would fail to secure the potential benefits of the
Merger described under "The Merger -- Potential Advantages of the Merger."
Amendment of Bylaws of PSP12. An amendment to the bylaws of PSP12 to remove
the restrictions on investment of cash flow and issuance of securities by PSP12
would permit it to take advantage of investment opportunities and to grow as new
investments are made. However, the PSP12 Board of Directors and the Special
Committee believe that PSI's larger capital base and greater liquidity and
diversification better enable PSI to take advantage of investment opportunities
and to raise investment capital.
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POTENTIAL ADVANTAGES OF THE MERGER
The following are the principal potential benefits to PSP12 Shareholders
who receive PSI Common Stock:
. Acquisition of Additional Properties. Following the Merger, PSP12
Shareholders will be investors in an entity with a larger asset base and
market capitalization than PSP12. PSI has grown and is expected to
continue to grow, as new investments are made.
. Increased Liquidity. PSP12 has 1,730,199 shares of PSP12 Common Stock
listed on the AMEX (approximately 2,441,000 shares upon conversion of
the PSP12 Common Stock Series B and C into PSP12 Common Stock) with an
average daily trading volume during the 12 months ended March 31, 1996
of 1,000 shares. In comparison, PSI has approximately 77 million shares
of PSI Common Stock listed on the NYSE (41.2 million of which are freely
tradeable) with an average daily trading volume during the same period
of 62,200 shares (56,000 shares if May 1995, during which PSI was
engaged in a public offering of PSI Common Stock, is excluded). Given
PSI's greater market capitalization and trading volume than PSP12's,
PSP12 Shareholders who receive PSI Common Stock in exchange for their
PSP12 Common Stock are likely to enjoy a more active trading market and
increased liquidity for their shares.
. Tax-Free Treatment if Only PSI Common Stock is Received. The Merger is
intended to qualify as a tax-free reorganization. Assuming such
qualification, no taxable gain or loss will be recognized in connection
with the Merger by PSP12 Shareholders who exchange their PSP12 Common
Stock solely for PSI Common Stock. However, the Required REIT
Distributions will be taxable to all PSP12 shareholders as ordinary
income. Hughes, who will has little tax basis in his PSP12 Common
Stock, has advised PSI and PSP12 that he intends to exchange his PSP12
Common Stock solely for PSI Common Stock. See "Certain Federal Income
Tax Matters -- The Merger."
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Chapter 13 of the Corporations Code of the State of California
(the "California Code"), PSP12 Shareholders will be entitled to Dissenters'
Rights only if demands for payment are filed with respect to 5% or more of the
outstanding shares of PSP12 Common Stock.
A dissenting PSP12 Shareholder who wishes to require PSP12 to purchase his
or her shares of PSP12 Common Stock must:
(1) vote against the Merger any or all of the shares of PSP12 Common
Stock entitled to be voted (shares of PSP12 Common Stock not voted are not
considered to be voted against the Merger and will not be counted toward
the 5% minimum for Dissenters' Rights to exist); provided that if a PSP12
Shareholder votes part of the shares entitled to be voted in favor of the
Merger, and fails to specify the number of shares voted, it is conclusively
presumed under California law that such shareholder's approving vote is
with respect to all shares entitled to be voted;
(2) make written demand upon PSP12 or its transfer agent, which is
received not later than the date of the meeting of shareholders of PSP12,
setting forth the number of shares of PSP12 Common Stock demanded to be
purchased by PSP12 and a statement as to claimed fair market value of such
shares at June 19, 1996; and
(3) submit for endorsement, within 30 days after the date on which the
notice of approval of the Merger by the shareholders of PSP12, is mailed to
such shareholders, to PSP12 or its transfer agent the certificates
representing any shares in regard to which demand for purchase is being
made, or to be exchanged for certificates of appropriate denominations so
endorsed, with a statement that the shares are dissenting shares.
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The provisions of Chapter 13 are technical in nature and complex. PSP12
Shareholders desiring to exercise appraisal rights and to obtain appraisal of
the fair value of their shares should consult counsel, since the failure to
comply strictly with the provisions of Chapter 13 may result in a waiver or
forfeiture of their appraisal rights. A copy of Chapter 13 of the California
Code is attached hereto as Appendix D. See "Dissenting Shareholders' Rights of
Appraisal."
DETERMINATION OF PAYMENTS TO BE RECEIVED BY PSP12 SHAREHOLDERS IN CONNECTION
WITH THE MERGER
In connection with the Merger, PSP12 Shareholders will receive the net
asset value or $22.34 per share of PSP12 Common Stock. PSP12's net asset value
allocable to the PSP12 Common Stock is the sum of (a) the appraised value of
PSP12's real estate assets determined by Nicholson-Douglas Realty Consultants,
Inc. ("NDRC") as of May 31, 1996, plus (b) the estimated book values of PSP12's
non-real estate assets as of September 30, 1996, less (c) PSP12's estimated
liabilities as of September 30, 1996 and less (d) the amount of PSP12's net
asset value allocable to the PSP12 Common Stock Series B and C ($12,153,000, or
$17.95 per share plus the Required REIT Distributions payable to holders of the
PSP12 Common Stock Series B shares, if any). Additional distributions would be
made to PSP12 Shareholders to cause PSP12's estimated net asset value as of the
date of the Merger to be substantially equivalent to its estimated net asset
value as of September 30, 1996. The consideration paid to PSP12 Shareholders by
PSI in the Merger will be reduced on a pro rata basis by the amount of the
Required REIT Distributions paid to PSP12 Shareholders by PSP12 prior to
completion of the Merger. See "The Merger -- Determination of Payments to be
Received by PSP12 Shareholders in Connection with the Merger." However, the
consideration received by PSP12 Shareholders in the Merger along with the
Required REIT Distributions (which will be paid in cash) will not be less than
$22.34.
FEDERAL INCOME TAX MATTERS
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), in
which case generally (i) no gain or loss would be recognized by PSP12
Shareholders who receive solely PSI Common Stock in exchange for their PSP12
Common Stock; (ii) gain or loss would be recognized by PSP12 Shareholders who
receive solely cash in exchange for their PSP12 Common Stock in an amount equal
to the difference between their adjusted basis in their PSP12 Common Stock and
the amount of cash received in exchange therefor; and (iii) gain or loss would
be recognized by PSP12 Shareholders who receive a combination of PSI Common
Stock and cash in exchange for their PSP12 Common Stock in an amount equal to
the lesser of (a) the cash received and (b) the difference between their
adjusted basis in their PSP12 Common Stock and the sum of (1) the fair market
value of the PSI Common Stock received and (2) the amount of cash received, but
only to the extent of the amount of cash received. The Required REIT
Distributions would not be treated as cash paid in exchange for the PSP12 Common
Stock but rather as a dividend taxable to all recipients as ordinary income.
See "Certain Federal Income Tax Matters -- The Merger."
RECOMMENDATIONS; OPINION OF FINANCIAL ADVISORS
RECOMMENDATION OF PSP12 BOARD OF DIRECTORS TO PSP12 SHAREHOLDERS. Based
upon an analysis of the Merger, the Special Committee and the PSP12 Board of
Directors have concluded that (i) the terms of the Merger are fair to the public
PSP12 Shareholders, (ii) after comparing the potential benefits and detriments
of the Merger with those of several alternatives, the Merger is more
advantageous to the public PSP12 Shareholders than such alternatives and (iii)
PSP12 Shareholders should vote for the Merger.
The Special Committee and the PSP12 Board of Directors based their
conclusion on the following factors: (i) the bylaws of PSP12 require a proposal
for the sale of PSP12's properties in 1997; (ii) the Merger provides PSP12
Shareholders with a choice of converting their investment into an investment in
PSI or, with respect to up to 20% of the outstanding PSP12 Common Stock (less
any Dissenting Shares), receiving cash for their investment; (iii) PSP12's
properties have been appraised by an independent appraiser and PSP12 has
received a fairness opinion from Robert A. Stanger & Co. Inc. ("Stanger")
relating to the consideration to be received in the Merger; (iv) the Merger is
required to be approved by a majority of the shares of PSP12 Common Stock and
PSP12 Common Stock Series B and C entitled to vote on the Merger, counted
together as a single class, with the shares of PSP12 Common Stock
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Series B and C voting with the holders of a majority of the unaffiliated shares
of PSP12 Common Stock, and, subject to certain limitations, PSP12 Shareholders
will have the right to exercise Dissenters' Rights; and (v) based on certain
significant assumptions, qualifications and limitations, the consideration being
offered in the Merger compares favorably with other alternatives.
ABSENCE OF ARM'S LENGTH NEGOTIATION. The terms of the Merger are not the
result of arm's length negotiation. The PSP12 Board of Directors does not
believe that the absence of independent representatives to negotiate the Merger
undermines the fairness of the Merger because the terms of the Merger have been
reviewed and approved by the Special Committee, comprised of independent
directors of PSP12.
FAIRNESS OPINION FROM STANGER. Stanger was engaged by PSP12 through the
Special Committee to deliver a written summary of its determination as to the
fairness of the consideration to be received in the Merger, from a financial
point of view, to the public PSP12 Shareholders. The full text of the opinion
is set forth in Appendix C to this Proxy Statement and Prospectus. Subject to
the assumptions, qualifications and limitations contained therein, the fairness
opinion concludes that, as of the date of the fairness opinion, the
consideration to be received in the Merger is fair to the public PSP12
Shareholders from a financial point of view. In arriving at its opinion,
Stanger considered, among other things, the independent appraised value of the
portfolio of properties of PSP12, the estimated liquidation value of PSP12
prepared by PSP12, based upon liquidation of the portfolio on a property-by-
property basis, financial analyses and projections prepared by PSP12 concerning
the going-concern value from continuing operation of PSP12 as a stand-alone
entity, and a comparison of the historical market prices of the PSP12 Common
Stock with the consideration offered in the Merger. Stanger was not requested
to, and therefore did not: (i) select the method of determining the
consideration offered in the Merger; (ii) make any recommendation to the PSP12
Shareholders with respect to whether to approve or reject the Merger or whether
to select the cash or PSI Common Stock option in the Merger; or (iii) express
any opinion as to the business decision to effect the Merger, alternatives to
the Merger, or tax factors resulting from the PSMI Merger or relating to PSI's
continued qualification as a REIT. Stanger's opinion is based on business,
economic, real estate and securities markets, and other conditions as of the
date of its analysis. See "The Merger -- Fairness Opinion from Stanger."
COMPARISON OF PSP12 COMMON STOCK WITH PSI COMMON STOCK
The information below summarizes certain principal differences between the
PSP12 Common Stock and the PSI Common Stock and the effect of the Merger on
PSP12 Shareholders who receive PSI Common Stock in the Merger (set forth in
italics below each caption). For an expanded discussion of these and other
comparisons and effects, see "The Merger -- Comparison of PSP12 Common Stock
with PSI Common Stock."
PSP12 PSI
INVESTMENT OBJECTIVES AND POLICIES
To provide (i) quarterly cash To maximize funds from operations
distributions from operations and ("FFO") allocable to holders of PSI
(ii) long-term capital gains through Common Stock and to increase
appreciation in the value of shareholder value through internal
properties. growth and acquisitions. FFO is a
supplemental performance measure for
equity REITs used by industry
analysts. FFO does not take into
consideration principal payments on
debt, capital improvements,
distributions and other obligations
of PSI. Accordingly, FFO is not a
substitute for PSI's net cash
provided by operating activities or
net income as a measure of PSI's
liquidity or operating performance.
An increase in PSI's FFO will not
necessarily correspond with an
increase in distributions to holders
of PSI Common Stock. See "--
Liquidity, Marketability and
Distributions."
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PSP12 PSI
PSP12 Shareholders who receive PSI Common Stock in the Merger will be
changing their investment from "finite-life" to "infinite life," and they will
be able to realize the value of their investment only by selling the PSI Common
Stock. The interest of PSI Shareholders can be diluted through the issuance of
additional securities, including securities that would have priority over PSI
Common Stock as to cash flow, distributions and liquidation proceeds. PSI has an
effective registration statement for preferred stock, common stock and warrants
and intends to issue additional securities under this registration statement.
There is no assurance that any such securities will be issued. See "Risk Factors
and Material Considerations -- Uncertainty Regarding Market Price of PSI Common
Stock" and "-- Financing Risks --Dilution and Subordination."
BORROWING POLICIES
Not permitted to incur borrowings in Permitted to borrow in furtherance of
acquisition of properties. its investment objectives, subject to
certain limitations.
PSI, unlike PSP12, incurs debt in the ordinary course of business and
reinvests proceeds from borrowings. The incurrence of debt increases the risk of
loss of investment.
TRANSACTIONS WITH AFFILIATES
Restricted from entering into a Restricted from acquiring properties
variety of business transactions from its affiliates or from selling
with its affiliates without properties to them unless the
shareholder approval. See transaction is approved by a majority
"Amendment to Bylaws of PSP12." of PSI's independent directors and is
fair to PSI based on an independent
appraisal.
It is easier for PSI to enter into transactions with its affiliates than in
the case of PSP12 because shareholder approval is not required.
PROPERTIES (As of March 31, 1996)
13 wholly owned properties in six Direct and indirect equity interests
states. in 1,065 properties in 37 states.
Because PSI owns substantially more property interests in more states than
PSP12, PSI's results of operations are less affected by the operations of a
single property than are those of PSP12, and it would be more difficult to
liquidate PSI than PSP12 within a reasonable period of time.
LIQUIDITY, MARKETABILITY AND DISTRIBUTIONS
The PSP12 Common Stock is traded on PSI Common Stock is traded on the
the AMEX. During the 12 months NYSE. During the 12 months ended
ended March, 31, 1996, the average March 31, 1996, the average daily
daily trading volume of PSP12 Common trading volume of PSI Common Stock
Stock was 1,000. PSP12 may not was 62,200 shares (56,000 shares if
issue securities having priority May 1995, during which PSI was
over the PSP12 Common Stock. engaged in a public offering of
Common Stock, is excluded). PSI has
issued, and may in the future issue,
securities that have priority over
PSI Common Stock as to cash flow,
distributions and liquidation
proceeds.
Distributions may be declared by the Boards of Director of PSP12 and PSI
out of any funds legally available for that purpose. PSP12 and PSI are required
to distribute at least 95% of their ordinary REIT
10
<PAGE>
PSP12 PSI
taxable income in order to maintain their qualification as REITs. PSI
distributes less than its cash available for distribution (recently distributing
amounts approximately equal to its taxable income), permitting it to retain
funds for additional investment and debt reduction.
A PSP12 Shareholder who receives PSI Common Stock in the Merger should have
an investment for which the market is broader and more active than the market
for PSP12 Common Stock. Distributions on PSI Common Stock are subject, however,
to priority of preferred stock.
ADDITIONAL ISSUANCES OF SECURITIES AND ANTI-TAKEOVER PROVISIONS
PSP12 Shareholders must approve all Subject to the rules of the NYSE and
additional issuances of capital applicable provisions of California
stock. law, PSI has issued and intends to
continue to issue authorized common
and preferred stock without
shareholder approval.
Given the ownership level of PSI Common Stock by the Hughes Family and
PSI's greater flexibility to issue capital stock, including senior securities
with special voting rights and priority over PSI Common Stock, PSI should be in
a better position to deter attempts to obtain control in transactions not
approved by its Board of Directors than PSP12, and PSI Shareholders could be
less likely to benefit from a takeover not approved by its Board of Directors
than would PSP12 Shareholders in a similar circumstance.
11
<PAGE>
SUMMARY FINANCIAL INFORMATION
The financial data in this section should be read in conjunction with the
financial statements incorporated herein by reference.
PSI
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
--------------------------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- --------------------- ---- ----
Historical Pro forma(1)
---------- ---------
($ In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $ 93,528 $ 97,448 $114,680 $147,196 $ 212,650 $268,076 $ 43,198 $74,967
Depreciation and amortization 21,773 22,405 24,998 28,274 40,760 53,727 8,147 14,592
Interest expense 10,621 9,834 6,079 6,893 8,508 15,930 1,520 2,581
Minority interest in income 6,693 6,895 7,291 9,481 7,137 6,992 1,823 2,339
Net income $ 11,954 $ 15,123 $ 28,036 $ 42,118 $ 70,386 $108,443 $ 13,200 $32,341
BALANCE SHEET DATA
(AT END OF PERIOD):
Total cash and cash equivalents $ 6,439 $ 8,384 $ 10,532 $ 20,151 $ 80,436 $ 20,532 $ 68,525
Total assets 548,220 537,724 666,133 820,309 1,937,461 932,337 2,114,210
Total debt 104,244 69,478 84,076 77,235 158,052 87,119 120,839
Shareholders' equity $188,113 $253,669 $376,066 $587,786 $1,634,503 $696,432 $1,829,656
PER SHARE OF COMMON STOCK:
Net income(2) $ .81 $ .90 $ .98 $ 1.05 $ .95 $ 1.05 $ .24 $ .24
Distributions(3) .82 .84 .84 .85 .88 .88 .22 .22
Book value (at end of period)(4) $ 12.75 $ 12.02 $ 11.93 $ 12.66 $ 13.99 $ 12.75 $ 14.06
Weighted average shares of
Common Stock (in thousands) 14,751 15,981 17,558 24,077 41,171 71,736 30,567 71,666
</TABLE>
12
<PAGE>
PSP12
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
($ In thousands, except per share data)
OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 6,303 $ 6,257 $ 6,320 $ 6,613 $ 7,048 $ 1,682 $ 1,766
Depreciation and amortization 1,160 1,238 1,246 1,114 1,122 273 277
Reorganization costs(5) 234 -- -- -- -- -- --
Net income $ 2,521 $ 2,656 $ 2,760 $ 3,127 $ 3,202 $ 806 $ 874
BALANCE SHEET DATA (AT END OF PERIOD):
Total cash and cash equivalents $ 1,457 $ 1,783 $ 1,268 $ 1,087 $ 1,406 $ 1,091 $ 990
Total assets 33,613 32,829 31,318 30,269 29,926 30,032 29,176
Shareholders' equity $32,132 $31,335 $29,951 $28,916 $27,676 $28,782 $27,607
PER SHARE OF COMMON STOCK:
Net income(6):
Primary $ 1.09 $ 1.19 $ 1.30 $ 1.56 $ 1.63 $ .41 $ .47
Fully-diluted .90 .97 1.04 1.22 1.29 .32 .36
Distributions(7)(8):
Series A $ 1.27 $ 1.22 $ 1.24 $ 1.29 $ 1.64 $ .33 $ .33
Series B 1.27 1.22 1.24 1.29 1.64 .33 .33
Series C -- -- -- -- -- -- --
Book value (at end of period)(9) $ 11.57 $ 11.53 $ 11.44 $ 11.46 $ 11.28 $ 11.49 $ 11.33
Weighted average shares of
common stock (in thousands):
Primary 2,104 2,040 1,953 1,857 1,779 1,806 1,734
Fully-diluted 2,811 2,747 2,660 2,564 2,486 2,513 2,441
</TABLE>
13
<PAGE>
_______________
(1) Historical information of PSI for 1995 has been restated to reflect the pro
forma impact of the PSMI Merger which occurred November 16, 1995. The pro
forma results presented are as if the PSMI Merger occurred on the first day
of the period presented.
(2) Net income per common share is computed using the weighted average shares
of PSI Common Stock outstanding (adjusted for stock options). The inclusion
of the PSI Class B Common Stock in the determination of earnings per common
share has been determined to be anti-dilutive (after giving effect to the
pro forma additional income required to satisfy certain contingencies
required for the PSI Class B Common Stock to convert into PSI Common Stock)
and, accordingly, the conversion of the PSI Class B Common Stock into PSI
Common Stock has not been assumed.
(3) For federal income tax purposes all distributions on the PSI Common Stock
are from ordinary income. The distributions for generally accepted
accounting principles ("GAAP") include a return of capital for 1991 of
$.01. All distributions for 1992, 1993, 1994 and 1995 were from investment
income. The difference between the components of distributions for GAAP
purposes and tax purposes results primarily from the methods used to
compute depreciation expense.
(4) Book value per share computed based on the number of shares of PSI Common
Stock and PSI Class B Common Stock outstanding.
(5) PSP12 was reorganized from the PSP12 Partnership on December 31, 1990 (the
"Reorganization"). Reorganization costs, which consist primarily of legal
fees, accounting fees, transfer taxes, registration and solicitation fees,
represent the costs incurred in the Reorganization.
(6) Net income per share is presented on a primary and fully-diluted basis.
Primary earnings per share represents the PSP12 Shareholders' rights to
distributions out of the respective period's net income, which is
calculated by dividing net income after reduction for distributions to the
holders of the PSP12 Common Stock Series B (holders of the PSP12 Common
Stock Series C are not entitled to cash distributions) by the weighted
average number of shares of PSP12 Common Stock. Fully diluted earnings per
share assumes conversion of the PSP12 Common Stock Series B and C into
PSP12 Common Stock.
(7) For federal income tax purposes, all distributions on the PSP12 Common
Stock are from ordinary income. Distributions through 1992 exceeded net
income computed in accordance with GAAP. The distributions for GAAP
purposes included a return of capital for 1991 of $.17 and for 1992 of
$.02. All distributions for 1993, 1994 and 1995 were from investment
income. Distributions for each year included distributions declared during
the fourth quarter and paid in January. The difference between the
components of distributions for GAAP purposes and tax purposes results
primarily from the methods used to compute depreciation expense.
(8) In the Reorganization, PSP12 issued PSP12 Common Stock and PSP12 Common
Stock Series B and C. PSP12's articles of incorporation provide that the
Common Stock Series B and C will convert automatically into PSP12 Common
Stock on a share-for-share basis (the "Conversion") when (A) the sum of (1)
all cumulative dividends and other distributions from all sources with
respect to the PSP12 Common Stock (including liquidating distributions, but
not including payments made to redeem such stock other than in liquidation)
and (2) the cumulative PSP12 Partnership distributions from all sources
with respect to all units (including the general partners' 1% interest) is
equal to (B) the product of $20 multiplied by the number of the then-
outstanding shares of PSP12 Common Stock. Through March 31, 1996, PSP12 has
made and declared cumulative cash distributions of approximately
$26,425,000 with respect to the PSP12 Common Stock. Accordingly, assuming
no redemptions of PSP12 Common Stock, Conversion will occur when $8,179,000
in additional distributions with respect to the PSP12 Common Stock have
been made.
(9) Book value per share computed based on the number of shares of PSP12 Common
Stock and PSP12 Common Stock Series B and C outstanding at period end.
RELATIONSHIPS
The following charts show the relationships among PSP12, PSI and certain of
their affiliates both before and after the Merger. PSP12's properties are
managed by PSI, the principal shareholder of PSP12, under the supervision of its
Board of Directors. PSI is controlled by B. Wayne Hughes, the chairman of the
board and chief executive officer of PSP12 and PSI. (The percentages shown
reflect only common stock; the economic interest of Hughes in PSI is
substantially less than the percentages shown because of the substantial amount
of preferred stock that PSI has outstanding.)
14
<PAGE>
BEFORE THE MERGER
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships among PSP12, PSI and
certain affiliates before the Merger: BWH owns 48.3% of PSI and Public
Shareholders own 51.7% of PSI; BWH owns 4.99% of PSP12, PSI (which is the
Property Manager of PSP12) owns 20.65% of PSP12 and Public Shareholders own
74.37% of PSP12.
SOLID LINES INDICATE OWNERSHIP INTERESTS AND BROKEN LINES INDICATE OTHER
RELATIONSHIPS.
(See notes on succeeding page.)
15
<PAGE>
AFTER THE MERGER
(Assuming Maximum Cash Elections)
[CHART OMITTED HERE]
Description of Graphic
Chart illustrating the affiliated relationships between PSI and certain
affiliates after the Merger: BWH owns 48.0% of PSI and Public Shareholders own
52.0% of PSI.
SOLID LINES INDICATE OWNERSHIP INTERESTS AND BROKEN LINES INDICATE OTHER
RELATIONSHIPS.
BWH = B. Wayne Hughes, the chairman of the board and chief executive officer
of PSP12 and PSI
PSP12 = Public Storage Properties XII, Inc. Percentage ownership of PSP12 by
PSI and Hughes is of the total combined outstanding shares of PSP12
Common Stock and PSP12 Common Stock Series B and C.
PSI = Public Storage, Inc. Hughes and members of his family own 48.3% of the
PSI Common Stock (52.6% upon the conversion of the PSI Class B Common
Stock). PSI manages the commercial properties of PSP12 through Public
Storage Commercial Properties Group, Inc., which is economically owned
95% by PSI and 5% by the Hughes Family and which is controlled by the
Hughes Family.
16
<PAGE>
RISK FACTORS AND MATERIAL CONSIDERATIONS
The Merger involves the following factors which should be considered by
PSP12 Shareholders, including the following:
NO ARM'S LENGTH NEGOTIATION OR UNAFFILIATED REPRESENTATIVES
The Merger has not been negotiated at arm's length, and PSI and its
affiliates have significant relationships with PSP12. No unaffiliated
representatives were appointed to negotiate the terms of the Merger on behalf of
PSP12. If such persons had been engaged, the terms of the Merger might have
been more favorable to the PSP12 Shareholders. In addition, no third party
proposal for PSP12 or its properties was solicited. Such a proposal could have
generated a higher price.
CHANGE IN NATURE OF INVESTMENT
PSP12 is a REIT organized to hold interests in properties for a finite
period. PSP12's bylaws require that its shareholders be presented with a
liquidation proposal in 1997, although it could continue in existence for a
longer period. In contrast, PSI, which is engaged in all aspects of the mini-
warehouse industry, including property development and management, intends to
operate for an indefinite period. As a consequence of this difference,
following the Merger, PSP12 Shareholders receiving PSI Common Stock will be able
to liquidate their investment only by selling their shares on the NYSE or in
private transactions.
LOWER LEVEL OF DISTRIBUTIONS TO PSP12 SHAREHOLDERS
The level of distributions to PSP12 Shareholders who receive PSI Common
Stock in the Merger is expected to be lower after the Merger. Based on a market
price of PSI Common Stock of $21 and the current regular quarterly distribution
rate for PSI ($.22 per share) and PSP12 ($.33 per share), PSP12 Shareholders
would receive approximately $.10 (29%) less in regular quarterly distributions
per share of PSP12 Common Stock after the Merger from PSI than before the Merger
from PSP12 and approximately $.01 less per share in regular quarterly
distributions for each $1 (4.8%) increase in the market price of PSI Common
Stock above $21.
POTENTIAL LOSS OF FUTURE APPRECIATION
PSP12's properties may continue to appreciate in value and might be able to
be liquidated at a later date for more consideration than in the Merger.
LIMITATION ON DISSENTERS' RIGHTS OF APPRAISAL
Under California law, PSP12 Shareholders will be entitled to Dissenters'
Rights in connection with the Merger only if demands for payment are filed with
respect to 5% or more of the outstanding shares of PSP12 Common Stock. See
"Dissenting Shareholders Rights of Appraisal."
CONTROL AND INFLUENCE BY THE HUGHES FAMILY AND OWNERSHIP LIMITATIONS
Public PSI Shareholders are substantially limited in their ability to
control PSI. The Hughes Family owns 48.3% of the outstanding shares of PSI
Common Stock (52.6% upon conversion of the PSI Class B Common Stock).
Consequently, the Hughes Family controls matters submitted to a vote of PSI
Shareholders, including the election of directors, amendment of PSI's Articles
of Incorporation, dissolution and the approval of other extraordinary
transactions, such as a takeover attempt. Also, there are restrictions in the
PSI Articles of Incorporation and Bylaws on beneficial ownership of PSI
securities. Unless such limitations are waived by PSI's board of directors (the
"PSI Board of Directors"), no PSI Shareholder may own more than (A) 2.0% of the
outstanding shares of all common stock of PSI or (B) 9.9% of the outstanding
shares of each class or series of preferred stock of PSI. The PSI Articles of
Incorporation and Bylaws provide, however, that no person shall be deemed to
exceed the ownership limit solely by reason of the beneficial ownership of
shares of any class of stock to the extent that such shares of stock were
17
<PAGE>
beneficially owned by such person at the time of the PSMI Merger, which includes
the PSI Common Stock owned by the Hughes Family at the time of the PSMI Merger.
The principal purpose of the foregoing limitations is to assist in preventing,
to the extent practicable, a concentration of ownership that might jeopardize
the ability of PSI to obtain the favorable tax benefits afforded a qualified
REIT. See "-- Tax Risks -- Increased Violation of Ownership Requirements." An
incidental consequence of such provisions is to make a change of control
significantly more difficult (if not impossible) even if it would be favorable
to the interests of the public PSI Shareholders. Such provisions will prevent
future takeover attempts which the PSI Board of Directors has not approved even
if a majority of the public PSI Shareholders deem it to be in their best
interests or in which the public PSI Shareholders may receive a premium for
their shares over the then market value. See "Description of PSI Capital Stock
- -- Ownership Limitations."
TAX RISKS
INCREASED RISK OF VIOLATION OF GROSS INCOME REQUIREMENTS. As a result of
the PSMI Merger, PSI performs property management services for properties in
which it has no or only a partial interest. Some or all of the gross income
received from these services will not be treated as income qualifying for
certain REIT gross income tests applicable to PSI ("Nonqualifying Income"). In
1995 and future years, if PSI's Nonqualifying Income were to exceed 5% of its
total gross income, PSI's REIT status may terminate for that year and future
years unless PSI meets certain "reasonable cause" standards. Even if PSI meets
such standards, however, it would be subject to a 100% excise tax on any excess
Nonqualifying Income.
INCREASED RISK OF VIOLATION OF OWNERSHIP REQUIREMENTS. For PSI to qualify
as a REIT under the Code, no more than 50% in value of its outstanding stock may
be owned, directly or constructively under the applicable attribution rules of
the Code, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. Following the PSMI
Merger, the value of the outstanding capital stock of PSI held by the Hughes
Family was estimated at approximately 45%. Accordingly, no four individuals
other than the Hughes Family could own directly or constructively, in the
aggregate, more than 5% of the value of outstanding capital stock of PSI. In
order to assist PSI in meeting these ownership restrictions, the PSI Articles of
Incorporation and Bylaws contain the ownership limitations described under
"Description of PSI Capital Stock -- Ownership Limitations." However, even with
these ownership limitations, there still could be a violation of the ownership
restrictions if four individuals unrelated to the Hughes Family were to own the
maximum amount of capital stock permitted under the PSI Articles of
Incorporation and Bylaws. Therefore, to further assist PSI in meeting the
ownership restrictions, the Hughes Family has entered into an agreement with PSI
restricting the Hughes Family's acquisition of additional shares of capital
stock of PSI and providing that if, at any time, for any reason, more than 50%
in value of its outstanding capital stock otherwise would be considered owned by
five or fewer individuals, a number of shares of PSI Common Stock owned by
Hughes necessary to prevent such violation will automatically and irrevocably be
transferred to a designated charitable beneficiary. The provisions in the PSI
Articles of Incorporation and Bylaws and the agreement with Hughes are modeled
after certain arrangements that the Internal Revenue Service (the "IRS") has
ruled in private letter rulings will preclude a REIT from being considered to
violate the ownership restrictions so long as such arrangements are enforceable
as a matter of state law and the REIT seeks to enforce them as and when
necessary. There can be no assurance, however, that the IRS might not seek to
take a different position with respect to PSI (a private letter ruling is
legally binding only with respect to the taxpayer to whom it was issued) or
contend that PSI failed to enforce these various arrangements and, hence, there
can be no assurance that these arrangements will necessarily preserve PSI's REIT
status. No private letter ruling has been sought by PSI from the IRS on the
effect of these arrangements.
ELIMINATION OF ANY ACCUMULATED EARNINGS AND PROFITS. Any accumulated
earnings and profits of PSMI carried over to PSI in the PSMI Merger. To retain
its REIT status, PSI would have had to distribute any acquired earnings and
profits on or before December 31, 1995. As a condition to the PSMI Merger, PSI
obtained from PSMI a study of the earnings and profits that showed that PSMI had
no earnings and profits at the time of the PSMI Merger. The determination of
earnings and profits depends upon a number of factual matters related to the
activities and operation of PSMI and its predecessors in years prior to the PSMI
Merger. Accordingly, no assurances can be given that the IRS will not challenge
such conclusion. If the IRS were subsequently to determine that such earnings
and profits existed at the time of the PSMI Merger, PSI may lose its REIT
qualification for 1995 and, perhaps, for
18
<PAGE>
subsequent years unless certain relief provisions apply. See "Certain Federal
Income Tax Considerations -- Consequences of the Merger on PSI's Qualification
as a REIT -- Elimination of any Accumulated Earnings and Profits Attributable to
Non-REIT Years."
CONSEQUENCES OF FAILURE TO QUALITY AS A REIT. For any taxable year that
PSI fails to qualify as a REIT and the relief provisions do not apply, PSI would
be taxed at the regular corporate rates on all of its taxable income, whether or
not it makes any distributions to its shareholders. Those taxes would reduce
the amount of cash available to PSI for distribution to its shareholders or for
reinvestment. As a result, failure of PSI to qualify during any taxable year as
a REIT could have a material adverse effect upon PSI and its shareholders.
Furthermore, unless certain relief provisions apply, PSI would not be eligible
to elect REIT status again until the fifth taxable year that begins after the
first year for which PSI fails to qualify.
CORPORATE LEVEL TAX ON SALE OF CERTAIN BUILT-IN GAIN ASSETS. PSI will be
subject to a corporate level tax if it disposes of any of the assets acquired in
the PSMI Merger at any time during the 10-year period beginning at the time of
the PSMI Merger (the "Restriction Period"). This tax would be imposed at the
top regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value at the
time of the PSMI Merger of the assets disposed of and (b) the selling price of
such assets over (ii) PSI's adjusted basis at the time of the PSMI Merger in
such assets (such excess being referred to as the "Built-in Gain"). PSI
currently does not intend to dispose of any of the assets acquired in the PSMI
Merger during the Restriction Period, but there can be no assurance that one or
more such dispositions will not occur.
FINANCING RISKS
DILUTION AND SUBORDINATION. The interest of PSI Shareholders in PSI,
including persons who receive shares in the Merger, can be diluted through the
issuance of additional securities.
Since October 1992, PSI has issued shares of preferred stock and intends to
issue additional such shares. These issuances could involve certain risks to
holders of shares of PSI Common Stock, including shares of PSI Common Stock to
be issued in the Merger. In the event of a liquidation of PSI, the holders of
the preferred stock will be entitled to receive, before any distribution of
assets to holders of PSI Common Stock, liquidating distributions (an aggregate
of approximately $735 million in respect of preferred stock issued to date),
plus any accrued and unpaid dividends. Holders of preferred stock are entitled
to receive, when declared by the PSI Board of Directors, cash dividends (an
aggregate of approximately $68 million per year in respect of preferred stock
issued to date), in preference to holders of PSI Common Stock. As a REIT, PSI
must distribute at least 95% of its REIT taxable income to its shareholders
(which include not only holders of PSI Common Stock but also holders of
preferred stock). Failure to pay full dividends on the preferred stock could
jeopardize PSI's qualification as a REIT. See "Certain Federal Income Tax
Matters."
Certain of these securities have been issued under a currently effective
registration statement of PSI for preferred stock, common stock and warrants.
PSI intends to issue additional securities under this registration statement.
There is no assurance that any such securities will be issued.
RISK OF LEVERAGE. In making real estate investments, PSI, unlike PSP12,
has incurred, and may continue to incur, debt, subject to certain limitations.
The incurrence of debt increases the risk of loss of the investment. At March
31, 1996, PSI's debt as a percentage of its total capitalization was
approximately 6%.
UNCERTAINTY REGARDING MARKET PRICE OF PSI COMMON STOCK
The number of shares of PSI Common Stock that would be received by PSP12
Shareholders is based on the average market price of PSI Common Stock for the 20
consecutive trading days ending on the fifth trading day prior to the meeting of
the shareholders of PSP12. Since the market price of PSI Common Stock
fluctuates, the market value of PSI Common Stock that holders of PSP12 Common
Stock may receive in the Merger may decrease following establishment of the
number of shares. In addition, because of increased selling activity following
issuance of shares in the Merger and other factors, including the issuance of up
to approximately 1,700,000 additional shares of PSI
19
<PAGE>
Common Stock in another proposed merger between PSI and PSP10 scheduled at the
same time as the Merger, the market value of PSI Common Stock that PSP12
Shareholders may receive in the Merger may decrease following the Merger.
MERGER CONSIDERATION BASED ON APPRAISALS INSTEAD OF ARM'S LENGTH NEGOTIATION
The consideration to be received by PSP12 Shareholders is based on third
party appraisals of the properties valuing PSP12's properties at $50,000,000.
However, appraisals are opinions as of the date specified and are subject to
certain assumptions and may not represent the true worth or realizable value of
these properties. There can be no assurance that if these properties were sold,
they would be sold at the appraised values; the sales price might be higher or
lower.
TAX TO PSP12 SHAREHOLDERS
Any PSP12 Shareholder who receives only cash in connection with the Merger
in exchange for his or her PSP12 Common Stock will recognize taxable gain to the
extent that the amount of cash received exceeds the adjusted basis of such PSP12
Shareholder in his or her PSP12 Common Stock. A PSP12 Shareholder receiving a
combination of cash and PSI Common Stock in the Merger in exchange for his or
her PSP12 Common Stock will recognize taxable gain equal to the lesser of the
amount of the cash received or the difference between his or her adjusted basis
in his or her PSP12 Common Stock and the sum of (1) the fair market value of the
PSI Common Stock received and (2) the amount of cash received, but only to the
extent of the cash received.
The Required REIT Distributions will be taxable to all PSP12 Shareholders
as ordinary income.
OPERATING RISKS
GENERAL RISKS OF REAL ESTATE OWNERSHIP. Like PSP12, PSI is subject to the
risks generally incident to the ownership of real estate-related assets,
including lack of demand for rental spaces or units in a locale, changes in
general economic or local conditions, changes in supply of or demand for similar
or competing facilities in an area, the impact of environmental protection laws,
changes in interest rates and availability of permanent mortgage funds which may
render the sale or financing of a property difficult or unattractive and changes
in tax, real estate and zoning laws.
SIGNIFICANT COMPETITION AMONG MINI-WAREHOUSES. Like PSP12, most of PSI's
properties are mini-warehouses. Competition in the market areas in which many
of their properties are located is significant and has affected the occupancy
levels, rental rates and operating expenses of certain of their properties.
Competition may be accelerated by any increase in availability of funds for
investment in real estate. Recent increases in development of mini-warehouses
are expected to further intensify competition among mini-warehouse operators in
certain market areas in which PSI operates.
RISK OF ENVIRONMENTAL LIABILITIES. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an owner
or operator of real estate interests may be liable for the costs of cleaning up,
as well as certain damages resulting from, past or present spills, disposals or
other releases of hazardous or toxic substances or wastes on, in or from a
property. Certain Environmental Laws impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of hazardous or
toxic substances or wastes at or from a property. An owner or operator of real
estate or real estate interests also may be liable under certain Environmental
Laws that govern activities or operations at a property having adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous or toxic wastes. In some cases,
liability may not be limited to the value of the property. The presence of such
substances or wastes, or the failure to properly remediate any resulting
contamination, also may adversely affect the owner's or operator's ability to
sell, lease or operate its property or to borrow using its property as
collateral.
PSI has recently conducted preliminary environmental assessments of most of
its properties (and intends to conduct such assessments in connection with
property acquisitions) to evaluate the environmental condition of, and
20
<PAGE>
potential environmental liabilities associated with, such properties. Such
assessments generally consist of an investigation of environmental conditions at
the subject property (not including soil or groundwater sampling or analysis),
as well as a review of available information regarding the site and publicly
available data regarding conditions at other sites in the vicinity. In
connection with these recent property assessments, PSI's operations and recent
property acquisitions, PSI has become aware that prior operations or activities
at certain facilities or from nearby locations have or may have resulted in
contamination to the soil and/or groundwater at such facilities. In this
regard, certain such facilities are or may be the subject of federal or state
environmental investigations or remedial actions. PSI has obtained, with
respect to recent acquisitions and intends to obtain with respect to pending or
future acquisitions, appropriate purchase price adjustments or indemnifications
that it believes are sufficient to cover any such potential liabilities.
Although there can be no assurance, based on the recent preliminary
environmental assessments, PSI believes it has funds available to cover any
liability from environmental contamination or potential contamination and PSI is
not aware of any environmental contamination of its facilities material to its
overall business or financial condition.
TENANT REINSURANCE. A corporation owned by the Hughes Family continues to
reinsure policies insuring against losses to goods stored by tenants in the
mini-warehouses operated by PSI. PSI believes that the availability of
insurance reduces its potential liability to tenants for losses to their goods
from theft or destruction. This corporation will continue to receive the
premiums and bear the risks associated with the insurance. PSI has a right of
first refusal to acquire the stock or assets of this corporation if the Hughes
Family or the corporation agrees to sell them, but PSI has no interest in its
operations and no right to acquire the stock or assets of the corporation in the
absence of a decision to sell. If the reinsurance business were owned directly
by PSI, the insurance premiums would be Nonqualifying Income to PSI. PSI would
be precluded from exercising its right of first refusal with respect to the
stock of the reinsurance corporation if such exercise would cause PSI to violate
any of the requirements for qualification as a REIT under the Code.
CANADIAN OPERATIONS. The Hughes Family continues to own and operate mini-
warehouses in Canada. PSI has a right of first refusal to acquire the stock or
assets of the corporation engaged in these operations if the Hughes Family or
the corporation agree to sell them, but PSI has no interest in its operations
and no right to acquire the stock or assets in the absence of a decision to
sell.
PSCP. Prior to the PSMI Merger, Public Storage Commercial Properties
Group, Inc. ("PSCP"), a subsidiary of PSMI, managed commercial properties for
PSI and others. Because certain of the revenues generated by PSCP would be
Nonqualifying Income to PSI, prior to the PSMI Merger, the common stock of PSCP
held by PSMI was converted into nonvoting preferred stock (representing 95% of
the equity) and the voting common stock of PSCP (representing 5% of the equity)
was issued to the Hughes Family. While PSI acquired the preferred stock of PSCP
in the PSMI Merger, the Hughes Family is able to continue to control the
operations of PSCP by reason of its ownership of all of PSCP's voting stock.
MERCHANDISE COMPANY. Prior to the PSMI Merger, PSMI sold locks, boxes and
tape at certain mini-warehouse locations. Because the revenues received from
the sale of these items would be Nonqualifying Income to PSI, immediately prior
to the PSMI Merger, PSMI transferred this lock and box business to a separate
corporation (the "Lock/Box Company"). In the PSMI Merger, PSI acquired the
nonvoting preferred stock of the Lock/Box Company (representing 95% of the
equity). The voting common stock of the Lock/Box Company (representing 5% of
the equity) was issued to the Hughes Family, which will be able to control the
operations of the Lock/Box Company by reason of ownership of the Lock/Box
Company's voting stock.
LIABILITIES WITH RESPECT TO ACQUIRED GENERAL PARTNER INTERESTS. Upon
succeeding to substantially all of the properties and operations of PSMI in the
PSMI Merger, PSI may be subject to certain liabilities and associated costs in
its capacity as general partner of former PSMI limited partnerships arising out
of facts and circumstances in existence prior to such merger, and PSI will also
have general partner liability for post-merger activities of these partnerships,
as it does for other partnerships for which it is a general partner. Subject to
certain limitations, Hughes has agreed to indemnify PSI for pre-merger
activities and place in escrow shares of PSI Class B Common Stock received in
the PSMI Merger to support such indemnification.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of PSI Common Stock in the public
market could adversely affect prevailing market prices. There are approximately
77 million shares of PSI Common Stock and seven million shares of PSI Class B
Common Stock outstanding. Of these shares, approximately 41.2 million shares of
PSI Common Stock are tradeable without restriction (except as to affiliates of
PSI) or further registration under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining approximately 35.8 million shares of PSI
Common Stock and seven million shares of PSI Class B Common Stock were issued in
the PSMI Merger without registration under the Securities Act in reliance on an
exemption from registration and are "restricted securities" within the meaning
of Rule 144 adopted under the Act (the "Restricted Shares"). The beneficial
owners of 15.5 million of the Restricted Shares (including all of the PSI Class
B Common Stock) have agreed not to offer, sell or otherwise dispose (except for
gifts and pledges) of any of their shares until November 13, 1998, in the case
of the PSI Common Stock, or until November 13, 2002, in the case of the PSI
Class B Common Stock. Upon expiration of such periods, each will be entitled to
sell his or her shares in the public market subject to Rule 144, which contains
certain public information, volume, holding period and manner of sale
requirements. The remaining approximately 27.3 million Restricted Shares will
be available for sale in the public market pursuant to Rule 144, subject to the
foregoing requirements that include, as the Rule is currently in effect, a two-
year holding period. Sales of substantial amounts of such PSI Common Stock in
the public market could adversely affect the market price of the PSI Common
Stock.
CONFLICTS OF INTEREST IN THE MERGER
PSI and its affiliates have conflicts of interest in connection with the
Merger. PSI owns 20.65%, and Hughes owns an additional 4.99%, of the total
combined outstanding shares of PSP12 Common Stock and PSP12 Common Stock Series
B and C. See "Summary -- Relationships."
The Merger has been initiated and structured by individuals who are
executive officers of PSI and PSP12 and the Merger has not been negotiated at
arm's length. No independent representatives have been retained to negotiate
the terms of the Merger on behalf of PSP12. If such representatives had been
retained, the terms of the Merger might have been more favorable to the PSP12
Shareholders. Although independent representatives were not retained, PSP12 has
created a Special Committee, comprised of independent directors, which has
engaged an independent financial advisor to evaluate the fairness of the
consideration to be received by the public PSP12 Shareholders in the Merger.
The Special Committee has reviewed the terms of the Merger and recommends that
the PSP12 Shareholders vote for the Merger. Based upon the use of an
independent appraisal firm to determine the value of consideration to be paid to
PSP12 Shareholders, the fairness opinion and the participation of the Special
Committee, the Board of Directors of PSP12 considered that the engagement of
independent representatives to negotiate the terms of the Merger was not
necessary or cost effective.
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THE MERGER
GENERAL
As a result of the Merger, the separate existence of PSP12 would cease.
Upon consummation of the Merger, each outstanding share of PSP12 Common Stock
(other than shares held by PSI or Dissenting Shares) would be converted into the
right to receive cash, PSI Common Stock or a combination of the two, as follows:
(i) with respect to a certain number of shares of PSP12 Common Stock (not to
exceed 20% of the outstanding PSP12 Common Stock, or 346,040 shares, less any
Dissenting Shares), upon a Cash Election, $22.34 in cash, subject to reduction
as described below, or (ii) that number of shares of PSI Common Stock (subject
to rounding) determined by dividing $22.34, subject to reduction as described
below, by the average of the per share closing prices on the NYSE of PSI Common
Stock during the 20 consecutive trading days ending on the fifth trading day
prior to the special meeting of PSP12 Shareholders. If a PSP12 Shareholder does
not make a Cash Election, all of his or her PSP12 Common Stock would be
converted into PSI Common Stock in the Merger. The consideration paid to PSP12
Shareholders by PSI in the Merger will be reduced on a pro rata basis by the
Required REIT Distributions (estimated at up to $1.07 per share). The
consideration received by PSP12 Shareholders in the Merger, however, along with
any Required REIT Distributions, will not be less than $22.34 per share of PSP12
Common Stock, which amount represents the market value of PSP12's real estate
assets at May 31, 1996 (based on an independent appraisal) and the estimated net
asset value of its other assets at September 30, 1996. PSP12 Shareholders would
receive the Required REIT Distributions upon any liquidation of PSP12,
regardless of the Merger. Additional distributions would be made to the PSP12
Shareholders to cause PSP12's estimated net asset value as of the date of the
Merger to be substantially equivalent to its estimated net asset value as of
September 30, 1996. The PSP12 Common Stock and PSP12 Common Stock Series B and
C held by PSI will be cancelled in the Merger.
It is estimated that the aggregate consideration (cash and PSI Common
Stock) to be paid by PSI to purchase all of the PSP12 Common Stock and PSP12
Common Stock Series B and C (other than shares held by PSI) in the Merger and to
pay related costs and expenses would be $40,923,000 (assuming no Required REIT
Distributions) and that the total amount of cash that would be required by PSI
to purchase the PSP12 Common Stock from PSP12 Shareholders making Cash Elections
and to pay the costs and expenses of the Merger would be $8,491,000 (assuming
maximum Cash Elections). See "-- Determination of Payments to be Received by
PSP12 Shareholders in Connection with the Merger" and "-- Costs of the Merger."
These amounts would be reduced to the extent PSP12 must pay a Required REIT
Distribution, and the total amount of cash would also be reduced to the extent
that Cash Elections are less than the maximum.
The shares of PSP12 Common Stock Series B and C are owned by PSI and by
certain executive officers of PSI, including Hughes, and members of their
families. Upon consummation of the Merger, each share of PSP12 Common Stock
Series B and C (other than shares held by PSI) will be converted into the right
to receive $17.95 in PSI Common Stock (valued as in the case of the PSP12 Common
Stock) plus any Required REIT Distributions. The PSP12 Common Stock Series B
and C will be voted with the holders of a majority of the unaffiliated shares of
PSP12 Common Stock in the Merger. See "The Merger -- Determination of Payments
to be Received by PSP12 Shareholders in Connection with the Merger" and
"Approval of the Merger -- Security Ownership of Certain Beneficial Owners and
Management -- PSP12."
The Board of Directors of PSP12 is also proposing that the bylaws of PSP12
be amended to authorize the Merger. See "Amendment to Bylaws of PSP12."
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BACKGROUND
GENERAL. THE MERGER HAS BEEN INITIATED AND STRUCTURED BY INDIVIDUALS WHO
ARE EXECUTIVE OFFICERS OF PSI AND PSP12. THE SPECIAL COMMITTEE HAS REVIEWED THE
TERMS OF THE MERGER, AND THE BOARD OF DIRECTORS OF PSP12, BASED ON
RECOMMENDATIONS OF THE SPECIAL COMMITTEE, WHICH THE BOARD OF DIRECTORS HAS
ADOPTED, AND ON THE OPINION OF A FINANCIAL ADVISOR IN WHICH IT CONCURS, BELIEVES
THAT THE MERGER IS FAIR TO THE PUBLIC PSP12 SHAREHOLDERS AND RECOMMENDS THAT
PSP12 SHAREHOLDERS VOTE FOR THE MERGER.
PSP12 was organized to succeed to the business of the PSP12 Partnership in
a reorganization transaction completed on December 31, 1990. The PSP12
Partnership raised $42,000,000 in a public offering in 1983 primarily to develop
and operate mini-warehouses. All of the proceeds from the offering have been
invested. PSMI was the sponsor of the PSP12 Partnership.
The PSP12 Partnership originally anticipated selling or financing its
properties from seven to ten years after completion of their development, i.e.,
between 1993 and 1996. By 1990, significant changes had taken place in the
financial and real estate markets affecting the timing of any proposed sale or
financing, including: (i) the increased construction of mini-warehouses and
business parks from 1984 to 1988, which had increased competition, (ii) the
general deterioration of the real estate market (resulting from a variety of
factors, including the 1986 changes in tax laws), which had significantly
affected property values and decreased real estate sales activities, (iii) the
reduced sources of real estate financing (resulting from a variety of factors,
including adverse developments in the savings and loan industry) and (iv) the
glut in the real estate market caused by overbuilding and sales of properties
acquired by financial institutions.
In view of the events affecting the timing of the sale or financing of the
partnerships' properties, PSMI concluded that the limited partners of the PSP12
Partnership, as well as the limited partners of other partnerships sponsored by
PSMI, should be provided with a more efficient method of realizing the value of
their investment than the secondary market for limited partnership interests and
that some of the disadvantages of operating in partnership form should be
avoided. Accordingly, in 1990, PSMI commenced planning the reorganization of
the PSP12 Partnership and other public limited partnerships sponsored by PSMI
into individual corporations taxed as REITs, and, between December 1990 and
November 1991, PSMI completed the reorganization of the partnerships and 17
other public partnerships.
The reorganizations were implemented primarily to provide liquidity to
investors, to avoid the effects of legislation designed to require limited
partnerships to withhold state income taxes from distributions and to simplify
partnership administration. The reorganizations were not designed to alter the
business of the partnerships, but merely the form in which the partnerships were
operated, and were not intended to have any material impact on the timing of the
sale or financing of the partnerships' properties.
In response to changes requested by the unaffiliated dealer manager of the
PSP12 Partnership's original offering of limited partnership interests, PSP12
added a provision to its bylaws to the effect that its shareholders be presented
with a proposal in 1997 to sell all or substantially all of PSP12's properties,
distribute the proceeds from such sale and liquidate the corporation. Later, in
settlement of litigation arising from the reorganization of PSP12, PSP12's bylaw
provision was amended to expand the terms of the proposal to include a possible
financing of its properties.
IF APPROVED BY THE SHAREHOLDERS OF PSP12, THE MERGER WOULD OBVIATE PSP12'S
OBLIGATION TO PRESENT A PROPOSAL TO THE SHAREHOLDERS OF PSP12 FOR THE SALE OF
ITS PROPERTIES. IF THE SHAREHOLDERS OF PSP12 DO NOT APPROVE THE MERGER OR IF
THE MERGER IS NOT COMPLETED BECAUSE OTHER CONDITIONS ARE NOT SATISFIED, PSP12
WOULD CONTINUE TO BE OBLIGATED TO PRESENT A PROPOSAL TO THE SHAREHOLDERS OF
PSP12 IN 1997 FOR THE SALE OF ITS PROPERTIES.
The Special Committee and the PSP12 Board of Directors believe that the
proposed Merger is consistent with PSP12's bylaw provision. In the Merger,
PSP12 would be disposing of its properties to PSI for value, i.e., PSI Common
Stock and cash (if Cash Elections are made), and the corporate existence of
PSP12 would cease.
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Furthermore, the consideration to be received in the Merger is based on the
appraised value of the assets of PSP12 and PSP12 Shareholders have the right,
with respect to up to 20% of the outstanding PSP12 Common Stock (less any
Dissenting Shares), to receive cash in the Merger. The applicable bylaw
provision does not (i) define the terms "sale," "liquidation" or "financing,"
(ii) specify what types of transactions would satisfy the requirement imposed by
this bylaw provision or (iii) preclude sales of the properties of PSP12 to PSI.
PSI, which was organized in 1980, has from time to time taken actions to
increase its asset and capital base and increase diversification. Between
September 1994 and March 1996, PSI merged with five REITs, which like PSP12 had
been organized to succeed to the business of predecessor partnerships sponsored
by PSMI. In June 1996, PSI merged with a sixth REIT sponsored by PSMI.
PSP12 BOARD ACTIONS. The board of directors of PSP12 consists of three
persons: B. Wayne Hughes, the chief executive officer of PSI and PSP12, Vern O.
Curtis and Jack D. Steele.
At a telephonic meeting of the Board of Directors of PSP12, which included
individuals who are officers of both PSP12 and PSI, on April 29, 1996 the board
of directors of PSP12 appointed the Special Committee, consisting of Messrs.
Curtis and Steele, both independent directors, to consider and make
recommendations to the board of directors of PSP12 regarding a proposed merger
of PSP12 into PSI. Messrs. Curtis and Steele were the members of the special
committees that considered the mergers of six other REITs into PSI in September
1994 - June 1996. Following the board meeting, the Special Committee held an
organizational meeting by telephone, which was attended by individuals who are
officers of both PSP12 and PSI, and discussed the qualifications of NDRC as an
appraiser for PSP12's properties. Following the discussion, the Special
Committee approved NDRC, subject to the receipt of additional information on its
qualifications, on behalf of PSP12 and PSI, to appraise the properties of PSP12,
determined to engage Hogan & Hartson L.L.P. as special counsel to represent and
advise the Special Committee as to its legal obligations in making
recommendations regarding the proposed merger with PSI and approved the
engagement of Stanger to render an opinion as to the fairness, from a financial
point of view, of the consideration to be received by PSP12 Shareholders in the
Merger. Hogan & Hartson L.L.P. and Stanger had acted in similar capacities in
connection with the mergers of six other REITs into PSI.
On June 20, 1996, the Special Committee held a meeting, which included
individuals who are officers of both PSP12 and PSI, a representative of NDRC and
representatives of Stanger. First, the officers of PSP12 described the
mechanics of determining the value per share of PSP12 Common Stock, including
the allocation of value between the PSP12 Common Stock and the PSP12 Common
Stock Series B and C, and the provision giving PSI the right to terminate the
Merger Agreement if the average price of PSI Common Stock is below $20 per share
during the measurement period. Next, the NDRC representative described
generally the methodology used in appraising PSP12's properties, including a
physical inspection of all of PSP12's properties and an analysis of other recent
and pending transactions, including acquisitions of assembled portfolios by PSI
and others, operating information on the properties and market conditions. The
NDRC representative noted that NDRC had reviewed and reconciled capitalization
rates and prices paid in recent and pending multi-property transactions,
including such transactions involving PSI and third parties, with the
capitalization rates and values resulting from the portfolio Appraisal. The
Stanger representatives presented Stanger's analysis, which included the
following items: (1) they briefly reviewed Stanger's recent experience relating
to mini-warehouses; (2) they noted that Stanger had performed a similar analysis
in connection with prior mergers of REITs into PSI, including a review of the
portfolio appraisals; (3) they noted that Stanger reviewed the appraisal
methodologies utilized by NDRC; (4) they noted that Stanger reviewed the
capitalization rate utilized in the portfolio appraisal, which was approximately
9.3%, based on adjusted net operating income generated for the 12 months ended
March 31, 1996 (adjusted for non-recurring expenses and after certain property
tax adjustments); (5) they noted that Stanger reviewed the capitalization rates
on PSI transactions during the prior 12 months, reviewed capitalization rates
currently cited by industry sources for mini-warehouse transactions, and
concluded that the capitalization rates used in NDRC's appraisal were consistent
with transactions in the market; (6) they noted that Stanger reviewed a
liquidation analysis, including assumptions (liquidation of PSP12's properties
on a property-by-property basis), prepared by PSP12 based on certain information
provided by NDRC and that the projected consideration per share resulting from
liquidation under that analysis was less than the consideration offered in the
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Merger; (7) they noted that Stanger reviewed a going concern analysis, based on
analyses and five-year and 10-year projections provided by PSP12, under
scenarios in which the PSP12 Common Stock would be liquidated into the
securities markets or PSP12's properties would be liquidated after 10 years at
their residual value (from NDRC's appraisal), that Stanger reviewed the FFO
multiples used in the various scenarios regarding the sale of the PSP12 Common
Stock, and that, under the lower multiple, the estimated value per share on a
going concern basis was approximately 29.2% lower than the consideration offered
in the Merger and that, under the higher multiple, the estimated value per share
on a going concern basis was approximately 11.1% lower; (8) they noted that
Stanger had reviewed the historical market prices of the PSP12 Common Stock and
compared them with the consideration offered in the Merger, and that the
consideration offered in the Merger, reduced by estimated retained earnings
between the date of the appraisal and September 30, 1996, represents an
approximately 13.0% premium over the then current price of the PSP12 Common
Stock and a 13.3%, 13.5%, 14.2% and 17.4% premium over its average closing price
for the prior 20 days, 60 days, 180 days and 360 days, respectively; and (9)
they indicated that, subject to receipt of certain documents, Stanger was
prepared to render its opinion that the consideration to be received in the
Merger is fair to the public PSP12 Shareholders from a financial point of view.
The Special Committee and Stanger representatives discussed the reduction in
distributions to PSP12 Shareholders who receive PSI Common Stock in the Merger
(assuming a trading price of PSI Common Stock of $21 per share). The Stanger
representatives observed that the historical annual growth rate in FFO per share
for PSI was higher than for PSP12. Following the discussion, the Special
Committee expressed the belief that the Merger is fair to, and in the best
interests of, public PSP12 Shareholders and determined to recommend to the Board
of Directors that the Merger be approved and to recommend that PSP12
Shareholders vote for the Merger. Based on the foregoing recommendations of the
Special Committee, which were adopted by the PSP12 Board of Directors, the Board
of Directors expressed the belief that the Merger is fair to, and in the best
interests of, public PSP12 Shareholders, approved the Merger, determined to
recommend that PSP12 Shareholders vote for the Merger and approved the filing
with the Commission of preliminary proxy materials. See "--Comparison of
Consideration to be Received in the Merger to Other Alternatives" and "Risk
Factors and Material Considerations -- Lower Level of Distributions to PSP12
Shareholders."
PUBLIC ANNOUNCEMENT OF MERGER AND COMMISSION FILINGS. On June 20, 1996,
PSI and PSP12 signed the Merger Agreement and publicly announced the general
terms of the Merger, respectively. On July 1, 1996, PSP12 filed preliminary
proxy materials with the Commission. On _______________, 1996, PSI filed a
registration statement with the Commission, which was declared effective on
_______________, 1996.
REASONS FOR THE MERGER AND TIMING
The reasons for the decision of the Special Committee and Board of
Directors of PSP12 to recommend the Merger include:
. The bylaws of PSP12 include a provision that shareholders of PSP12 be
presented in 1997 with a proposal to sell all of PSP12's properties,
distribute the proceeds from such sale and liquidate PSP12. The
proposed Merger satisfies this obligation. See "-- Background."
. The Merger provides the PSP12 Shareholders with the choice of either
(A) converting their investment in PSP12 into an investment in PSI,
which generally owns the same type of properties as PSP12 on a tax-free
basis (assuming the Merger is a tax-free reorganization and that a
PSP12 Shareholder receives only PSI Common Stock in the Merger) or (B)
with respect to up to 20% of the outstanding PSP12 Common Stock (less
any Dissenting Shares), receiving in cash the amounts they would
receive if the properties of PSP12 were sold at their appraised values
and PSP12 were liquidated (without any reduction for real estate
commissions and other sales expenses). See "-- Recommendation to PSP12
Shareholders and Fairness Analysis."
. The Special Committee and Board of Directors of PSP12 believe that the
Merger is more advantageous to PSP12 Shareholders than any of the
alternatives. See "-- Alternatives to the Merger" and "--
Recommendation to PSP12 Shareholders and Fairness Analysis."
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. PSI has agreed to merge with PSP12 at this time, subject to approval by
the shareholders of PSP12 and certain other conditions. See "-- The
Merger Agreement -- Conditions to Consummation of the Merger."
ALTERNATIVES TO THE MERGER
The following is a brief discussion of the benefits and disadvantages of
alternatives to the Merger that were considered and rejected by the PSP12 Board
of Directors.
LIQUIDATION
BENEFITS OF LIQUIDATION. An alternative to the Merger would be to
liquidate the assets of PSP12, distribute the net liquidation proceeds to its
shareholders in proportion to their share ownership and thereafter dissolve
PSP12. Through such liquidation, PSP12 would provide for a final disposition of
its shareholders' interest in the corporation. PSP12 Shareholders would receive
cash liquidation proceeds (as they will as to a portion of their investment if
they make Cash Elections). Liquidating PSP12 would be consistent with its
bylaws that provide that its shareholders be presented with a proposal for the
sale of its properties and liquidation in 1997. If PSP12 liquidated its assets
through asset sales to unaffiliated third parties, its shareholders would not
need to rely upon a real estate portfolio appraisal of the fair market value of
its real estate assets. Such assets would be valued through arm's length
negotiations between PSP12 and prospective purchasers.
DISADVANTAGES OF LIQUIDATION. Over the last several years, the
performance of PSP12's properties has improved as described under "-- Continued
Operation of PSP12 -- Benefits of Continuation." The PSP12 Board of Directors
and Special Committee believe that the improvement may continue, making
liquidation (other than through the Merger) inadvisable at this time. The
Merger provides PSP12 Shareholders with the opportunity either to convert their
investment in PSP12 into an investment in PSI, which like PSP12 primarily owns
mini-warehouses, on a tax-free basis (to the extent that PSP12 Shareholders
receive only PSI Common Stock) or to receive cash based on the appraised value
of PSP12's properties as to a portion of their investment. In addition, for
many PSP12 Shareholders, the proceeds available for reinvestment after
liquidation would be reduced by real estate commissions and other sales expenses
(estimated at $.88 per share of PSP12 Common Stock), as well as by federal and
state income taxes (as they would in the case of Cash Elections).
PSP12 Shareholders should recognize that appraisals are opinions as of
the date specified and are subject to certain assumptions and may not represent
the true worth or realizable value of these properties. There can be no
assurance that if these properties were sold, they would be sold at the
appraised values; the sales prices might be higher or lower than the appraised
values.
LIQUIDATION PROCEDURES. As with a merger, a liquidation of PSP12
would require approval by the holders of a majority of the outstanding common
stock of PSP12. Upon the dissolution of PSP12, properties would be sold and any
funds remaining after payment of debts, and liabilities would be distributed to
shareholders in respect of their shares. PSI and its affiliates would receive
their proportionate share of the available funds in the liquidation. The
process for liquidating the assets of PSP12 would in large measure be within the
control of the PSP12 Board of Directors. Liquidation may be accomplished
through a series of separate transactions with different purchasers or as a part
of a multi-property transaction.
The PSP12 Board of Directors may engage real estate brokers,
investment bankers, financial consultants and others to assist with the
disposition of PSP12's assets. These persons may assist with the identification
of prospective purchasers, arrangements for asset financing, and assistance with
the structure of the transaction. The PSP12 Board of Directors, as fiduciaries
to PSP12 Shareholders, remain responsible for determining the terms and
conditions of the transaction. One of the more significant considerations for
the PSP12 Board of Directors would be the decision whether to insist upon
payment in full upon sale of a property or to accept a portion of the sale price
at closing and the balance through installment payments. Acceptance of a sale
proposal providing for deferred payments
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would extend the life of PSP12 until receipt of those amounts by PSP12 and their
distribution to the shareholders of PSP12. Such arrangements would also expose
PSP12 to the risk that deferred payments might not be collected in full and that
the corporation might be forced to foreclose on any collateral given to secure
payment of the deferred obligations. It is not possible to predict the time
period that would be required to liquidate PSP12 because it would depend on
market conditions at the time of liquidation.
CONTINUED OPERATION OF PSP12
BENEFITS OF CONTINUATION. Another alternative to the Merger would be
to continue PSP12 in accordance with its existing business plan, with PSP12
remaining as a separate legal entity and with its own assets and liabilities.
Nothing requires the liquidation or merger of PSP12 at this time, since PSP12 is
operating profitably and does not need to liquidate or reorganize to satisfy
debt obligations or other current liabilities or to avert defaults, foreclosures
or other adverse business developments.
There has been improvement in the mini-warehouse markets. As the pace
of new mini-warehouse development has slowed from the peak levels of 1984-88,
there has been a corresponding improvement in the financial performance of
existing properties. This improvement is evidenced by the performance of
PSP12's mini-warehouses. For example, from 1993 to 1995, occupancy per square
foot increased from an average of 88% to 91%, and realized monthly rents from an
average of $.71 per square foot to $.78 per square foot. Despite recent
increases in the development of mini-warehouses, the PSP12 Board of Directors
believes that the financial performance from existing facilities may continue to
improve, although not necessarily at the rate of improvement experienced in
prior years. Should such improvement continue, the value of PSP12's properties
should be expected to increase. See "Description of PSP12's Properties."
A number of advantages could be expected to arise from the continued
operation of PSP12. PSP12 Shareholders would continue to receive regular
quarterly distributions of net cash flow arising from operations and the sale or
refinancing of PSP12's assets. Given the currently improving market conditions
for mini-warehouses, the PSP12 Board of Directors and the Special Committee
believe that the level of these distributions to PSP12 may increase. Continuing
PSP12 would afford the shareholders of PSP12 with the opportunity to participate
in any future appreciation in PSP12's properties. In addition, the decision to
continue PSP12, if elected, would mean that there would be no change in the
nature of the PSP12 Shareholders' investment. This option would avoid whatever
disadvantages might be deemed inherent in the Merger. See "Risk Factors and
Material Considerations" for discussion of various risks associated with the
Merger.
DISADVANTAGES OF CONTINUATION. The primary disadvantage with
continuing PSP12 is the failure of that strategy to secure the benefits that the
PSP12 Board of Directors expects to result from the Merger. These benefits are
highlighted under "-- Potential Advantages of the Merger." The Merger affords
PSP12 Shareholders increased liquidity. In addition, because PSP12 is not
authorized to issue new securities or to reinvest sale or financing proceeds, it
is less able to take advantage of new real estate investment opportunities. In
contrast, PSI has a substantially larger, more diversified, investment portfolio
that reduces the risks associated with any particular assets or group of assets
and increases PSI's ability to access capital markets for new capital
investments.
AMENDMENT OF BYLAWS
BENEFITS OF BYLAW AMENDMENT. Another alternative to the Merger would
be an amendment to the bylaws of PSP12 to remove the restrictions on investment
of cash flow and on the issuance of securities. If approved, such action would
provide some of the advantages of the Merger. PSP12 could take advantage of new
real estate opportunities through the reinvestment of cash flow and the
investment of proceeds from the issuance of securities.
DISADVANTAGES OF BYLAW AMENDMENT. The PSP12 Board of Directors and
the Special Committee believe that such an amendment has disadvantages. It is
believed that PSP12 Shareholders could better take advantage through PSI than
through PSP12 of the current market for REIT securities for the following
reasons. First, PSI has
28
<PAGE>
a larger capital base. At March 31, 1996, PSP12 had total shareholders' equity
of $27,607,000 compared with PSI's total shareholders' equity of $1,829,656,000
(including preferred stock) and $1,125,151,000 (without preferred stock).
Second, the market for PSI Common Stock should be more liquid than the market
for PSP12 Common Stock. PSP12 has 1,730,199 shares of PSP12 Common Stock traded
on the AMEX (approximately 2,441,000 shares upon conversion of the PSP12 Common
Stock Series B and C into PSP12 Common Stock) and, during the 12 months ended
March 31, 1996, the average daily trading volume of the PSP12 Common Stock was
1,000. In comparison, PSI has approximately 77,000,000 shares of PSI Common
Stock traded on the NYSE and, during the 12 months ended March 31, 1996, the
average daily trading volume of PSI Common Stock was 62,200 shares (56,000
shares if May 1995, during which PSI was engaged in a public offering of PSI
Common Stock, is excluded). Third, PSI has broader geographic diversification
than PSP12. At March 31, 1996, PSP12 owned 13 properties in six states, and PSI
owned equity interests (directly, as well as through general and limited
partnership interests and stock interests) in 1,065 properties in 37 states.
For additional information on the properties owned by PSP12 and PSI, see "--
Comparison of PSP12 Common Stock with PSI Common Stock," "Description of PSP12's
Properties" and "Description of PSI's Properties."
NO SOLICITATION OF OTHER PROPOSALS
Neither the PSP12 Board of Directors nor the Special Committee solicited
any other proposal for the acquisition of PSP12 or its properties. The Board of
Directors of PSP12 agreed to the Merger Agreement, which includes a provision
against soliciting other offers to buy, because it believes that the potential
advantages to PSP12 Shareholders described under "-- Potential Advantages of the
Merger" are more likely to be achieved through the Merger than in a transaction
with another party. In particular, assuming the Merger qualifies as a tax-free
reorganization, no taxable gain or loss will be recognized by PSP12 Shareholders
who exchange their PSP12 Common Stock solely for PSI Common Stock. The Required
REIT Distributions generally will be taxable to all PSP12 Shareholders as
ordinary income to the extent of PSP12's earnings and profits. PSI and Hughes
have little tax basis in their common stock in PSP12, and many PSP12
Shareholders have a tax basis in their PSP12 Common Stock (approximately $16.43
for most original PSP12 Shareholders) lower than the consideration to be
received in the Merger. Accordingly, for many PSP12 Shareholders, the proceeds
available for reinvestment after liquidation would be reduced by real estate
commissions and other sales expenses (estimated at $.88 per share of PSP12
Common Stock) as well as by federal and state income taxes (as they would in the
case of Cash Elections). However, another proposal could have been for a higher
price and possibly also structured as a merger qualifying as a tax-free
reorganization. Under California law, most acquisitions of PSP12 or its
properties would require approval by PSP12 Shareholders. PSI and Hughes in the
aggregate own 25.63% of the total combined outstanding shares of PSP12 Common
Stock and PSP12 Common Stock Series B and C.
DETERMINATION OF PAYMENTS TO BE RECEIVED BY PSP12 SHAREHOLDERS IN
CONNECTION WITH THE MERGER
In connection with the Merger, PSP12 Shareholders will receive a value of
$22.34 (less the amount of any Required REIT Distributions) per share of PSP12
Common Stock in cash, PSI Common Stock, or a combination of the two, calculated
as follows:
1. The market value (not book value) of PSP12's real estate assets has
been determined by NDRC, showing such value as of May 31, 1996. In valuing
PSP12's real estate assets, NDRC considered the applicability of all three
commonly recognized approaches to valuation: the cost approach, the income
approach and the sales comparison approach. NDRC did not consider the cost
approach to be applicable to PSP12's properties. NDRC reconciled the values
indicated from the sales comparison and income approaches to arrive at a final
valuation conclusion. NDRC gave primary emphasis to the income approach. The
resulting effective implied capitalization rate for PSP12's portfolio of real
estate assets based on property operations (before non-recurring charges and
after certain property tax adjustments) for the 12 months ended March 31, 1996
averaged 9.3%. NDRC's valuation is as of May 31, 1996 in the context of the
information available on that date. See "-- Real Estate Portfolio Appraisal by
NDRC."
29
<PAGE>
2. PSP12's net asset value has been computed as (a) the market value of
PSP12's real estate assets as of May 31, 1996 ($50,000,000) plus (b) the
estimated book value of PSP12's non-real estate assets as of September 30, 1996
(a total of $1,748,000) less (c) PSP12's estimated liabilities as of September
30, 1996 (a total of $937,000).
3. PSP12's net asset value per share of PSP12 Common Stock was calculated
at $22.34 by reducing PSP12's net asset value (as computed in 1 and 2 above,
$50,811,000) by the amount of PSP12's net asset value allocable to the PSP12
Common Stock Series B and C ($11,956,000, or $17.95 per share) and the estimated
Required REIT Distributions attributable to the PSP12 Common Stock Series B
($197,000 or $1.07 per share) and dividing the balance ($38,658,000) by the
number of outstanding shares of PSP12 Common Stock.
4. Upon completion of the Merger, each share of PSP12 Common Stock (other
than Dissenting Shares and shares of PSP12 Common Stock held by PSI) would be
converted into the right to receive $22.34 in cash (with respect to up to 20% of
the outstanding PSP12 Common Stock, less any Dissenting Shares), subject to
reduction as described below, or that number of shares of PSI Common Stock
determined by dividing $22.34, subject to reduction as described below, by the
average of the closing prices on the NYSE of PSI Common Stock during the 20
consecutive trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP12. Additional distributions would be made to PSP12
Shareholders to cause PSP12's estimated net asset value as of the date of the
Merger to be substantially equivalent to its estimated net asset value as of
September 30, 1996. The consideration paid by PSI to PSP12 Shareholders in the
Merger will be reduced on a pro rata basis by the amount of any Required REIT
Distributions. However, the consideration received by PSP12 Shareholders in the
Merger along with the Required REIT Distributions (which will be paid in cash)
will not be less than $22.34.
Hughes, who owns 4.99% of the total combined outstanding shares of PSP12
Common Stock and PSP12 Common Stock Series B and C, would receive approximately
99,600 shares of PSI Common Stock in the Merger and the other holders of the
PSP12 Common Stock Series B and C (other than PSI) would receive in the
aggregate approximately 99,000 shares of PSI Common Stock (in each case,
assuming no Required REIT Distributions and PSI Common Stock price of $21).
The following table sets forth the calculation of the payments to be paid
to PSP12 Shareholders:
COMPUTATION OF PAYMENTS
<TABLE>
<CAPTION>
Net book Appraised Book value PSP12's PSP12's net PSP12's PSP12's net Payments
value of market of PSP12's net asset asset value net asset asset value received in
PSP12's value of other net value(1) allocable value per share connection with
real estate PSP12's assets(1) to PSP12 allocable of PSP12 Merger per
portfolio(1) real estate Common Stock to PSP12 Common original $1,000
portfolio(2) Series B Common Stock(1) investment in the
and C(3) Stock PSP12 Partnership(4)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$27,939,000 $50,000,000 $811,000 $50,811,000 $12,153,000 $38,658,000 $22.34 $1,117
</TABLE>
____________
(1) Estimated as of September 30, 1996. Does not reflect the effect of
Required REIT Distributions, estimated at up to $1.07 per share or
$1,851,000 in the aggregate for the PSP12 Common Stock. PSP12
Shareholders would receive the Required REIT Distributions upon any
liquidation of PSP12 regardless of the Merger.
(2) As of May 31, 1996.
(3) Includes $17.95 per share of PSP12 Common Stock Series B and C, plus
the estimated Required REIT Distributions attributable to the PSP12
Common Stock Series B of $1.07 per share. 40,882 shares of PSP12
Common Stock Series C are not entitled to receive any consideration in
the Merger and will be cancelled prior to the Merger.
(4) Does not include quarterly cash distributions to PSP12 Shareholders or
to limited partners of the PSP12 Partnership. PSP12 was organized on
December 31, 1990 to succeed to the business of the PSP12 Partnership,
which completed its offering of limited partnership interests in 1983.
PSP12's capital structure was designed to reflect the economic rights
of the limited and general partners in the PSP12 Partnership. The
market price of PSI Common Stock may fluctuate following establishment
of the number of shares to be issued to PSP12 Shareholders in the
Merger and prior to issuance and could decrease as a result of
increased selling activity following issuance of shares in the Merger
and other factors.
30
<PAGE>
POTENTIAL ADVANTAGES OF THE MERGER TO PSP12
The principal potential benefits to PSP12 Shareholders who receive PSI
Common Stock include the following:
ACQUISITION OF ADDITIONAL PROPERTIES. The primary business activity of
PSP12 is operating the properties originally developed by its predecessor. PSP12
has not raised additional capital, and its articles of incorporation and bylaws
restrict its ability to reinvest cash flow in new properties. PSI, on the other
hand, has expanded, and is expected to continue to expand, its asset and capital
base. PSI is also permitted to borrow money to fund new acquisitions.
Accordingly, PSP12 Shareholders who receive PSI Common Stock in the Merger will
be investors in an entity that has grown, and is expected to continue to grow,
as new investments are made.
INCREASED LIQUIDITY. PSP12 has 1,730,199 shares of Common Stock traded on
the AMEX (approximately 2,437,000 shares upon conversion of the PSP12 Common
Stock Series B and C into PSP12 Common Stock) and, during the 12 months ended
March 31, 1996, the average daily trading volume of PSP12 Common Stock was 1,000
shares. In comparison, PSI has approximately 77,000,000 shares of PSI Common
Stock traded on the NYSE (approximately one-half of which are freely tradeable)
and, during the 12 months ended March 31, 1996, the average daily trading volume
of PSI Common Stock was 62,200 shares (56,000 shares if May 1995, during which
PSI was engaged in a public offering of PSI Common Stock, is excluded).
Accordingly, the investment in PSI of PSP12 Shareholders who receive PSI Common
Stock in the Merger should have greater liquidity than the current investment of
these same shareholders in PSP12.
POSSIBLE TAX-FREE TREATMENT. The Merger is intended to qualify as a tax-
free reorganization. Assuming such qualification, no taxable gain or loss will
be recognized in connection with the Merger by PSP12 Shareholders who exchange
their PSP12 Common Stock solely for PSI Common Stock. However, the Required REIT
Distributions will be taxable to all PSP12 Shareholders as ordinary income.
Hughes, who has little tax basis in his PSP12 Common Stock, has advised PSI and
PSP12 that he intends to exchange his PSP12 Common Stock solely for PSI Common
Stock. See "Certain Federal Income Tax Matters -- The Merger."
RECOMMENDATION TO PSP12 SHAREHOLDERS AND FAIRNESS ANALYSIS
CONCLUSIONS. Based upon an analysis of the Merger, the Special Committee
and PSP12 Board of Directors have concluded (i) that the terms of the Merger are
fair to PSP12 Shareholders, (ii) after comparing the potential benefits and
detriments of the Merger with alternatives, that the Merger is more advantageous
to PSP12 Shareholders than such alternatives and (iii) that PSP12 Shareholders
should vote for the Merger.
Although the PSP12 Board of Directors and Special Committee reasonably
believe the terms of the Merger are fair to PSP12 Shareholders and recommend
that PSP12 Shareholders vote for the Merger, an affiliate of PSI is a member of
the Board of Directors of PSP12, and PSI has other significant relationships
with PSP12 and conflicts of interest with respect to the Merger. The Merger has
been initiated and structured by individuals who are executive officers of PSP12
and who are also affiliated with PSI. The Special Committee, composed of
independent directors, has reviewed and approved the terms of the Merger. See
"Summary -- Relationships" and "Conflicts of Interest."
MATERIAL FACTORS UNDERLYING CONCLUSIONS OF SPECIAL COMMITTEES AND BOARDS OF
DIRECTORS OF PSP12. The following is a discussion of the material factors
underlying the conclusions of the Special Committee and PSP12 Board of
Directors. The PSP12 Board of Directors and Special Committee have not
quantified the relative importance of these factors.
1. Bylaw Provisions. The bylaws of PSP12 require a proposal for the sale
of PSP12's properties in 1997. As discussed under "-- Background," the Special
Committee and PSP12 Board of Directors believe that the proposed Merger
satisfies these requirements and that, as discussed in paragraph 2 below, the
form and amount of consideration offered to PSP12 Shareholders constitute fair
value in respect of their shares of PSP12 Common Stock. The Special Committee
and PSP12 Board of Directors recognize that, if the properties of PSP12 were
liquidated through sales to third parties, the PSP12 Shareholders would not need
to rely upon a real estate portfolio appraisal to estimate the fair
31
<PAGE>
market value of PSP12's real estate assets. Such assets would be valued through
arm's length negotiations between PSP12 and the prospective purchasers.
2. Consideration Offered. The PSP12 Board of Directors and Special
Committee believe that (i) the proposal that the consideration to be paid to
PSP12 Shareholders in the Merger be based on the value of the assets of PSP12 is
reasonable and consistent with the bylaws of PSP12, (ii) the net asset value of
PSP12 represents a fair estimate of the value of its assets, net of liabilities,
and constitutes a reasonable basis for determining the consideration to be
received by PSP12 Shareholders, and (iii) the consideration to be received by
PSI and Hughes, as well as other holders of PSP12 Common Stock Series B and C,
in respect of their interest in PSP12 is fair because it reflects the amount
they would receive upon PSP12's liquidation. There was no negotiation regarding
the basis for determining the consideration to be paid to PSP12 Shareholders in
the Merger or the consideration to be received by PSI and Hughes in respect of
their interest in PSP12. See "-- Background."
3. Choice as to Form of Consideration. The Merger provides PSP12
Shareholders with the choice of either (A) converting their investment into an
investment in PSI, which generally owns the same type of properties as PSP12, on
a tax-free basis (assuming the Merger is a tax-free reorganization, the PSP12
Shareholders receive solely PSI Common Stock in the Merger, and except that the
Required REIT Distributions will be taxable as ordinary income) and which has
acquired, and is expected to continue to acquire, additional properties or (B)
with respect to up to 20% of the outstanding PSP12 Common Stock (less any
Dissenting Shares), receiving in cash the amounts they would receive if their
properties were sold at their appraised values and PSP12 were liquidated
(without any reduction for real estate commissions and other sales expenses).
4. Independent Portfolio Appraisal and Fairness Opinion. The conclusions
of the Special Committee and PSP12 Board of Directors are based partially upon
the portfolio appraisal prepared by NDRC and Stanger's fairness opinion. The
Special Committee and PSP12 Board of Directors attributed significant weight to
these items, which they believe support their position, and do not know of any
factors that are reasonably likely to detract from the conclusions in NDRC's
portfolio appraisal and Stanger's fairness opinion. The Special Committee and
PSP12 Board of Directors believe that the engagement of NDRC and Stanger to
provide the portfolio appraisal and the fairness opinion, respectively, assisted
the Special Committee and PSP12 Board of Directors in the fulfillment of their
duties to PSP12 Shareholders, notwithstanding that each of these parties has
received fees in connection with its engagement and may receive fees in the
future. See "-- Real Estate Portfolio Appraisal by NDRC" and "-- Fairness
Opinion from Stanger."
5. Voting Procedures and Dissenters' Rights. The Special Committee and
PSP12 Board of Directors believe that the voting process and the rights of
dissenting shareholders of PSP12 support their conclusions as to the Merger.
The Merger is required to be approved by a majority of the outstanding shares of
PSP12 Common Stock and PSP12 Common Stock Series B and C, all voting together as
a class, and the PSP12 Common Stock Series B and C will be voted with the
holders of a majority of the unaffiliated PSP12 Common Stock. PSP12
Shareholders will have the right to exercise Dissenters' Rights, although the
Special Committee and PSP12 Board of Directors recognize that these rights may
be exercised by PSP12 Shareholders only if demands for payment are filed with
respect to 5% or more of the outstanding shares of PSP12 Common Stock.
6. Comparison of Payments to be Received at the Time of the Merger to
Other Alternatives. The payment to be received at the time of the Merger of
$22.34 per share of PSP12 Common Stock compares favorably with (A) the trading
price of the PSP12 Common Stock immediately prior to the first announcement of
the Merger ($19.50) and during other periods, (B) a range of estimated going
concern value per share of PSP12 Common Stock ($17.29 to $20.11), (C) an
estimated liquidation value per share of PSP12 Common Stock ($20.39) and (D) the
book value per share of PSP12 Common Stock as of March 31, 1996 ($11.33). The
PSP12 Board of Directors and the Special Committee recognize that this
comparison is subject to significant assumptions, qualifications and
limitations. See "-- Comparison of Consideration to be Received in the Merger
to Other Alternatives."
7. Lower Level of Distributions to PSP12 Shareholders After the Merger.
The level of distributions to PSP12 Shareholders who receive PSI Common Stock in
the Merger is expected to be lower after the Merger. Based on a market price of
PSI Common Stock of $21 and the current regular quarterly distribution rate for
PSI ($.22 per share) and PSP12 ($.33 per share), PSP12 Shareholders would
receive approximately $.10 (29%) less in regular
32
<PAGE>
quarterly distributions per share of PSP12 Common Stock after the Merger from
PSI than before the Merger from PSP12 and approximately $.01 less per share in
regular quarterly distributions for each $1 (4.8%) increase in the market price
of PSI Common Stock above $21.
8. Conflicts of Interest. The Merger has been initiated and structured by
individuals who are executive officers of PSP12 and who are also affiliated with
PSI. Independent representatives were not engaged to negotiate these
arrangements on behalf of the PSP12 Shareholders, and the terms of the Merger
are not the result of arm's length negotiations. Hughes will receive PSI Common
Stock in respect of his ownership of 4.99% of the total combined outstanding
shares of PSP12 Common Stock and PSP12 Common Stock Series B and C.
The Special Committee and PSP12 Board of Directors do not believe that the
absence of independent representatives to negotiate the Merger undermines the
fairness of the Merger because the Merger has been reviewed and approved by the
Special Committee, comprised of independent directors. Based upon the use of an
independent appraisal firm, the Stanger fairness opinion and the participation
of the Special Committee, the PSP12 Board of Directors and Special Committee
considered that the engagement of such independent representatives was not
necessary or cost effective.
COMPARISON OF BENEFITS AND DETRIMENTS. Prior to concluding that the Merger
should be proposed to PSP12 Shareholders, the PSP12 Board of Directors and
Special Committee considered several alternatives to the Merger. The
alternatives considered by the PSP12 Board of Directors and Special Committee
were liquidation, continuation of operations and amendments to organizational
documents. In order to determine whether the Merger or one of its alternatives
would be more advantageous to PSP12 Shareholders, the PSP12 Board of Directors
and Special Committee compared the potential benefits and detriments of the
Merger with the potential benefits and detriments of the alternatives. See "--
Alternatives to Merger" for a discussion of the potential benefits and
detriments of each of these alternatives. The Merger and each of its
alternatives offer potential benefits and suffers from potential detriments not
possessed by the other alternatives. Set forth below are the conclusions of the
PSP12 Board of Directors and Special Committee regarding the comparison of the
Merger to the alternatives.
(i) The PSP12 Board of Directors and Special Committee favor the
Merger over liquidation because they believe that (A) PSP12 should not be
liquidated at this time (other than through the Merger that provides PSP12
Shareholders who receive PSI Common Stock with greater liquidity and
increased geographic diversification, while retaining an interest in a
similar type of properties which may increase in value) because of
potential continued improvement of PSP12's properties and (B) the Merger
provides PSP12 Shareholders, with respect to up to 20% of the outstanding
PSP12 Common Stock (less any Dissenting Shares), with the opportunity, if
they so elect, to receive in cash the amounts they would receive if PSP12's
properties were sold at their appraised values and were liquidated but
without any reduction for real estate commissions and other sales expenses.
(ii) The PSP12 Board of Directors and Special Committee have
concluded that continued operation of PSP12 is not as attractive an
alternative as the Merger because the Merger affords PSP12 Shareholders
increased liquidity and the opportunity to participate in PSI, an entity
that, unlike PSP12, has grown, and is expected to continue to grow, as new
investments are made. However, the PSP12 Board of Directors and Special
Committee recognize that the level of distributions to PSP12 Shareholders
who receive PSI Common Stock is expected to be reduced. See "--
Recommendation to PSP12 Shareholders -- 7. Lower Level of Distributions to
PSP12 Shareholders After the Merger."
(iii) The PSP12 Board of Directors and Special Committee believe
that PSP12 Shareholders would have better opportunities to participate in
the current markets for equity securities of REITs through PSI than through
PSP12, even if PSP12's bylaws were amended to remove restrictions on
reinvestment of cash flow and on the issuance of securities of PSP12,
because of PSI's larger capital base, greater liquidity and broader
geographic diversification.
33
<PAGE>
Based upon this comparison of the potential benefits and detriments of the
Merger with its alternatives, the PSP12 Board of Directors and Special Committee
have concluded that the Merger is more attractive to PSP12 Shareholders than any
of the alternatives.
COMPARISON OF CONSIDERATION TO BE RECEIVED IN THE MERGER TO OTHER ALTERNATIVES
GENERAL. To assist PSP12 Shareholders in evaluating the Merger, the PSP12
Board of Directors and Special Committee compared the consideration to be
received in the Merger, i.e., a value of $22.34 per share of PSP12 Common Stock
(less the amount of any Required REIT Distributions), to: (i) the trading price
of the PSP12 Common Stock on the AMEX; (ii) estimates of the value of PSP12 on a
liquidation basis assuming that its assets were sold at their appraised fair
market value and the net proceeds distributed to the shareholders of PSP12 in
accordance with their share ownership in PSP12; and (iii) estimates of the value
of PSP12 on a going-concern basis assuming that PSP12 were to continue as a
stand-alone entity and its securities sold at the end of either a five-year or
10-year holding period or its assets sold at the end of a 10-year holding
period. Due to the uncertainty in establishing these values, the PSP12 Board of
Directors and Special Committee have established a range of estimated values for
certain of the alternatives, representing a high and low estimated value for the
potential consideration. Since the value of the consideration for alternatives
to the Merger is dependent upon varying market conditions, no assurance can be
given that the range of estimated values indicated establishes the highest or
lowest possible values. However, the PSP12 Board of Directors and Special
Committee believe that analyzing the alternatives in terms of ranges of
estimated value, based on currently available market data and, where
appropriate, reasonable assumptions made in good faith, establishes a reasonable
framework for comparing alternatives.
The results of this comparative analysis are summarized in the following
table. PSP12 Shareholders should bear in mind that the estimated values assigned
to the alternate forms of consideration are based on a variety of assumptions
that have been made by PSP12. These assumptions relate, among other things, to:
projections as to PSP12's future income, expenses, cash flow and other
significant financial matters; the capitalization rates that will be used by
prospective buyers when PSP12's assets are liquidated; and, appropriate discount
rates to apply to expected cash flows in computing the present value of the cash
flows that may be received with respect to shares of PSP12 Common Stock. In
addition, these estimates are based upon certain information available to PSP12
at the time the estimates were computed, and no assurance can be given that the
same conditions analyzed by them in arriving at the estimates of value would
exist at the time of the Merger. The assumptions used have been determined by
the PSP12 Board of Directors and Special Committee in good faith, and, where
appropriate, are based upon current and historical information regarding PSP12
and current real estate markets, and have been highlighted below to the extent
critical to the conclusions of the PSP12 Board of Directors and Special
Committee.
No assurance can be given that such consideration would be realized through
any of the designated alternatives, and PSP12 Shareholders should carefully
consider the following discussions to understand the assumptions, qualifications
and limitations inherent in the presented valuations. The estimated values
presented in the following table are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
estimated values are based upon certain assumptions that relate, among other
things, to (i) the price of PSI Common Stock as of the date of the Merger being
the same as during the 20 trading days ending on the fifth trading day prior to
the meeting of shareholders of PSP12, (ii) projections as to PSP12's future
revenues, expenses, cash flow and other significant financial matters, (iii) the
capitalization rates that will be used by prospective buyers when PSP12's assets
are liquidated, (iv) selling costs, (v) appropriate discount rates to apply to
expected cash flows in computing the present value of the cash flows and (vi)
the manner of sale of PSP12's properties. Actual results may vary from those
set forth below based on numerous factors, including interest rate fluctuations,
tax law changes, supply and demand for mini-warehouses, the manner in which the
properties are sold and changes in availability of capital to finance
acquisitions of mini-warehouses.
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Estimated Liquidation
Payments in Merger per Estimated Going Concern Value per Share of PSP12
Share of PSP12 Common Trading Prices of PSP12 Value per Share of PSP12 Common Stock at
Stock Common Stock (2) Common Stock (3) Appraised Value (4)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$22.34(1) $18.25 $20.00 $17.29 $20.11 $20.39
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on PSP12's net asset value consisting of the independently appraised
market value of PSP12's real estate portfolio as of May 31, 1996 and
estimated book value of its other net assets as of September 30, 1996 and
assuming no Required REIT Distributions. The market price of PSI Common
Stock may fluctuate following establishment of the number of shares to be
issued to PSP12 Shareholders in the Merger and prior to issuance and could
decrease as a result of increased selling activity following issuance of
shares in the Merger and other factors. See "-- Determination of Payments
to be Received by PSP12 Shareholders in Connection with the Merger."
(2) High and low sales prices on the AMEX composite tape for the first quarter
of 1996, the last full calendar quarter prior to the announcement of the
Merger. On June 19, 1996, the last full trading day prior to the first
announcement of the Merger, the closing price of PSP12 Common Stock was
$19.50.
(3) High and low of three methods of estimating going concern value. Based upon
a number of assumptions regarding the future net operating income and
distributions of PSP12 and the date of its liquidation. See "-- Going-
Concern Value."
(4) Based upon NDRC's real estate appraisal, less estimated expenses of
liquidation. See "-- Liquidation Values."
TRADING PRICES OF PSP12 COMMON STOCK. The PSP12 Board of Directors and
Special Committee also considered that the trading price for PSP12 Common Stock
averaged $19.46, $19.42, $19.30 and $18.77 for the 20-day, 60-day, 180-day and
360-day periods preceding the announcement of the proposed Merger, and that the
closing price for PSP12 Common Stock on the last trading day prior to the first
announcement of the proposed Merger was $19.50. The PSP12 Board of Directors
also considered that the consideration offered in the Merger adjusted for
interim earnings of approximately $.30 per share (which amount represents
increases in current net assets projected to be generated and retained between
the date of the Appraisal and September 30, 1996) represents a premium of 13.3%,
13.5%, 14.2%, 17.4% and 13.0% over the 20-day, 60-day, 180-day and 360-day
average closing prices and the closing price on the last trading day prior to
the announcement of the proposed Merger for PSP12 Common Stock, respectively.
GOING-CONCERN VALUE. The PSP12 Board of Directors and Special Committee
have estimated the going-concern value of PSP12 Common Stock by analyzing
projected cash flows and distributions assuming that PSP12 were operated as an
independent stand-alone entity and its securities or assets sold at the end of
the holding period under three scenarios: Scenario #1 -- a five-year holding
period, with shares of PSP12 liquidated in securities markets at an FFO multiple
ranging from 8.5 to 10.5; Scenario #2 -- a 10-year holding period, with shares
of PSP12 liquidated in securities markets at an FFO multiple ranging from 8.5 to
10.5; and Scenario #3 -- a 10-year holding period with the property portfolio of
PSP12 liquidated in private real estate markets at the terminal value projected
by the appraiser in the portfolio appraisal and the net proceeds resulting from
the liquidation of the properties and other remaining assets of PSP12 paid out
to shareholders of PSP12 in liquidation distributions. Dividends and sale
proceeds per share of PSP12 Common Stock were discounted in the projections at
rates ranging from 12.5% to 13.0%.
Scenario #3 of the going-concern analysis assumes PSP12's properties are
sold in a single transaction after a 10-year holding period. Should the assets
be liquidated over time, even at prices equal to those projected, distributions
to PSP12 Shareholders out of PSP12's cash flow from operations might be reduced
because relatively fixed costs, such as general and administrative expenses, are
not proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales are assumed to occur concurrently.
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The estimated value of PSP12 on a going-concern basis is not intended to
reflect the distributions payable to PSP12 Shareholders if PSP12's assets were
to be sold at their current fair market values.
LIQUIDATION VALUES. Since one of the alternatives available to the PSP12
Board of Directors is to proceed with a liquidation of PSP12, and the
corresponding distribution of the net liquidation proceeds to the shareholders
of PSP12, the PSP12 Board of Directors and Special Committee have estimated the
liquidation value of PSP12 assuming that its real estate portfolio were sold at
its fair market value, based upon the NDRC real estate portfolio appraisal
(excluding for these purposes any pre-merger distributions that might be made to
PSP12 Shareholders). This alternative assumes non-real estate assets are sold at
their book value (such assets, excluding cash, representing less than 2% of the
value of PSP12), PSP12 incurs selling costs at the time of liquidation (state
and local transfer taxes, real estate commissions and legal and other closing
costs) of $2,106,000 and the remaining net liquidation proceeds are distributed
among the shareholders of PSP12 under the terms of PSP12's articles of
incorporation, according priority to the PSP12 Shareholders.
The liquidation analysis assumes that PSP12's portfolio is sold in a single
transaction at its portfolio appraised value. Should the assets be liquidated
over time, even at prices equal to those projected, distributions to PSP12
Shareholders out of PSP12's cash flow from operations might be reduced because
PSP12's relatively fixed costs, such as general and administrative expenses, are
not proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales are assumed to occur concurrently.
Applying these procedures, the PSP12 Board of Directors and Special
Committee arrived at the liquidation value set forth in the table. The real
estate portfolio appraisal sets forth, subject to the specified assumptions,
limitations and qualifications, NDRC's professional opinion as to the market
value of PSP12's real estate portfolio as of May 31, 1996. While the portfolio
appraisal is not necessarily indicative of the price at which the assets would
sell, market value generally seeks to estimate the prices at which the real
estate assets would sell if disposed of in an arm's length transaction between a
willing buyer and a willing seller, each having access to relevant information
regarding the historical revenues and expenses of the properties. The real
estate portfolio appraisal assumes that PSP12's assets are disposed of in an
orderly manner and are not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value. See "-- Real Estate Appraisal by NDRC."
DISTRIBUTION COMPARISON. The PSP12 Board of Directors and Special Committee
have considered the potential impact of the Merger upon distributions that would
be made to PSP12 Shareholders who exchange their PSP12 Common Stock for PSI
Common Stock. Based on a market price of PSI Common Stock of $21 and the current
regular quarterly distribution rate for PSI ($.22 per share) and PSP12 ($.33 per
share), PSP12 Shareholders would receive approximately $.10 (29%) less in
regular quarterly distributions per share of PSP12 Common Stock after the Merger
from PSI than before the Merger from PSP12 and approximately $.01 less per share
in regular quarterly distributions for each increase in the market price of PSI
Common Stock above $21 of $1 (4.8%). These estimates are based upon the actual
distributions made by PSP12 and PSI (not upon the amounts that might have been
distributed by them based upon their cash flow from operations).
In evaluating this estimate, PSP12 Shareholders should bear in mind that a
number of factors affect the level of distributions. These factors include the
distributable income generated by operations, the principal and interest
payments on debt, if any, capital expenditure levels (in excess of normal
expenditures for ongoing maintenance and repairs), and the corporate policy with
respect to cash distributions. A comparison of the current distribution levels
of PSI with those of PSP12 does not show how the Merger might affect a PSP12
Shareholder's distribution level over a number of years.
REAL ESTATE PORTFOLIO APPRAISAL BY NDRC
NDRC was engaged by PSP12 and PSI to appraise the real estate portfolio of
PSP12 and has delivered a written report of its analysis, based upon the review,
analysis, scope and limitations described therein, as to the fair market value
of the portfolio of properties of PSP12 as of May 31, 1996 (the "Appraisal").
PSP12 and PSI selected NDRC to provide the Appraisal because of its experience
and reputation in connection with appraising mini-warehouses.
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The consideration to be paid by PSI to PSP12 Shareholders in the Merger is based
on the Appraisal. The Appraisal, which contains a description of the assumptions
and qualifications made, matters considered and limitations on the review and
analysis, is set forth as Appendix B and should be read in its entirety. Certain
of the material assumptions, qualifications and limitations to the Appraisal are
described below.
EXPERIENCE OF NDRC. NDRC was founded by Lawrence R. Nicholson, MAI and
Duncan O. Douglas in 1993, the principals who have specialized in the appraisal
of mini-warehouses and other properties since 1980. NDRC has conducted real
estate appraisals on a variety of property types and uses throughout the United
States for owners, banks and thrift organizations, insurance companies and other
financial institutions. NDRC appraised over 200 mini-warehouses in 1995.
SUMMARY OF METHODOLOGY. At the request of PSP12 and PSI, NDRC evaluated
PSP12's portfolio of real estate. In valuing the properties, NDRC considered the
applicability of all three commonly recognized approaches to value: the cost
approach, the income capitalization approach and the sales comparison approach.
The type and age of a property, market conditions and the quantity and quality
of data affect the applicability of each approach in a specific appraisal
situation. NDRC did not consider the cost approach to be applicable to PSP12's
properties.
The income approach estimates a property's capacity to produce income
through an analysis of the rental market, operating expenses and net income. Net
income may then be processed into a value estimate through either (or a
combination) of two methods: direct capitalization or yield capitalization,
i.e., a discounted cash flow analysis.
The sales comparison approach is based upon the principle of substitution,
i.e., that an informed purchaser would pay no more for a property than the cost
of acquiring an existing property with the same utility. The sales comparison
approach establishes what typical investors in the marketplace are willing to
pay for comparable properties.
The cost approach is based on the estimated market value of the site as if
vacant plus the depreciated replacement cost of the existing improvements. The
cost approach was not considered appropriate in the case of PSP12 since (a)
today's investors do not rely upon the cost approach in making investment
decisions, and (b) the necessity of estimating total accrued depreciation in
buildings of the type and age of PSP12's properties diminishes the validity of
this approach.
While the Appraisal was prepared for PSP12's entire portfolio, NDRC
analyzed the individual PSP12 properties by (a) reviewing each property's
previous three years' operating statements, (b) reviewing information submitted
to the appraiser by on-site managers which included competitive rental and
occupancy surveys, subject facility descriptions, area trends and other factors,
which were verified by NDRC through physical inspections, telephone calls and
other sources; and (c) developing information from a variety of sources about
market conditions for each individual property that included population,
employment and housing trends within the market.
To determine any significant differences in quality among the various
properties, NDRC considered such variables as property income growth patterns
and potential, quality of location and construction, tenant appeal, property
appearance, security and potential competition.
NDRC also interviewed management personnel responsible for PSP12's
properties to discuss competitive conditions, area economic trends affecting the
properties, historical operating revenues and expenses, and occupancy rates in
competitive facilities. These interviews included ascertaining information on
items of deferred maintenance, planned capital improvements and other factors
affecting the physical condition of the properties. Representatives of NDRC
performed site inspections on all 13 of PSP12's properties during May-June 1996.
NDRC then estimated the value of each property in the portfolio relying
heavily upon the income approach. Indicated values were developed using a direct
capitalization technique applying overall capitalization rates derived directly
from the marketplace. To define the occupancy and rental rates and expense
escalators to be used in developing cash flow projections, NDRC reviewed the
acquisition criteria and projection parameters in use in the marketplace by
major mini-warehouse investors, owners and operators, appraisers and financing
sources. In addition, NDRC reviewed other published information concerning
acquisition criteria in use by property investors through the
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first quarter of 1996. Further, NDRC interviewed various sources to identify
sales of mini-warehouses within the past 24 months in order to derive certain
valuation indicators. Sources for data concerning such transactions included
appraisers, property owners, real estate brokers, and others. NDRC also
reviewed information compiled by management identifying sales and acquisitions
of mini-warehouses.
In applying a discounted cash flow analysis, projections of cash flow from
each mini-warehouse property (assuming no indebtedness) were developed for a 10-
year period ending in the year 2006. The first year's scheduled gross income
was estimated taking into consideration each property's current rent structure
and the rental rates of competitive facilities. Also included in the income
estimate were trends in ancillary income from late fees and rental concessions.
NDRC then made an analysis of each subject's occupancy history, took into
consideration the occupancy level of competitive facilities and estimated an
occupancy level for each property in the portfolio.
Estimated expenses were based upon each property's actual operating
history. The projected expenses were tested for reasonableness based upon a
comparison of the operating expense ratios to market norms. Expenses were
deducted from effective gross income to derive a net operating income for each
property. Consideration was given to and adjustment made to reflect capital
expenditures and replacement reserves.
Income and expense growth rates were based on projection parameters
currently being used by property investors as well as upon local, regional and
historical trends. Growth rates for income and expenses were 3.5%. NDRC then
used a terminal capitalization rate of 9.75% to capitalize each property's
eleventh year net operating income into a residual value at the end of the
holding period, assuming normal cost of disposing of the properties. The 10
yearly cash flows were then discounted to present worth using a discount rate of
12.5% for PSP12's properties. In addition, NDRC valued each mini-warehouse
property using the direct capitalization method by applying a 9.75%
capitalization rate to projected cash flows for the next 12 months.
For PSP12's business parks, NDRC reviewed each property's rent roll and
lease abstracts and concluded that, in light of the high occupancy rates, stable
operating levels and relative short-term duration of the leases at rates
reasonably reflective of market rents, the direct capitalization technique was
appropriate. As such, PSP12's business parks were valued using only the direct
capitalization method by applying a 10% capitalization rate to projected cash
flows for the next 12 months.
The indicated value based upon the income approach is $49,950,000 for
PSP12's portfolio of properties.
In applying the sales comparison approach to the PSP12 properties, NDRC
analyzed over 100 properties that were sold in 1994, 1995 and 1996. Using a
regression analysis, a statistically significant correlation was derived between
the comparables' net income and their sales price per square foot. Based upon
the net operating income per square foot of each of PSP12's properties, using
the regression analysis, the indicated value by the sales comparison approach
ranged between $48,000,000 and $53,000,000.
In addition, NDRC reviewed capitalization rates and purchase prices paid in
recent and pending transactions of properties similar to PSP12's portfolio
involving both PSI and others and reconciled the purchase prices with the values
of PSP12's portfolio of properties.
CONCLUSIONS AS TO VALUE. NDRC reconciled the values indicated from the
direct sales comparison and income approaches to arrive at a final valuation
conclusion. NDRC gave primary emphasis to the income approach, an emphasis
deemed appropriate based on acquisition criteria currently employed in the mini-
warehouse market. The resulting effective implied capitalization rate averaged
approximately 9.3% for the portfolio based on reported property operations
(before non-recurring expenses and after certain property tax adjustments)
during the 12 months ended March 31, 1996.
Based on the valuation methodology described above, NDRC assigned a market
value of $50,000,000 to PSP12's portfolio of real property assets as of May 31,
1996.
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ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF THE APPRAISAL. The Appraisal
reflects NDRC's valuation of PSP12's as of May 31, 1996 in the context of the
information available on such date. Events occurring after May 31, 1996 and
before the closing of the Merger could affect the properties or assumptions used
in preparing the Appraisal. NDRC has no obligation to update the Appraisal on
the basis of subsequent events; however, NDRC has informed PSP12 and PSI that,
as of the date of this Proxy Statement and Prospectus, NDRC is not aware of any
event or change in conditions since May 31, 1996 that may have caused a material
change in the value of PSP12's portfolio of real estate since that date.
The Appraisal is subject to certain general and specific assumptions and
limiting conditions and are in conformity with the Departure Provision of
Uniform Standards of Professional Appraisal Practice. Among other limitations,
the Appraisal (i) did not consider the effect of easements, restrictions and
other similar items on the value of PSP12's properties, (ii) assumed that the
properties comply with local building codes and zoning ordinances, and (iii) did
not involve the physical inspections of competing properties. See Appendix B for
a discussion of the specific assumptions, limitations and qualifications of the
Appraisal.
COMPENSATION AND MATERIAL RELATIONSHIPS. NDRC is being paid an aggregate
fee of $45,000 for preparation of the Appraisal, which fee includes
reimbursement for all of NDRC's related out-of-pocket expenses. NDRC is also
entitled to indemnification against certain liabilities. The fee was negotiated
with NDRC and payment is not dependent upon completion of the Merger or any
specific valuation. As a leading appraiser of mini-warehouses, NDRC has prepared
appraisals for PSI and its affiliates and is expected to continue to prepare
appraisals for PSI.
FAIRNESS OPINION FROM STANGER
Stanger was engaged by PSP12 through the Special Committee to deliver a
written summary of its determination as to the fairness of the consideration to
be received in the Merger, from a financial point of view, to the public PSP12
Shareholders. The full text of the opinion, which contains descriptions of the
assumptions and qualifications made, matters considered and limitations on the
review and opinion, is set forth in Appendix C to this Proxy Statement and
Prospectus and should be read in its entirety. Certain of the material
assumptions, qualifications and limitations to the fairness opinion are set
forth below. The summary set forth below does not purport to be a complete
description of the analyses used by Stanger in rendering the fairness opinion.
Arriving at a fairness opinion is a complex analytical process not necessarily
susceptible to partial analysis or amenable to summary description.
Except for certain assumptions, described more fully below, which PSP12
advised Stanger that it would be reasonable to make, PSP12 imposed no conditions
or limitations on the scope of Stanger's investigation or with respect to the
methods and procedures to be followed in rendering the fairness opinion. PSP12
has agreed to indemnify Stanger against certain liabilities arising out of its
engagement to prepare and deliver the fairness opinion.
EXPERIENCE OF STANGER. Stanger, founded in 1978, has provided information,
research, investment banking and consulting services to clients throughout the
United States, including major NYSE firms and insurance companies and over 70
companies engaged in the management and operation of partnerships and REITs.
The investment banking activities of Stanger include financial advisory
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
In particular, Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically owned through partnerships
including, but not limited to, oil and gas reserves, real estate, cable
television systems and equipment leasing assets.
SUMMARY OF MATERIALS CONSIDERED. In the course of Stanger's analysis to
render its opinion regarding the Merger, Stanger: (i) reviewed this Proxy
Statement and Prospectus; (ii) reviewed PSP12's and PSI's annual reports on Form
10-K for the three fiscal years ending December 31, 1993, 1994 and 1995, and
their quarterly reports on Form 10-Q for the quarter ending March 31, 1996;
(iii) reviewed the Appraisal and discussed with management of
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PSP12 and NDRC the methodologies and procedures employed in preparing the
Appraisal; (iv) reviewed information regarding purchases and sales of self-
storage properties by PSI or any affiliated entities over the past two years,
and other information available relating to acquisition criteria for self-
storage properties; (v) reviewed estimates prepared by PSP12, and based in part
on the Appraisal, of the current net liquidation value per common share of
PSP12's assets and projections of cash flow from operations, dividend
distributions and going-concern values for PSP12, and the calculation of the
allocation of such values among the PSP12 Shareholders and the holders of PSP12
Common Stock Series B and C; (vi) discussed with certain members of management
of PSP12 and PSI conditions in self-storage and business park property markets,
conditions in the market for sales/acquisitions of properties similar to those
owned by PSP12, current and projected operations and performance, and the
financial condition and future prospects of PSP12 and PSI; (vii) reviewed
historical market prices, trading volume and dividends for PSP12 and PSI Common
Stock; and (viii) conducted other studies, analyses, inquiries and
investigations as Stanger deemed appropriate.
SUMMARY OF ANALYSIS. The following is a summary of certain financial and
comparative analyses reviewed by Stanger in connection with and in support of
its fairness opinion. The summary of the opinion and analysis of Stanger set
forth in this Proxy and Prospectus is qualified in its entirety by reference to
the full text of such opinion.
Review of Appraisal. In preparing its opinion, Stanger relied upon the
Appraisal of PSP12's portfolio of properties which was prepared as of May 31,
1996 by NDRC, an independent appraiser. Stanger reviewed the Appraisal rendered
by NDRC, reviewed a sample of supporting documentation for the Appraisal and
discussed with NDRC its experience and qualifications and the appraisal
methodologies utilized.
Stanger observed that the Appraisal was certified by a Member of the
Appraisal Institute and was conducted utilizing the income approach to
valuation, applying the discounted cash flow or direct capitalization method to
establish a value for each individual property and the sales comparison
approach.
Stanger observed that the effective capitalization rate utilized in the
Appraisal was approximately 9.3% for the properties of PSP12, based on net
operating income (before non-recurring expenses and after certain property tax
adjustments) generated for the 12 months ended March 31, 1996. Stanger further
observed that among stabilized properties acquired by PSI or affiliated entities
from third-parties between May 1994 and May 1996, capitalization rates for such
purchases averaged approximately 9.8%. Lower capitalization rates generally
reflect higher sales prices for income-producing properties.
Review of Liquidation Analysis. Stanger reviewed an analysis prepared by
management of PSP12 of the estimated value of PSP12 based upon liquidation of
its portfolio on a property-by-property basis utilizing estimates prepared by
PSP12 and information provided by NDRC.
The property-by-property liquidation analysis assumed each property could
be sold within an estimated marketing period of six months at the appraised
value as reported in the Appraisal to an independent third-party buyer. Costs of
such property sales by PSP12 to independent third-parties were estimated by
PSP12 to total approximately $2,106,000 and were comprised of estimates of
$106,000 in state and local transfer taxes, $1,500,000 in commissions and
$500,000 in legal and other closing costs. Such amounts were based on prevailing
transfer tax rates in the locale of each property and on estimates of PSP12
based on knowledge of real estate transactions. Stanger observed that the
estimated net proceeds from such liquidation, assuming no Required REIT
Distributions (prior to the date of liquidation), the cancellation of 40,882
shares held by PSI and Hughes and the associated dissolution of PSP12 and
distribution of all remaining assets in accordance with its Articles of
Incorporation was $20.39 per share of PSP12 Common Stock, versus the
consideration offered in the Merger of $22.34 cash per share of PSP12 Common
Stock, or the equivalent of $22.34 of PSI Common Stock per share of PSP12 Common
Stock, based on the average closing price of PSI Common Stock on the NYSE during
the 20 consecutive trading days ending on the fifth trading day prior to the
meeting of shareholders of PSP12.
Stanger also reviewed information on recent and pending multi-property
purchases and sales of self-storage properties transacted by PSI, PSMI or
affiliates during 1993 through June 1996.
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Stanger observed that PSI, PSMI or affiliated entities have completed or
have pending 11 bulk purchases of property portfolios during the period reviewed
excluding the properties associated with the mergers of six prior REITs with
PSI. These transactions involved affiliated and unaffiliated entities with an
interest in 106 properties with an aggregate acquisition cost of approximately
$250 million. Capitalization rates ranged from 9.1% to 10.7%, averaging 9.7%,
for bulk transactions during the entire period reviewed and ranged from 9.1% to
9.8%, averaging 9.3%, for bulk transactions during the preceding six months.
Review of Going Concern Analysis. Stanger reviewed financial analyses and
projections prepared by the management of PSP12 concerning estimated cash flows
and dividend distributions from continued operation of PSP12 as independent
stand-alone entities and estimated sales proceeds from the liquidation of the
shares of PSP12 or the portfolio of properties owned by PSP12. The analyses
incorporated estimates of revenues and operating expenses for each of the
properties, capital expenditures, entity-level general and administrative costs,
and cash flow distributions and proceeds from sale of either the securities of
PSP12 or the properties owned by PSP12 during projection periods of up to 10
years. The analyses and projections assumed, among other things, that (i) net
operating income for PSP12 would grow at a compound annual rate of approximately
3.5% over the 10-year projection period; (ii) general and administrative
expenses would increase at an average rate of 3% per annum over the projection
period; and (iii) in the scenario involving sale of the properties in private
real estate markets (as described below), such sales would occur at the terminal
value projected by the appraiser in the Appraisal.
The projections evaluated the going-concern value of PSP12 under three
scenarios: Scenario #1 -- a five-year holding period, with shares of PSP12
Common Stock liquidated in securities markets at an FFO multiple ranging from
8.5 to 10.5; Scenario #2 -- a 10-year holding period, with shares of PSP12
Common Stock liquidated in securities markets at an FFO multiple ranging from
8.5 to 10.5; and Scenario #3 -- a 10-year holding period with the property
portfolio of PSP12 liquidated in private real estate markets at the terminal
value projected in the Appraisal and the net proceeds resulting from the
liquidation of the properties and other remaining assets of PSP12 paid out to
shareholders in liquidating distributions. Dividends and sale proceeds per share
of PSP12 Common Stock were discounted in the projections at rates ranging from
12.5% to 13.0%.
Stanger observed that the FFO multiples utilized by management in the
projections were consistent with current FFO multiples among publicly traded
REITs investing in self-storage facilities and business parks and with market
capitalization and leverage levels reasonably comparable to those of PSP12. This
group of publicly traded REITs are all affiliated with PSI, and include Partners
Preferred Yield I, II and III, and Public Storage Properties X, XI, XIV, XV,
XVI, XVII, XVIII, XIX, and XX. Stanger further observed that the discount rates
applied to dividends and sale proceeds were consistent with the historic rates
of return produced by equity REITs.
Stanger further observed that the estimated values per share of PSP12
Common Stock on a going-concern basis resulting from the above analysis were as
follows for each scenario: Scenario #1 -- $17.29 to $19.90; Scenario #2 --
$18.08 to $20.11; and Scenario #3 -- $19.32 and $19.89, compared with the
consideration offered in the Merger of $22.34 per share of PSP12 Common Stock.
The estimated values assigned to the alternative forms of consideration are
based on a variety of assumptions that have been made by PSP12. While PSP12 has
advised Stanger that it believes it has a reasonable basis for these
assumptions, these assumptions may not reflect the actual experience of PSP12
and such differences could be material. See "-- Comparison of Consideration to
be Received in the Merger to Other Alternatives."
Review of Market Value. Stanger reviewed historical market prices, trading
volume and dividend distributions for PSP12 Common Stock. In the course of this
review, Stanger compared the historical market prices of PSP12 Common Stock with
amounts to be received at the time of the Merger. Stanger observed that the
trading price for PSP12 Common Stock averaged $19.46, $19.42, $19.30 and $18.77,
for the respective 20-day, 60-day, 180-day, and 360-day periods preceding the
announcement of the proposed Merger and that the closing price for PSP12 Common
Stock on the last trading day prior to the first announcement of the proposed
Merger was $19.50. Stanger further observed that the consideration offered in
the Merger, reduced by $716,000, or approximately $.30 per share (which amount
represents increases in current net assets projected by management to be
generated and retained between the date of the Appraisal and September 30, 1996)
represents a premium of 13.3%, 13.5%, 14.2%, 17.4% and 13.0%
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over the 20-day, 60-day, 180-day, 360-day average closing prices and the closing
price on the last trading day prior to the announcement of the proposed Merger
for PSP12 Common Stock, respectively.
In addition, Stanger observed that the consideration per share of PSP12
Common Stock offered in the Merger in the form of shares of PSI Common Stock
will reflect values established in public securities trading markets equivalent
to the cash offer per share of PSP12 Common Stock. Such value will be based on
the average closing prices on the NYSE of PSI Common Stock during the 20
consecutive trading days ending on the fifth trading day prior to the special
meeting of shareholders of PSP12.
Distribution/FFO Analysis. Stanger reviewed distributions per share and FFO
per share for PSP12 Shareholders on an equivalent per share basis. Stanger noted
that based on a closing price of $21 for PSI Common Stock and the resulting
exchange ratio of PSP12 Common Stock for PSI Common Stock and based on operating
results for PSI (pro forma the PSMI Merger), regular quarterly distributions per
share would decrease by approximately $.10 (29.0%) for PSP12 Shareholders
receiving PSI Common Stock. Stanger observed that, at the $21 closing price for
PSI Common Stock and based on operating results for PSI (pro forma the PSMI
Merger), FFO per share on a quarterly basis earned by PSP12 Shareholders on an
equivalent per share basis would increase approximately $.02 (3.2%). Stanger
also observed that the historical FFO per share annual growth rate for PSI for
the 1992-1995 period was 12.3% compared to the historical FFO per share annual
growth rate for PSP12 for the 1992-1995 period of 9.0%.
CONCLUSIONS. Based on the foregoing, Stanger concluded that, based upon its
analysis and assumptions, and as of the date of the fairness opinion, the
consideration to be received in the Merger is fair to the public PSP12
Shareholders, from a financial point of view.
ASSUMPTIONS. In evaluating the Merger, Stanger relied upon and assumed,
without independent verification, the accuracy and completeness of all financial
and other information contained in the Proxy Statement and Prospectus or that
was furnished or otherwise communicated to Stanger. Stanger did not perform an
independent appraisal of the assets and liabilities of PSP12 or PSI and relied
upon and assumed the accuracy of the Appraisal. Stanger also relied on the
assurances of PSP12 and PSI that any pro forma financial statements,
projections, budgets, or value estimates contained in the Proxy Statement and
Prospectus or otherwise provided to Stanger, were reasonably prepared on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments; that the allocation of net asset
value between the PSP12 Shareholders and the holders of the PSP12 Common Stock
Series B and C has been determined by PSP12 in accordance with the provisions of
the Articles of Incorporation of PSP12; that no material changes have occurred
in the appraised value of the portfolio or the information reviewed between the
date of the Appraisal or the date of the other information provided and the date
of the opinion; and that PSP12 and PSI are not aware of any information or facts
that would cause the information supplied to Stanger to be incomplete or
misleading in any material respect.
In connection with preparing the fairness opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the analysis set forth in Appendix
C. Stanger does not intend to deliver any additional written summary of the
analysis.
COMPENSATION AND MATERIAL RELATIONSHIPS. For preparing the fairness opinion
and related services in connection with the Merger, Stanger is being paid a fee
of $60,000. In addition, Stanger will be reimbursed for certain out-of-pocket
expenses, including legal fees, up to a maximum of $9,000 and will be
indemnified against certain liabilities, including certain liabilities under the
federal securities laws. The fee was negotiated with Stanger. Payment of the fee
to Stanger is not dependent upon completion of the Merger. During the past two
years (1994 to present), Stanger has rendered consulting and related services
and provided products to PSI and to PSMI and its affiliates, including fairness
opinions to the public shareholders of six REITs in connection with their
mergers with PSI and an analysis used in a 1992 exchange offer involving PSI and
three partnerships affiliated with PSMI, and may be engaged in the future.
Stanger has received compensation aggregating approximately $295,000 in
connection with these services and products since 1994 (exclusive of amounts
received in connection with the Merger).
LIMITATIONS AND QUALIFICATIONS. Stanger was not requested to, and therefore
did not: (i) select the method of determining the consideration offered in the
Merger; (ii) make any recommendation to the PSP12 Shareholders with
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<PAGE>
respect to whether to approve or reject the Merger or whether to select the cash
or PSI Common Stock option in the Merger; or (iii) express any opinion as to the
business decision to effect the Merger, alternatives to the Merger or tax
factors resulting from the PSMI Merger or relating to PSI's continued
qualification as a REIT. Stanger's opinion is based on business, economic, real
estate and securities markets, and other conditions as of the date of its
analysis. Events occurring after that date may materially affect the
assumptions used in preparing the opinion.
Among the factors considered in the selection of Stanger were Stanger's
experience in connection with the mergers of six other REITs with PSI, its
expertise in real estate transactions and the fee quoted by Stanger. No party
other than Stanger was contacted to render an opinion as to the fairness of the
Merger to PSP12 Shareholders, and PSP12 has neither requested nor received any
views, preliminary or otherwise, from any party other than Stanger regarding the
fairness of the Merger to the PSP12 Shareholders.
THE MERGER AGREEMENT
If the Merger is approved by the shareholders of PSP12 and the other
applicable conditions to the Merger are satisfied or waived, the Merger will be
consummated pursuant to the Merger Agreement, which is set forth in Appendix A
hereto and is incorporated by reference into this Proxy Statement and
Prospectus. As a result of the Merger, all of the assets now held by PSP12 will
be held by PSI upon completion of the Merger. The Merger Agreement contains
representations and warranties of PSP12 and PSI and certain other provisions
relating to the Merger. The representations and warranties are extinguished by,
and do not survive, the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER. Consummation of the Merger is
contingent upon standard conditions, including the following: (i) the
Registration Statement shall have been declared effective by the Commission and
PSI shall have received all other authorizations necessary to issue PSI Common
Stock in exchange for PSP12 Common Stock and to consummate the Merger; (ii) the
Merger Agreement and the Merger shall have been approved and adopted by the
requisite vote of the shareholders of PSP12; (iii) receipt by PSP12 of a legal
opinion of Hogan & Hartson L.L.P. that the Merger will qualify as a
reorganization under Section 368(a) of the Code (which opinion has been received
and is described under "Certain Federal Income Tax Matters"); (iv) the PSI
Common Stock issued to the shareholders of PSP12 shall be listed on the NYSE;
(v) the Board of Directors of PSP12 shall have received a fairness opinion from
Stanger (which opinion has been received); (vi) the average of the per share
closing prices on the NYSE of the PSI Common Stock during the 20 consecutive
trading days ending on the fifth trading day prior to the special meeting of
shareholders of PSP12 is not less than $20; and (vii) demands for payment by
holders of Dissenting Shares are filed with respect to less than 5% of the
outstanding PSP12 Common Stock. The obligation of PSI to effect the Merger is
also subject to PSI, in its sole discretion, being satisfied as to title to, and
the results of an environmental audit of, each property of PSP12. Any of these
conditions (other than the conditions of approval by the shareholders of PSP12)
may be waived by the board of directors of the corporation benefiting from such
condition.
AMENDMENT OR TERMINATION. The Merger Agreement provides for amendment or
modification thereof by written agreement authorized by the boards of directors
of PSP12 and PSI either before or after shareholder approval, provided that any
such amendment or modification made after shareholder approval does not change
any of the principal terms of the Merger or the Merger Agreement. The Merger may
be abandoned at any time before or after shareholder approval by mutual written
consent and may be abandoned by the action of the board of directors of either
party if, among other things, the closing of the Merger shall not have occurred
on or before June 30, 1997.
CONSUMMATION. It is contemplated that the Merger will be consummated by
filing the Agreement of Merger (attached as Exhibit A to the Merger Agreement)
with the California Secretary of State as soon as practicable after its approval
by the shareholders of PSP12 and the satisfaction or waiver of various
conditions contained in the Merger Agreement. It is currently contemplated that
the Merger will be consummated during the second half of 1996.
EXCHANGE OF CERTIFICATES. After the Merger, holders of certificates that
evidenced outstanding shares of PSP12 Common Stock that were converted into
shares of PSI Common Stock, upon surrender of the certificates to The First
National Bank of Boston (the "Exchange Agent"), shall be entitled to receive
certificates representing the number of whole shares of PSI Common Stock into
which the shares of PSP12 Common Stock shall have been converted and cash
payment in lieu of fractional share interests, if applicable. As soon as
practicable after the Merger, the Exchange
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<PAGE>
Agent will send a notice and a transmittal form to each holder of record whose
PSP12 Common Stock shall have been converted into PSI Common Stock, advising of
the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent certificates evidencing PSP12 Common Stock in exchange for
certificates evidencing PSI Common Stock. HOLDERS OF PSP12 COMMON STOCK WHO
INTEND TO RECEIVE PSI COMMON STOCK IN THE MERGER SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS FROM THE EXCHANGE AGENT WHICH WILL BE MAILED AFTER CONSUMMATION OF
THE MERGER.
Until surrendered, each outstanding certificate which represents shares of
PSP12 Common Stock that were converted into shares of PSI Common Stock will be
deemed for all corporate purposes to evidence ownership of the number of whole
shares of PSI Common Stock into which the PSP12 Common Stock evidenced thereby
were converted. However, until the certificates formerly evidencing PSP12 Common
Stock are surrendered, no dividend payable to holders of record of the PSI
Common Stock shall be paid to the holders of such certificates, but upon
surrender of the certificates by the holders they will be entitled to receive
the dividends (without interest) previously paid with respect to such PSI Common
Stock as of any record date on or subsequent to the effectiveness of the Merger.
After the Merger, there will be no further registration of transfers of PSP12
Common Stock on the records of PSP12 and, if certificates formerly evidencing
such shares are presented, they will be cancelled and exchanged for certificates
evidencing PSI Common Stock.
FRACTIONAL SHARES. No fractional shares of PSI Common Stock will be issued
in the Merger. In lieu of any fractional share interests, each holder of PSP12
Common Stock who would otherwise be entitled to a fractional share of PSI Common
Stock will, upon surrender of the certificate representing such PSP12 Common
Stock, receive a whole share of PSI Common Stock if such fractional share to
which such holder would otherwise have been entitled is .5 of a share or more,
and such fractional share shall be disregarded if it represents less than .5 of
a share; provided that such fractional share shall not be disregarded if it
represents .5 of 1% or more of the total number of shares of PSI Common Stock
such holder is entitled to receive in the Merger. In such event, the holder will
be paid an amount in cash (without interest), rounded to the nearest $.01,
determined by multiplying (i) the per share closing price on the NYSE of the PSI
Common Stock at the time of effectiveness of the Merger by (ii) the fractional
interest.
RESTRICTIONS ON OTHER ACQUISITIONS. PSP12 has agreed not to initiate,
solicit or encourage, directly or indirectly, any inquiries or the making of any
proposal with respect to a merger, consolidation, share exchange or similar
transaction involving them, or any purchase of all or any significant portion of
its assets, or any equity interest in it, other than the transactions
contemplated by the Merger Agreement, or engage in any negotiations concerning,
or provide any confidential information or data to, or have discussions with,
any person relating to such a proposal, provided that the PSP12 Board of
Directors on behalf of PSP12 may furnish or cause to be furnished information
and may participate in such discussions and negotiations through its
representatives with persons who have sought the same if the failure to provide
such information or participation in the negotiations and discussions might
cause the members of the PSP12 Board of Directors to breach its fiduciary duty
to PSP12 Shareholders under applicable law as advised by counsel. PSP12 has
agreed to notify PSI immediately if inquiries or proposals are received by, any
such information is requested from, or negotiations or discussions are sought to
be initiated or continued with it, and to keep PSI informed of the status and
terms of any such proposals and any such negotiations or discussions.
DISTRIBUTIONS. Pending the Merger, PSP12 is precluded from declaring or
paying any dividend on its capital stock or making any other distribution to its
shareholders other than (i) regular dividends at a quarterly rate not in excess
of $.33 per share, (ii) dividends to shareholders of record of PSP12 immediately
prior to the effectiveness of the Merger equal to the amount by which PSP12's
estimated net asset value at such date exceeds the estimated net asset value at
September 30, 1996 and (iii) Required REIT Distributions. See "Determination of
Payments to be Received by PSP12 Shareholders in Connection with the Merger."
CASH ELECTION PROCEDURE
Each holder of record of PSP12 Common Stock may make a Cash Election and
have its shares of PSP12 Common Stock converted into the right to receive cash
in the Merger. If the aggregate number of shares of PSP12 Common Stock as to
which Cash Elections are made, together with shares of PSP12 Common Stock owned
by
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<PAGE>
Dissenting Shareholders (see "Dissenting Shareholders' Rights of Appraisal"), is
20% or less than the number of shares of PSP12 Common Stock outstanding as of
the record date for the meeting of shareholders of PSP12, all such shares as to
which Cash Elections are made shall be converted into the right to receive cash
in the Merger. If the aggregate number of such shares (together with any
Dissenting Shares) is more than 20%, such shares shall be converted into the
right to receive cash in the Merger on a pro rata basis, and the balance of such
shares shall be converted into PSI Common Stock. For a discussion of the
federal income tax consequences to PSP12 Shareholders receiving both cash and
PSI Common Stock in connection with the Merger, see "Certain Federal Income Tax
Matters -- The Merger -- PSP12 Shareholders Receiving Cash and PSI Common
Stock."
All Cash Elections are to be made on a cash election form (a "Cash Election
Form"). Holders of record of shares of PSP12 Common Stock who hold such shares
as nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Cash Election Forms, provided that such Representative
certifies that each such Cash Election Form covers all the shares of PSP12
Common Stock held by such Representative for a particular beneficial owner. Any
Cash Election Form may be revoked by written notice received by American Stock
Transfer & Trust Company (The "Depositary") prior to 5:00 p.m., New York time,
on the last business day before the day of the meeting of shareholders. In
addition, all Cash Election Forms will automatically be revoked if the
Depositary is notified in writing that the Merger has been abandoned.
IF A PSP12 SHAREHOLDER DOES NOT PROPERLY COMPLETE AND RETURN THE CASH
ELECTION FORM, HE OR SHE WILL RECEIVE PSI COMMON STOCK IN THE MERGER. A PSP12
SHAREHOLDER MAY NOT MAKE A CASH ELECTION AS TO LESS THAN ALL OF THE SHARES OF
PSP12 COMMON STOCK OWNED BY SUCH SHAREHOLDER. A Cash Election Form is being sent
to PSP12 Shareholders of record on July 25, 1996. To be effective, a Cash
Election Form must be properly completed and signed and must be received by the
Depositary accompanied by all stock certificates representing shares of PSP12
Common Stock held by the person submitting such Cash Election Form to which the
Cash Election Form relates (or by a guarantee of delivery of such certificates
in the form and on the terms set forth in the Cash Election Form (a "Guaranteed
Delivery")) no later than 5:00 p.m. New York City Time on September 10, 1996. If
a Cash Election Form is properly revoked, the certificate or certificates (or
any guarantee of delivery) in respect of the PSP12 Common Stock to which the
Cash Election Form relates will be promptly returned by the Depositary. The
Depositary may determine whether or not elections to receive cash have been
properly made or revoked, and any such determination shall be conclusive and
binding.
HOLDERS OF SHARES OF PSP12 COMMON STOCK WHO WISH TO SUBMIT CASH ELECTION
FORMS SHOULD DELIVER THEIR STOCK CERTIFICATES WITH SUCH CASH ELECTION FORMS OR
PROVIDE FOR, AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY.
ANY HOLDER OF PSP12 COMMON STOCK WHO DOES NOT SUBMIT A PROPERLY COMPLETED
AND SIGNED CASH ELECTION FORM ACCOMPANIED BY THE APPLICABLE STOCK CERTIFICATES
(OR PROVIDE FOR, AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY) WHICH
IS RECEIVED BY THE DEPOSITARY PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
SEPTEMBER 10, 1996 WILL RECEIVE PSI COMMON STOCK IN THE MERGER. IF PSI OR THE
DEPOSITARY DETERMINES THAT ANY PURPORTED CASH ELECTION WAS NOT PROPERLY MADE,
SUCH PURPORTED CASH ELECTION WILL BE DEEMED TO BE OF NO FORCE AND EFFECT AND THE
HOLDER OF PSP12 COMMON STOCK MAKING SUCH PURPORTED CASH ELECTION WILL, FOR
PURPOSES HEREOF, RECEIVE PSI COMMON STOCK IN THE MERGER. NONE OF PSI, PSP12, OR
THE DEPOSITARY WILL BE UNDER ANY OBLIGATION TO NOTIFY ANY PERSON OF ANY DEFECT
IN A CASH ELECTION FORM.
The tax consequences of receiving cash and/or PSI Common Stock are
different. See "Certain Federal Income Tax Matters -- The Merger."
CONSEQUENCES TO PSP12 IF THE MERGER IS NOT COMPLETED
If the Merger is not completed, PSP12 will remain as a separate legal
entity and will continue to operate its properties.
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COSTS OF THE MERGER
It is estimated that the total consideration (cash and PSI Common Stock) to
be paid by PSI to purchase all of the PSP12 Common Stock and PSP12 Common Stock
Series B and C (other than shares held by PSI) in the Merger and to pay related
costs and expenses would be $40,923,000 (less the amount of any Required REIT
Distributions) and that the total amount of funds that would be required by PSI
to purchase the PSP12 Common Stock from PSP12 Shareholders making Cash Elections
and to pay the cost and expenses of the Merger would be $8,491,000 (assuming
maximum Cash Elections and no Required REIT Distributions). These amounts will
be paid from PSI's working capital or with funds borrowed under credit
facilities with a group of banks for which Wells Fargo Bank, National
Association acts as agent. These credit facilities aggregate $125,000,000 and
bear interest at LIBOR plus .75% to 1.25%. PSI intends to repay amounts borrowed
under these facilities from the public or private placement of securities or
from PSI's undistributed cash flow.
If the Merger is not completed, all costs incurred in connection with the
Merger will be paid by the party incurring such costs, except that PSI will pay
one-half of the cost of any expenses incurred in connection with the printing of
this Proxy Statement and Prospectus and related registration statement, the
Appraisal, environmental audits and preparation for real estate closings and
filing fees and PSP12 will pay the other one-half of such costs. PSP12's share
of such costs would be paid from its working capital. If the Merger is
completed, all costs incurred by PSI and PSP12 in connection with the Merger
will be paid by PSI.
The following is a statement of certain fees and expenses estimated to be
incurred in connection with the Merger (exclusive of amounts paid as a result of
Cash Elections).
<TABLE>
<CAPTION>
Preclosing Transaction Costs
<S> <C>
Printing and Mailing $ 200,000
Proxy Solicitation 25,000
Legal 40,000
Real Estate Appraisal and Fairness Opinion 105,000
Registration, Listing and Filing Fees 70,000
Accounting 20,000
Other 15,000
---------
Subtotal 475,000
Closing Transaction Costs
Transfer Fees 106,000
Legal 35,000
Title endorsements and escrow 130,000
Other 14,000
---------
Subtotal 285,000*
---------
TOTAL $ 760,000
=========
_______________
</TABLE>
* Would not be incurred if Merger is not approved.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase. Accordingly, the assets and
liabilities of PSP12 will be accounted for at fair market value based upon
independent appraisals and estimates in PSI's financial statements for periods
after the Merger.
REGULATORY REQUIREMENTS
The Merger is subject to compliance with federal and state securities law
requirements.
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<PAGE>
COMPARISON OF PSP12 COMMON STOCK WITH PSI COMMON STOCK
The information below compares certain attributes of the PSP12 Common Stock
with the PSI Common Stock. The effect of the Merger on PSP12 Shareholders who
receive PSI Common Stock in the Merger is set forth in italics below each
caption.
PSP12 PSI
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objectives The investment objectives of PSI are
are to provide (i) quarterly cash to maximize FFO allocable to holders
distributions from its operations of PSI Common Stock and to increase
and (ii) long-term capital gains shareholder value through internal
through appreciation in the value of growth and acquisitions. FFO is a
properties. supplemental performance measure for
equity REITs used by industry
Under the organizational documents of analysts. FFO does not take into
PSP12, it is not permitted to raise consideration principal payments on
new capital or to reinvest operating debt, capital improvements,
cash flow or sale or financing distributions and other obligations
proceeds. PSP12 will terminate on of PSI. Accordingly, FFO is not a
December 31, 2038, unless earlier substitute for PSI's net cash
dissolved. The predecessor of PSP12 provided by operating activities or
anticipated selling or financing its net income as a measure of PSI's
properties within seven to 10 years liquidity or operating performance.
after completion of development An increase in PSI's FFO will not
(i.e., between 1992 and 1995). necessarily correspond with an
increase in distributions to holders
of PSI Common Stock. See "--
Liquidity, Marketability and
Distributions."
PSI intends to continue its
operations for an indefinite period
of time and is not precluded from
raising new capital, including senior
securities that would have priority
over PSI Common Stock (including PSI
Common Stock issued in the Merger) as
to cash flow, distributions and
liquidation proceeds, or from
reinvesting cash flow or sale or
financing proceeds in new properties,
except to the extent such
reinvestment precludes PSI from
satisfying the REIT distribution
requirements. Therefore, PSI
Shareholders should expect to be able
to liquidate their investment only by
selling their shares in the market,
and the market value of the PSI
Common Stock may not necessarily
equal or exceed the market value of
PSI's assets or the net proceeds
which might be available for
distribution upon liquidation if PSI
were to liquidate. PSI has grown,
and intends to continue to grow, as
new investments are made.
PSP12 Shareholders who receive PSI Common Stock in the Merger will be
changing their investment from "finite-life" to "infinite-life"; they will be
able to realize the value of their investment only by selling the PSI Common
Stock. The interest of PSI Shareholders can be diluted through the issuance of
additional securities, including securities that would have priority over PSI
Common Stock as to cash flow, distributions and liquidation proceeds. PSI has
an effective registration statement for preferred stock, common stock and
warrants and intends to issue additional securities under this registration
statement. There is no assurance that any such securities will be issued. See
"Risk Factors and Material Considerations -- Uncertainty Regarding Market Price
of Common Stock" and "-- Financing Risks -- Dilution and Subordination."
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PS12 PSI
PSI has no plans with respect to a sale or financing of any of PSP12's
properties, except that PSI has, from time to time, considered whether to
transfer its business park properties to a separate affiliated or unaffiliated
corporation. PSI intends to continue to acquire properties from other parties.
BORROWING POLICIES
PSP12 is not permitted to borrow in Subject to certain limitations in
connection with the acquisition of PSI's Bylaws, PSI has broad powers to
properties. It is fully invested borrow in furtherance of its
and would distribute the proceeds investment objectives. PSI has
from a financing of properties. incurred in the past, and may incur
PSP12 does not generally incur in the future, both short-term and
borrowings in the ordinary course of long-term debt to increase its funds
business. available for investment in real
estate, capital expenditures and
distributions. As of March 31, 1996,
PSI's ratio of "Debt" (liabilities
other than "accrued and other
liabilities" and "minority interest"
that should, in accordance with GAAP,
be reflected on PSI's balance sheet)
to "Assets" (PSI's total assets that
should, in accordance with GAAP, be
reflected on PSI's balance sheet) was
approximately 6%.
PSI, unlike PSP12, incurs debt in the ordinary course of business and
reinvests proceeds from borrowings. The incurrence of debt increases the risk of
loss of investment.
TRANSACTIONS WITH AFFILIATES
The bylaws of PSP12 restrict it from PSI's Bylaws restrict PSI from
entering into a variety of business acquiring properties from its
transactions with affiliates. The affiliates or from selling properties
bylaws may be amended by a majority to them unless the transaction (i) is
vote of shareholders. See approved by a majority of PSI's
"Amendment to Bylaws of PSP12." independent directors and (ii) is
fair to PSI based on an independent
appraisal.
It is easier for PSI to enter into transactions with its affiliates than
in the case of PSP12 because shareholder approval is not required.
PROPERTIES (As of March 31, 1996)
PSP12 owns 13 wholly-owned properties PSI owns equity interests (directly,
in six states. For the year ended as well as through general and
December 31, 1995, the weighted limited partnership interests and
average occupancy level and realized capital stock interests) in 1,065
monthly rent per square foot of properties in 37 states, including
PSP12's mini-warehouses were 91% and 307 wholly owned properties. See
$.78, respectively. See "Description of PSI Properties."
"Description of PSP12's Properties."
Because PSI owns substantially more property interests in more states than
does PSP12, PSI's results of operations are less affected by the profitability
or lack of profitability of a single property than are those of PSP12 and it
would be more difficult to liquidate PSI than PSP12 within a reasonable period
of time.
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<PAGE>
PSP12 PSI
LIQUIDITY, MARKETABILITY AND DISTRIBUTIONS
The PSP12 Common Stock is traded on PSI Common Stock is traded on the
the AMEX. During the 12 months NYSE. During the 12 months ended
ended March 31, 1996, the average March 31, 1996, the average daily
daily trading volume of PSP12 Common trading volume of PSI Common Stock
Stock was 1,000 shares. PSP12 has was 62,200 shares (56,000 shares if
not issued any securities that have May 1995, during which PSI was
priority over the PSP12 Common Stock. engaged in a public offering of PSI
Common Stock, is excluded). PSI has
issued, and may in the future issue,
securities that have priority over
PSI Common Stock as to cash flow,
distributions and liquidation
proceeds.
Distributions may be declared by the boards of directors of PSP12 and PSI
out of any funds legally available for that purpose. As REITs, they are required
to distribute at least 95% of their ordinary REIT taxable income in order to
maintain their qualification as REITs, but, subject to certain limitations and
penalties, they can take into account subsequent year distributions for purposes
of satisfying this requirement. PSI distributes less than its cash available for
distribution (recently distributing amounts approximately equal to its taxable
income), permitting it to retain funds for additional investment and debt
reduction.
A PSP12 Shareholder who receives PSI Common Stock in the Merger should
have an investment for which the market is broader and more active than the
market for PSP12 Common Stock. Distributions of PSI Common Stock are subject,
however, to priority of preferred stock. See "Risk Factors and Material
Considerations -- Consequences of Loss of Qualification as a REIT,"
"Distributions and Price Range of PSI Common Stock" and "Distributions and Price
Range of PSP12 Common Stock" for information on trading prices of the PSP12 and
PSI Common Stock.
TAXATION
PSP12 and PSI were organized to qualify for taxation as REITs and intend
to continue to so qualify. As REITs, they generally are permitted to deduct
distributions to their shareholders, which effectively eliminates the "double
taxation" (at the corporate and shareholder levels) that typically results when
a corporation earns income and distributes that income to shareholders in the
form of dividends. Distributions received by PSP12 and PSI Shareholders
generally constitute portfolio income, which cannot offset "passive" income and
loss from other investments.
VOTING RIGHTS
PSP12 and PSI hold annual meetings, with each such meeting on a date
within 15 months of the prior annual meeting, at which the shareholders elect
the directors, with each shareholder entitled to cast as many votes as there are
directors to be elected, multiplied by the number of shares registered in his or
her name. Under California law, a majority vote of shareholders is required for
(i) the removal of directors, (ii) the dissolution of the company, (iii) the
amendment of certain provisions of the organizational documents and (iv) the
sale of all or substantially all of the company's assets.
MANAGEMENT AND DUTIES
PSP12 is managed by its board of PSI is managed by its board of
directors and executive officers. directors and executive officers. A
Two of the directors are independent majority of the directors of PSI are
directors and the third director is independent directors.
Hughes.
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<PAGE>
PSP12 PSI
Under California law, directors are accountable to a corporation and its
shareholders as fiduciaries and are required to perform their duties in good
faith, in a manner believed to be in the best interests of a corporation and
its shareholders and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. The liability of the directors of PSP12 and PSI is limited
pursuant to the provisions of California law and their organizational
documents, which limit a director's liability for monetary damages to the
respective corporation or its shareholders for breach of the director's duty
of care, where a director fails to exercise sufficient care in carrying out
the responsibilities of office. Those provisions would not protect a director
who knowingly did something wrong, or otherwise acted in bad faith, nor would
they foreclose any other remedy which might be available to the respective
corporation or its shareholders, such as the availability of non-monetary
relief. In addition, the organizational documents provide PSP12 and PSI with
the authority to indemnify its "agents" under certain circumstances for
expenses or liability incurred as a result of litigation. Under California
law, "agents" are defined to include directors, officers and certain other
individuals acting on a corporation's behalf. PSP12 and PSI have taken
advantage of those provisions and have entered into agreements with the
respective corporation's directors and executive officers, indemnifying them
to the fullest extent permitted by California law. To the extent that the
foregoing provisions concerning indemnification apply to actions arising under
the Securities Act, PSP12 and PSI have been advised that, in the opinion of
the Commission, such provisions are contrary to public policy and therefore
are not enforceable.
RESTRICTIONS ON TRANSFER AND ANTI-TAKEOVER PROVISIONS
For PSP12 to be taxed as a REIT, its For PSI to be taxed as a REIT, PSI
common stock must be widely held. Common Stock must be widely held. To
To aid PSP12 in meeting this aid PSI in meeting this requirement,
requirement, its board of directors PSI's articles of incorporation
is given the power to restrict the contain significant restrictions on
transfer of shares of capital stock the ownership of PSI Common Stock.
if the transfer could produce a PSI is authorized to issue
violation of this requirement. 200,000,000 shares of PSI Common
PSP12 cannot issue additional common Stock, of which approximately
and preferred stock without 77,000,000 shares are currently
shareholder approval. outstanding, and 50,000,000 shares of
preferred stock, of which
approximately 13,400,000 shares are
currently outstanding. Subject to
the rules of the NYSE and applicable
provisions of California law, PSI can
issue authorized common and preferred
stock without shareholder approval.
See "Description of PSI Capital Stock
-- Effects of Issuance of Capital
Stock," "-- Ownership Limitations"
and "Certain Federal Income Tax
Matters -- General Tax Treatment of
PSI."
Given the ownership level of PSI Common Stock by the Hughes Family and
PSI's greater flexibility to issue capital stock, including senior securities
with special voting rights and priority over common stock, PSI should be in a
better position to deter attempts to obtain control in transactions not
approved by its board of directors than PSP12, and shareholders of PSI could be
less likely to benefit from a takeover not approved by PSI's board of directors
than would shareholders of PSP12 in a similar circumstance.
LIMITED LIABILITY OF INVESTORS
Under California law, shareholders are not generally liable for corporate
debts or obligations. The PSP12 and PSI Common Stock are nonassessable.
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<PAGE>
REVIEW OF SHAREHOLDER LISTS
Under applicable law, a shareholder is entitled, upon written demand, to
inspect and copy the record of shareholders, at any time during usual business
hours, for a purpose reasonably related to his or her interest as a
shareholder.
AMENDMENT TO BYLAWS OF PSP12
A provision of the bylaws of PSP12 prohibits the sale of property to
affiliates. Because this would arguably apply to the Merger, PSP12 is proposing
an amendment to its bylaws that expressly authorizes a merger with PSI provided
any such merger is approved by the majority of outstanding shares of the PSP12
Common Stock. The proposed amendment has been approved by the PSP12 Board of
Directors who recommend that PSP12 Shareholders vote FOR the proposal. Appendix
E contains a complete text of the proposed amendment.
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<PAGE>
APPROVAL OF THE MERGER AND BYLAW AMENDMENT
GENERAL
This Proxy Statement and Prospectus and the enclosed proxy are first being
mailed on or about __________, 1996 to the shareholders of PSP12 in connection
with the solicitation by the PSP12 Board of Directors for use at the special
meeting of the shareholders of PSP12 (and at any adjournment) to consider and
vote upon the Merger and the Bylaw amendment.
If a proxy in the accompanying form is properly executed and returned
before the voting, the shares represented thereby will be voted in the manner
specified on the proxy. If no specification is made, the shares held by PSP12
Shareholders will be voted in favor of the Merger and the Bylaw amendment. A
proxy is revocable by delivering a subsequently signed and dated proxy or other
written notice to the Secretary of PSP12 at any time before its exercise. A
proxy may also be revoked if the person executing the proxy is present at the
meeting and chooses to vote in person.
Holders of record at the close of business on July 25, 1996 of PSP12 Common
Stock and of PSP12 Common Stock Series B and C will be entitled to receive
notice of and to vote at the meeting. On such date, there were outstanding
1,730,199 shares of PSP12 Common Stock and 707,071 shares of PSP12 Common Stock
Series B and C, and each share is entitled to one vote on the Merger and the
Bylaw amendment. Presence, in person or by proxy, of a majority of the shares
of PSP12 Common Stock and of PSP12 Common Stock Series B and C, counted together
as a single class, constitutes a quorum. As of the record date, PSI and Hughes
beneficially owned 33,424 shares of PSP12 Common Stock and 591,301 shares of
PSP12 Common Stock Series B and C (approximately 25.63% of the total combined
outstanding shares of PSP12 Common Stock and PSP12 Common Stock Series B and C)
and the directors and executive officers of PSP12, excluding Hughes,
beneficially owned an additional 15,850 shares of PSP12 Common Stock and 53,265
shares of PSP12 Common Stock Series B and C (approximately 2.84% of the total
combined outstanding shares of PSP12 Common Stock and PSP12 Common Stock Series
B and C).
The affirmative vote of a majority of the shares of PSP12 Common Stock and
PSP12 Common Stock Series B and C outstanding and entitled to vote on the record
date, counted together as a single class, is required under California law to
approve the Merger and the Bylaw amendment. Accordingly, for these purposes, an
abstention or a broker non-vote will have the same effect as a vote against the
Merger and the Bylaw amendment. The shares of PSP12 Common Stock Series B and C
will be voted with the holders of a majority of the unaffiliated shares of PSP12
Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PSP12. The following table sets forth information as of July 25, 1996 with
respect to the person known to PSP12 to be the beneficial owner of more than 5%
of the total combined outstanding shares of PSP12 Common Stock and PSP12 Common
Stock Series B and C:
<TABLE>
<CAPTION>
Shares of PSP 12 Common Stock
and PSP12 Common Stock Series B
and C Beneficially Owned(1)
-----------------------------------
Number
Name and Address of Shares(2)(3) Percent
---------------- --------------- -------
<S> <C> <C>
PSI A: 29,724(4) A: 1.72%
701 Western Avenue, 2nd Floor B: 151,843(4) B: 82.32%
Glendale, California 91201-2397 C: 439,458(4) C: 84.09%
-------- ------
621,025(4)(5) 25.48%
</TABLE>
___________
(Footnotes are set forth following the next table).
52
<PAGE>
The following table sets forth information as of July 25, 1996 concerning
the beneficial ownership of PSP12 Common Stock and PSP12 Common Stock Series B
and C of each director of PSP12 (including Hughes, the chief executive officer)
and of all directors and executive officers of PSP12 as a group:
<TABLE>
<CAPTION>
Shares of PSP12 Common Stock
and PSP12 Common Stock Series B
and C Beneficially Owned(1)
--------------------------------------
Number
Name of Shares(2)(3) Percent
---- --------------- -------
<S> <C> <C>
B. Wayne Hughes A: 4,124.0(6) A: 0.24%
B: 36,890.6(6) B: 20.00%
C: 80,523.6(6) C: 15.41%
-------- -----
121,538.2(5)(6) 4.99%
Vern O. Curtis A: 500.0 (7)
Jack D. Steele A: 1,400.0(8) (7)
All Directors and Executive Officers as A: 19,974.0(6)(8)(9) A: 1.15%
a Group (eight persons) B: 53,195.6(6) B: 28.84%
C: 117,483.6(6) C: 22.48%
--------- ------
190,653.2(5)(6)(8)(9) 7.82%
</TABLE>
_________________
(1) Except as otherwise indicated and subject to applicable community property
and similar statutes, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to the shares.
(2) Capital letters "A", "B" and "C" denote share information with respect to
PSP12 Common Stock and PSP12 Common Stock Series B and C, respectively.
(3) PSP12's Articles of Incorporation provide that the Common Stock Series B
and C will convert automatically into PSP12 Common Stock on a share-for-
share basis when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the PSP12 Common Stock
(including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative PSP12
Partnership distributions from all sources with respect to all PSP12
Partnership units (including the general partners' 1% interest) equals (B)
the product of $20 multiplied by the number of then outstanding "Original
Series A Shares." The term "Original Series A Shares" means the shares of
PSP12 Common Stock issued in the Reorganization.
(4) Includes (i) 29,300 shares of PSP12 Common Stock, 114,952.4 shares of PSP12
Common Stock Series B and 358,934.4 shares of PSP12 Common Stock Series C
owned by PSI as to which PSI has sole voting and dispositive power and (ii)
424 shares of PSP12 Common Stock, 36,890.6 shares of PSP12 Common Stock
Series B and 80,523.6 shares of PSP12 Common Stock Series C which PSI has
an option to acquire (together with other securities) from Hughes as
trustee of the B.W. Hughes Living Trust and as to which PSI has sole voting
power (pursuant to an irrevocable proxy) and no dispositive power.
(5) Includes PSP12 Common Stock and PSP12 Common Stock Series B and C.
(6) Includes (i) 424 shares of PSP12 Common Stock, 36,890.6 shares of PSP12
Common Stock Series B and 80,523.6 shares of PSP12 Common Stock Series C
owned by Hughes as trustee of the B.W. Hughes Living Trust as to which
Hughes has sole dispositive power and no voting power; PSI has an option to
acquire these shares and an irrevocable proxy to vote these shares (see
footnote (4) above), and (ii) 3,700 shares of PSP12 Common Stock owned by
Hughes' wife as trustee FBO Parker Hughes Trust dtd 3/7/91.
53
<PAGE>
(7) Less than 0.1%.
(8) Includes 600 shares of PSP12 Common Stock held by a bank custodian of a SEP
for the benefit of Mr. Steele and 800 shares of PSP12 Common Stock held by
a bank custodian of an individual retirement account for the benefit of Mr.
Steele's wife.
(9) Includes shares held of record or beneficially by members of the immediate
family of officers of PSP12 and shares held by custodians of individual
retirement accounts for the benefit of officers of PSP12 (or members of
their immediate families).
PSI. The following table sets forth information with respect to persons
known to PSI to be the beneficial owners of more than 5% of the outstanding
shares of PSI Common Stock:
<TABLE>
<CAPTION>
Shares of PSI Common Stock
Beneficially Owned
---------------------------
Number
Name and Address of Shares Percent
---------------- ---------- -------
<S> <C> <C>
B. Wayne Hughes, B. Wayne Hughes, Jr.
Parker Hughes Trust No. 2, Tamara L. Hughes,
PS Orangeco, Inc. ("PSOI") 37,191,266 48.3%
701 Western Avenue, Suite 200
Glendale, California 91201-2397
PS Insurance Company, Ltd. ("PSIC")
41 Cedar Avenue
Hamilton, Bermuda(1)
FMR Corp. 5,468,355 7.1%
82 Devonshire Street
Boston, Massachusetts 02109(2)
</TABLE>
___________
(1) This information is as of June 28, 1996. The reporting persons listed above
(the "PSI Reporting Persons") have filed a joint Schedule 13D, amended as
of March 26, 1996. The number of shares of PSI Common Stock beneficially
owned by the PSI Reporting Persons at June 28, 1996 includes 6,522 shares
which can be acquired upon conversion of 3,875 shares of 8.25% Convertible
Preferred Stock which are beneficially owned by the PSI Reporting Persons.
The common stock of PSOI (representing approximately 5% of the equity) is
owned one-third each by B. Wayne Hughes, Tamara L. Hughes (an adult
daughter of B. Wayne Hughes) and B. Wayne Hughes, Jr. (an adult son of B.
Wayne Hughes), and the non-voting preferred stock of PSOI (representing
approximately 95% of the equity) is owned by PSI. The stock of PSIC is
owned approximately 45% by B. Wayne Hughes, 47% by Tamara L. Hughes and 8%
by B. Wayne Hughes, Jr. Tamara L. Hughes is the trustee of Parker Hughes
Trust No. 2, an irrevocable trust for the benefit of a minor son of B.
Wayne Hughes. Each of the PSI Reporting Persons disclaims the existence of
a group within the meaning of Section 13(d)(3) of the Exchange Act. B.
Wayne Hughes, Tamara L. Hughes and B. Wayne Hughes, Jr. share voting and
dispositive power with respect to the 30,777 shares owned by PSOI, and B.
Wayne Hughes and Tamara L. Hughes share voting and dispositive power with
respect to the 301,032 shares owned by PSIC. B. Wayne Hughes disclaims
beneficial ownership of the shares owned by B. Wayne Hughes, Jr., Parker
Hughes Trust No. 2 and Tamara L. Hughes (an aggregate of 17,552,044 shares
(exclusive of the shares owned by PSOI and PSIC) or approximately 22.8% of
the shares of PSI Common Stock outstanding (or deemed to be outstanding) as
of June 28, 1996). Each of the other PSI Reporting Persons disclaims
beneficial ownership of the shares owned by any other PSI Reporting Person.
(2) This information is as of December 31, 1995 and is based on a Schedule 13G
filed by FMR Corp. (except that the percent shown in the table is based on
the shares of PSI Common Stock outstanding at June 28, 1996). As of
December 31, 1995, FMR Corp. beneficially owned 5,468,355 shares of PSI
Common Stock. This number includes 5,136,100 shares beneficially owned by
Fidelity Management & Research Company, as a result of its
54
<PAGE>
serving as investment adviser to several investment companies registered
under Section 8 of the Investment Company Act of 1940, and 332,255 shares
beneficially owned by Fidelity Management Trust Company, as a result of its
serving as investment manager of various institutional accounts. FMR Corp.
has sole voting power with respect to 332,255 shares and sole dispositive
power with respect to 5,468,355 shares.
The following table sets forth information as of June 28, 1996 concerning
the beneficial ownership of PSI Common Stock of each director of PSI (including
Hughes, the chief executive officer) and of all directors and executive officers
of PSI as a group:
<TABLE>
<CAPTION>
Shares of PSI Common Stock:
Beneficially Owned(1)
Shares Subject to Options(2)
Shares Issuable Upon Conversion
of Convertible Preferred Stock(3)
---------------------------------
Name Positions Number of Shares Percent
---- --------- ---------------- -------
<S> <C> <C> <C>
B. Wayne Hughes Chairman of the Board and
Chief Executive Officer 19,639,222(1)(4) 25.5%
Harvey Lenkin President and Director 584,080(1)(5) 0.8%
10,000(2) *
4,040(3) *
------- ----
598,120 0.8%
Robert J. Abernethy Director 65,591(1) *
20,833(2) *
------ ----
86,424 0.1%
Dann V. Angeloff Director 79,219(1)(6) 0.1%
833(2) *
------ ----
80,052 0.1%
William C. Baker Director 10,000(1) *
20,833(2) *
------- ----
30,833 *
Uri P. Harkham Director 495,829(1)(7) 0.6%
833(2) *
------- ----
496,662 0.6%
All Directors and Executive Officers
as a Group (14 persons) 21,221,877(1)(4)(5)
(6)(7)(8) 27.6%
236,494(2) 0.3%
16,664(3) *
---------- -----
21,475,035 27.8%
</TABLE>
_______________
* Less than 0.1%
(1) Shares of PSI Common Stock beneficially owned as of June 28, 1996. Except
as otherwise indicated and subject to applicable community property and
similar statutes, the persons listed as beneficial owners of the shares
have sole voting and investment power with respect to such shares.
55
<PAGE>
(2) Represents vested portion, as of June 28, 1996, and portion of which will
be vested within 60 days of June 28, 1996, of shares of PSI Common Stock
subject to options granted to the named individuals or the group pursuant
to PSI's 1990 Stock Option Plan and 1994 Stock Option Plan.
(3) Represents shares of PSI Common Stock which can be acquired upon conversion
of the shares of 8.25% Convertible Preferred Stock which are beneficially
owned as of June 28, 1996 by the named individuals or the group.
(4) Includes 19,270,295 shares held of record by the B.W. Hughes Living Trust
as to which Mr. Hughes has voting and investment power, 1,414 and 1,409
shares, respectively, held by custodians of IRAs for Mr. Hughes and Mrs.
Kathleen Hughes as to which each has investment power, 4,826 shares held by
Mrs. Hughes as to which she has investment power and 29,469 shares held by
Mrs. Hughes as custodian FBO Parker Hughes Trust dated 3/7/91. Also
includes 30,777 shares held of record by PSOI as to which Mr. Hughes,
Tamara L. Hughes and B. Wayne Hughes, Jr. share voting and dispositive
power and 301,032 shares held of record by PSIC as to which Mr. Hughes and
Tamara L. Hughes share voting and dispositive power.
(5) Includes 1,172 and 734 shares, respectively, held by custodians of IRAs for
Mr. Lenkin and Mrs. Lenkin as to which each has investment power, 300
shares held by Mrs. Lenkin, 500 shares and 150 shares, respectively, held
by Mrs. Lenkin as custodian for two sons and 100 shares held by a custodian
of an IRA for a son. Also includes 540,000 shares held of record by the
Public Storage, Inc. Profit Sharing Plan and Trust (the "PSI Plan") as to
which Mr. Lenkin, as a member of the PSI Plan's Advisory Committee, shares
the power to direct voting and disposition and as to which Mr. Lenkin
expressly disclaims beneficial ownership.
(6) Includes 5,034 shares held by a custodian of an IRA for Mr. Angeloff, 2,185
shares held by Mr. Angeloff as trustee of Angeloff's Children's Trust and
70,000 shares held by Mr. Angeloff as trustee of Angeloff Family Trust.
(7) Includes 76,400 shares held by Mr. Harkham as trustee of Jonathan Martin
Profit Sharing Plan, 371,179 shares held by Harkham Industries, Inc. (dba
Jonathan Martin, Inc.), a corporation wholly owned by Mr. Harkham, 10,013
shares held by Mr. Harkham as trustee of Uri Harkham Trust, 13,172 shares
held by Jonathan Martin, Inc. Employee Profit Sharing Plan, 650 and 690
shares, respectively, held by custodians of IRAs for Mr. Harkham and Mrs.
Harkham as to which each has investment power, and 1,725, 1,800, 1,700,
1,800 and 1,700 shares, respectively, held by Mr. Harkham as custodian for
five of his children.
(8) Includes shares held of record or beneficially by members of the immediate
family of executive officers of PSI and shares held by custodians of IRAs
for the benefit of executive officers of PSI.
56
<PAGE>
The following tables set forth information as of June 28, 1996 concerning
the remaining security ownership of each director of PSI (including Hughes, the
chief executive officer) and of all directors and executive officers of PSI as a
group:
<TABLE>
<CAPTION>
Shares of 8.25% Convertible Shares of 10% Cumulative
Preferred Stock Preferred Stock, Series A
Beneficially Owned(1) Beneficially Owned(1)
--------------------- ---------------------
Number Number
Name of Shares Percent of Shares Percent
---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
B. Wayne Hughes -- -- -- --
Harvey Lenkin 2,400(1)(2) 0.1% -- --
Robert J. Abernethy -- -- -- --
Dann V. Angeloff -- -- -- --
William C. Baker -- -- -- --
Uri P. Harkham -- -- -- --
All Directors and Executive Officers
as a Group (14 persons) 9,900(1)(2)(3) 0.4% 1,460(1)(3) *
<CAPTION>
Shares of 9.20% Cumulative Shares of Adjustable Rate
Preferred Stock, Cumulative Preferred Stock,
Series B Series C
Beneficially Owned(1) Beneficially Owned(1)
--------------------- ---------------------
Number Number
Name of Shares Percent of Shares Percent
----- --------- ------- --------- -------
<S> <C> <C> <C> <C>
B. Wayne Hughes -- -- -- --
Harvey Lenkin -- -- 29,300(1)(4) 2.4%
Robert J. Abernethy -- -- -- --
Dann V. Angeloff -- -- -- --
William C. Baker -- -- -- --
Uri P. Harkham -- -- -- --
All Directors and Executive Officers
as a Group (14 persons) 4,000(1)(3) 0.2% 29,800(1)(3)(4) 2.5%
</TABLE>
______________
* Less than 0.1%
(1) Shares of PSI 8.25% Convertible Preferred Stock, 10% Cumulative Preferred
Stock, Series A, 9.20% Cumulative Preferred Stock, Series B, or Adjustable
Rate Cumulative Preferred Stock, Series C, as applicable, beneficially
owned as of June 28, 1996. Except as otherwise indicated and subject to
applicable community property and similar statutes, the persons listed as
beneficial owners of the shares have sole voting and investment power with
respect to such shares.
(2) Includes 100 shares held by Mrs. Lenkin and 300 shares held by Mrs. Lenkin
as custodian for a son.
(3) Includes shares held of record or beneficially by members of the immediate
family of executive officers of PSI and shares held by custodians of IRAs
for the benefit of executive officers of PSI.
57
<PAGE>
(4) Shares held of record by the PSI Plan as to which Mr. Lenkin, as a member
of the PSI Plan's Advisory Committee, shares the power to direct voting and
disposition and as to which Mr. Lenkin expressly disclaims beneficial
ownership.
As of June 28, 1996, the directors and executive officers of PSI did not
own any shares of PSI's 9.50% Cumulative Preferred Stock, Series D, 10%
Cumulative Preferred Stock, Series E, 9.75% Cumulative Preferred Stock, Series
F, Depositary Shares, each representing 1/1,000 of a Share of 8 7/8% Cumulative
Preferred Stock, Series G, Depositary Shares, each representing 1/1,000 of a
Share of 8.45% Cumulative Preferred Stock, Series H, Convertible Preferred
Stock, Series CC or Class B Common Stock (the Class B Common Stock is owned by
Tamara L. Hughes and B. Wayne Hughes, Jr.).
SOLICITATION OF PROXIES
PSP12 will pay its cost of soliciting proxies. In addition to solicitation
by mail, certain directors, officers and regular employees of PSP12 and its
affiliates may solicit the return of proxies by telephone, telegraph, personal
interview or otherwise. PSP12 may also reimburse brokerage firms and other
persons representing the beneficial owners of PSP12 Common Stock for reasonable
expenses in forwarding proxy solicitation materials to such beneficial owners.
Shareholder Communications Corporation may be retained to assist PSP12 in
solicitation of proxies at an estimated cost of $20,000.
58
<PAGE>
DESCRIPTION OF PSP12'S PROPERTIES
PSP12 owns a total of 13 properties: ten mini-warehouses, two business
parks and one property that combines mini-warehouse and business park space.
The following table contains information as of December 31, 1995 about PSP12's
properties. Pursuant to the Merger, these properties would be acquired by PSI.
<TABLE>
<CAPTION>
Size of Net Number
Parcel Rentable of Date
Location (Acres) Square Feet Spaces Opened
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA
Mesa, Country Club Dr. 1.95 61,000 567 February 1985
Tempe, McKellips Rd.(1) 3.38 77,000 481 March 1985
CALIFORNIA
Glendale, San Fernando Rd. 2.29 88,000 951 January 1985
Irvine, Cowan St. 2.85 108,000 1,038 May 1985
San Francisco, Geary Blvd. 0.44 61,000 913 May 1985
Torrance, Crenshaw Blvd.(2) 1.69 32,000 17 January 1986
NEVADA
Las Vegas, Decatur Blvd. 2.00 64,000 573 January 1985
OHIO
Cincinnati, Dixie Highway 2.92 48,000 432 March 1985
TEXAS
Fort Worth, Interstate 30 1.76 51,000 468 October 1984
Houston, Harwin Dr. 3.10 66,000 571 December 1984
Houston, Gulf Freeway 3.61 54,000 558 March 1985
Richland Hills, State Hwy. 121 3.50 42,000 510 May 1985
VIRGINIA
Alexandria, Eisenhower Ave.(2) 5.01 95,000 46 November 1985
</TABLE>
_______________
(1) Facility combines mini-warehouse and business park space.
(2) Business park facility.
As of the date of this Proxy Statement and Prospectus, each of these
properties is generating sufficient revenues to cover its operating expenses.
None of the properties is subject to any material mortgage, lien, or any
encumbrance other than liens for taxes and assessments not yet due or payable,
utility easements or other immaterial liens or encumbrances. Each of the
properties will continue to be used for its current purpose. PSP12 believes
each property is adequately covered by insurance.
59
<PAGE>
As reflected in the table below, PSP12 has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
---------------------------- --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level (1) 88% 89% 91% 90% 88%
Realized monthly rent per occupied
square foot (1)(2) $.71 $.75 $.78 $.75 $.78
</TABLE>
___________________
(1) Mini-warehouses only.
(2) Realized monthly rent per occupied square foot represents the actual revenue
earned per occupied square foot. PSP12 believes this is a more relevant
measure than the posted rental rates, since posted rates can be discounted
through the use of promotions.
Additional information is set forth below with respect to the San
Francisco/Geary Boulevard, Glendale/San Fernando Road, Irvine/Cowan Street and
Alexandria/Eisenhower Avenue properties because they are the only properties
with a book value of at least 10% of PSP12's total assets or that have accounted
for at least 10% of PSP12's aggregate gross revenues.
SAN FRANCISCO/GEARY BOULEVARD. This property is situated on the northeast
corner of Geary Boulevard and Emerson Street, approximately 1 1/2 miles west of
downtown San Francisco. The site is visible and accessible from Geary Boulevard.
The area surrounding the site consists of a mixture of residential and retail
establishments. No tenant occupies 10% or more of the rentable area.
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated.
<TABLE>
<CAPTION>
Occupancy Annual Scheduled
Date Rate Rent Per Square Foot
---- --------- --------------------
<S> <C> <C>
December 31, 1995 96% $20.76
December 31, 1994 93 19.56
December 31, 1993 94 19.56
December 31, 1992 93 18.36
December 31, 1991 98 17.76
</TABLE>
GLENDALE/SAN FERNANDO ROAD. This property is located on the east side of
San Fernando Road approximately six miles north of downtown Los Angeles. Among
the businesses established along San Fernando Road are retail, light industrial
and commercial developments. The residential market consists of single and
multi-family developments. No tenant occupies 10% or more of the rentable area.
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated.
<TABLE>
<CAPTION>
Occupancy Annual Scheduled
Date Rate Rent Per Square Foot
---- --------- --------------------
<S> <C> <C>
December 31, 1995 92% $11.88
December 31, 1994 90 11.88
December 31, 1993 88 12.00
December 31, 1992 86 12.12
December 31, 1991 87 12.96
</TABLE>
60
<PAGE>
IRVINE/COWAN STREET. This property is located on the east side of Cowan
Street, the frontage road to the Newport Freeway (State Highway 55). Irvine is
located approximately 37 miles south of Los Angeles. The Newport Beach business
district is approximately one mile south of the site. The business environment
in which the site is situated consists of a concentration of office facilities,
research and development firms, and light industrial establishments. John Wayne
Airport is located approximately 3 1/2 miles southeast of the site. Residential
development near the site consists of single and multi-family structures. No
tenant occupies 10% or more of the rentable area.
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated.
<TABLE>
<CAPTION>
Occupancy Annual Scheduled
Date Rate Rent Per Square Foot
---- --------- --------------------
<S> <C> <C>
December 31, 1995 83% $9.12
December 31, 1994 85 9.00
December 31, 1993 85 8.76
December 31, 1992 85 8.64
December 31, 1991 86 7.80
</TABLE>
ALEXANDRIA/EISENHOWER AVENUE. This property is a business park located on
the north side of Eisenhower Avenue in Alexandria, Virginia, approximately six
miles west of downtown Alexandria. The site is surrounded by a business
community which includes office buildings and light industrial developments,
many of which are located along Eisenhower Avenue. Residential development
consists of a mixture of single and multi-family homes, apartment complexes and
condominiums. No tenant occupies 10% or more of the rentable area.
Set forth below is a schedule showing the occupancy rate and the rent per
square foot for the property at the dates indicated.
<TABLE>
<CAPTION>
Occupancy Annual Scheduled
Date Rate Rent Per Square Foot
---- --------- --------------------
<S> <C> <C>
December 31, 1995 97% $ 8.88
December 31, 1994 89 8.52
December 31, 1993 87 8.52
December 31, 1992 85 11.41
December 31, 1991 85 12.00
</TABLE>
Annual scheduled rent from 1992 to 1993 was decreased in order to attract
and retain tenants and maintain a stable occupancy level.
A schedule showing the total annual base rent and percentage of total
income relating to leases for the property according to their expiration dates
is set forth below:
<TABLE>
<CAPTION>
Year of Total Amount Percentage of
Expiration* Base Rent Total Income
---------- ------------ -------------
<S> <C> <C>
1996 $484,000 70.66%
1997 166,000 24.23
1998 23,000 3.36
1999 12,000 1.75
2000 -- -
-------- ------
Total $685,000 100.00
-------- ------
</TABLE>
______________
* Assumes that none of the renewal options included in the leases will
be exercised.
61
<PAGE>
DESCRIPTION OF PSI'S PROPERTIES
At December 31, 1995, PSI had equity interests (through direct ownership,
as well as general and limited partnership interests and stock ownership
interests) in 1,050 facilities (273 of which were wholly-owned) located in 37
states. These facilities consist of 1,016 mini-warehouses and 34 business parks.
None of PSI's current investments involves 10% or more of PSI's total assets or
gross revenues. In the opinion of management of PSI, the facilities in which PSI
has invested are adequately insured.
The following table reflects the geographic diversification of PSI's mini-
warehouses ("Mini") and business parks ("BP"):
<TABLE>
<CAPTION>
At December 31, 1995
-----------------------------------------------------
Net Rentable Square Feet
Number of Facilities (in thousands)
----------------------- -------------------
Mini(2) BP Mini BP
--------- ---- ------ -----
<S> <C> <C> <C> <C>
California:
Southern 146 16 9,419 1,434
Northern 129 4 7,211 291
Texas 109 5 7,092 670
Florida 81 -- 4,491 --
Illinois 62 -- 3,899 --
Colorado 36 -- 2,275 --
Washington 36 1 2,228 28
Georgia 33 -- 1,727 --
New Jersey 32 -- 1,846 --
Maryland 31 -- 1,772 --
Virginia 28 3 1,921 213
New York 27 -- 1,584 --
Ohio 27 -- 1,651 --
Oregon 25 1 1,232 40
Nevada 22 -- 1,410 --
Pennsylvania 18 -- 1,227 --
Other states (22 states) 174 4 9,734 406
----- -- ------ -----
Totals 1,016 34 60,719 3,082
===== == ====== =====
</TABLE>
As reflected in the table below, PSI has experienced overall improved
property operations:
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
-------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average occupancy level 87.0% 89.2% 90.1% 88.0% 88.0%
Realized monthly rent per occupied
square foot (1)(2) $.64 $.68 $.70 $.63 $.65
</TABLE>
______________
(1) Mini-warehouses owned throughout the periods.
(2) Realized monthly rent per occupied square foot represents the actual
revenue earned per occupied square foot. PSI believes this is a more
relevant measure than the posted rental rates, since posted rates can be
discounted through the use of promotions.
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DISTRIBUTIONS AND PRICE RANGE OF PSI COMMON STOCK
The PSI Common Stock has been listed on the NYSE since October 19, 1984.
The following table sets forth the distributions paid per share on the PSI
Common Stock in the periods indicated below and the reported high and low sales
prices on the NYSE composite tape for the applicable periods.
<TABLE>
<CAPTION>
DISTRIBUTIONS
CALENDAR PERIODS HIGH LOW PAID (1)
---------------- ---- --- --------
<S> <C> <C> <C>
1994:
First quarter $ 16 $ 13 1/2 $ .21
Second quarter 16 3/4 13 3/8 .21
Third quarter 15 3/4 14 1/4 .21
Fourth quarter 15 13 .22
1995:
First quarter 17 1/8 13 1/2 .22
Second quarter 17 1/8 15 1/4 .22
Third quarter 18 3/4 16 3/8 .22
Fourth quarter 19 3/4 17 3/8 .22
1996:
First quarter 21 7/8 18 7/8 .22
Second quarter 21 1/2 19 3/8 .22
Third quarter
(through __________, 1996)
</TABLE>
_______________
(1) For GAAP purposes, all distributions were from investment income.
As of July 18, 1996, there were approximately 14,952 record holders of PSI
Common Stock. On June 19, 1996, the last full trading day prior to the first
public announcement of the proposed Merger, the closing price of the Common
Stock of PSI was $20 1/2. On ________________, 1996, the last full trading day
prior to the date of this Proxy Statement and Prospectus, the closing price was
$______.
Holders of PSI Common Stock are entitled to receive distributions when, as
and if declared by the board of directors out of any funds legally available for
that purpose. PSI, as a REIT, is required to distribute annually at least 95% of
its "REIT taxable income," which, as defined by the relevant tax statutes and
regulations, is generally equivalent to net taxable ordinary income. Under
certain circumstances, PSI can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
See "Certain Federal Income Tax Matters -- General Tax Treatment of PSI."
PSI's revolving credit facility with a commercial bank restricts PSI's
ability to pay distributions in excess of "Funds from Operations" for the prior
four fiscal quarters less scheduled principal payments and less capital
expenditures. Funds from Operations is defined in the loan agreement generally
as net income before gain on sale of real estate, extraordinary loss on early
retirement of debt and deductions for depreciation, amortization and non-cash
charges. Also, unless full dividends on PSI's preferred stock have been paid for
all past dividend periods, no dividends may be paid on PSI Common Stock, except
in certain instances.
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DISTRIBUTIONS AND PRICE RANGE OF PSP12 COMMON STOCK
The PSP12 Common Stock has been listed on the AMEX since February 1991.
The following table sets forth the distributions paid per share on PSP12 Common
Stock with respect to the periods indicated below and the reported high and low
sales prices on the AMEX composite tape for the applicable periods.
<TABLE>
<CAPTION>
DISTRIBUTIONS
CALENDAR PERIODS HIGH LOW PAID (1)
---------------- ---- --- --------
<S> <C> <C> <C>
1994:
First quarter $ 17 1/4 $ 15 1/8 $ .31
Second quarter 16 5/8 14 3/4 .32
Third quarter 17 15 1/2 .33
Fourth quarter 16 3/8 15 1/4 .33
1995:
First quarter 17 15 1/4 .33
Second quarter 18 1/8 16 .33
Third quarter 18 1/2 17 1/8 .33
Fourth quarter 19 3/4 17 3/4 .65(2)
1996:
First quarter 20 18 1/4 .33
Second quarter 21 1/8 18 7/8 .33
Third quarter
(through __________, 1996)
</TABLE>
_______________
(1) Distributions paid per share of PSP12 Common Stock with respect to the
applicable periods. Actual payment was made 15 days after end of quarter.
(2) Includes special distribution of $.32.
As of July 18, 1996, there were approximately 1,747 record holders of
PSP12's Common Stock. On June 19, 1996, the last full trading day prior to the
first public announcement of the proposed Merger, the closing price of PSP12
Common Stock was $19 1/2. On __________, 1996, the last full trading day prior
to the date of this Proxy Statement and Prospectus, the closing price was
$______.
Holders of PSP12 Common Stock are entitled to receive distributions when,
as and if declared by its board of directors out of any funds legally available
for that purpose. PSP12, as a REIT, is required to distribute annually at least
95% of its "REIT taxable income," which, as defined by the relevant tax statutes
and regulations, is generally equivalent to net taxable ordinary income. Under
certain circumstances, PSP12 can rectify a failure to meet this distribution
requirement by paying dividends after the close of a particular taxable year.
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<PAGE>
DESCRIPTION OF PSI CAPITAL STOCK
PSI is authorized to issue 200,000,000 shares of PSI Common Stock, par
value $.10 per share, 7,000,000 shares of PSI Class B Common Stock, par value
$.10 per share and 50,000,000 shares of preferred stock, par value $.01 per
share. At June 28, 1996, PSI had outstanding 77,001,890 shares of PSI Common
Stock (exclusive of shares issuable upon conversion of PSI's convertible capital
stock and shares subject to options), 7,000,000 shares of Class B Common Stock
and 13,447,280 shares of preferred stock.
COMMON STOCK
The following description of PSI Common Stock sets forth certain general
terms and provisions of PSI Common Stock. The statements below describing PSI
Common Stock are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the PSI's Articles of Incorporation
and Bylaws.
PSI Shareholders will be entitled to receive dividends when, as and if
declared by PSI's Board of Directors, out of funds legally available therefor.
Payment and declaration of dividends on PSI Common Stock and purchases of shares
thereof by PSI will be subject to certain restrictions if PSI fails to pay
dividends on outstanding preferred stock. See "-- Preferred Stock." Upon any
liquidation, dissolution or winding up of PSI, holders of PSI Common Stock will
be entitled to share equally and ratably in any assets available for
distribution to them, after payment or provision for payment of the debts and
other liabilities of PSI and the preferential amounts owing with respect to any
outstanding preferred stock. Holders of PSI Common Stock have no preemptive
rights, which means they have no right to acquire any additional shares of PSI
Common Stock that may be issued by PSI at a subsequent date.
Each outstanding share of PSI Common Stock entitles the holder to one vote
on all matters presented to PSI Shareholders for a vote, with the exception that
PSI Shareholders have cumulative voting rights with respect to the election of
the Board of Directors, in accordance with California law. Cumulative voting
entitles each PSI Shareholder to cast as many votes as there are directors to be
elected multiplied by the number of shares registered in his or her name. A PSI
Shareholder may cumulate the votes for directors by casting all of the votes for
one candidate or by distributing the votes among as many candidates as the PSI
Shareholder chooses. PSI Shareholders have no preemptive or other rights to
subscribe for or purchase additional shares of PSI Common Stock. All
outstanding shares of PSI Common Stock are fully paid and nonassessable.
OWNERSHIP LIMITATIONS
For PSI to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of capital stock may be owned, directly or constructively
under the applicable attribution rules of the Code, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year. In order to maintain its qualification as a REIT, PSI's Articles
of Incorporation and Bylaws provide certain restrictions on the shares of
capital stock that any PSI Shareholder may own.
PSI's Articles of Incorporation and Bylaws provide that, subject to certain
exceptions, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than (A) 2.0% of the outstanding shares of all
common stock of PSI, or (B) 9.9% of the outstanding shares of each class or
series of shares of preferred stock of PSI. The Articles of Incorporation and
Bylaws provide, however, that no person shall be deemed to exceed the ownership
limit solely by reason of the beneficial ownership of shares of any class of
stock to the extent that such shares of stock were beneficially owned by such
person (including the Hughes Family) at the time of the PSMI Merger. This
ownership limitation is necessary in order to assist in preserving PSI's REIT
status in view of the Hughes Family's substantial ownership interest in PSI.
See "Certain Federal Income Tax Considerations -- Tax Treatment of PSI."
PSI's Board of Directors, in its sole and absolute discretion, may grant an
exception to the ownership limits to any person so requesting, so long as (A)
the Board of Directors has determined that, after giving effect to (x) an
acquisition by such person of beneficial ownership (within the meaning of the
Code) of the maximum amount of capital stock of PSI permitted as a result of the
exception to be granted and (y) assuming that the four other persons who would
be treated as "individuals" for the purposes of Section 542(a)(2) of the Code
and who would beneficially own
65
<PAGE>
the largest amounts of stock of PSI (determined by value) beneficially own the
maximum amount of capital stock of PSI permitted under the ownership limits (or
any waivers of the ownership limits granted with respect to such persons), PSI
would not be "closely held" within the meaning of Section 856(h) of the Code and
would not otherwise fail to qualify as a REIT, and (B) such person provides to
PSI's Board of Directors such representations and undertakings as the Board of
Directors may require. Notwithstanding any of the foregoing ownership limits,
no holder may own or acquire, either directly, indirectly or constructively
under the applicable attribution rules of the Code, any shares of any class of
PSI's capital stock if such ownership or acquisition (i) would cause more than
50% in value of PSI's outstanding capital stock to be owned, either directly or
constructively, under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain tax-exempt
entities, other than, in general, qualified domestic pension funds), (ii) would
result in PSI's stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or (iii) would
otherwise result in PSI's failing to qualify as a REIT.
PSI's Articles of Incorporation and Bylaws provide that, if any holder of
PSI's capital stock purports to transfer shares to a person or there is a change
in the capital structure of PSI and either the transfer or the change in capital
structure would result in PSI failing to qualify as a REIT, or such transfer or
the change in capital structure would cause the transferee to hold shares in
excess of the applicable ownership limit, then the stock being transferred (or
in the case of an event other than a transfer, the stock beneficially owned)
which would cause one or more of the restrictions on ownership or transfer to be
violated shall be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of such shares
shall have no right to receive dividends or other distributions with respect to
such shares and shall have no right to vote such shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by PSI
that the shares have been transferred to a trust shall be paid to the trustee of
the trust for the benefit of the charitable beneficiary upon demand. The
trustee of the trust will have all rights to dividends with respect to shares of
stock held in trust, which rights will be exercised for the exclusive benefit of
the charitable beneficiary. Any dividends or distributions paid over to the
trustee will be held in trust for the charitable beneficiary. The trustee shall
designate a transferee of such stock so long as such shares of stock would not
violate the restrictions on ownership or transfer in the PSI Articles of
Incorporation or Bylaws in the hands of such designated transferee. Upon the
sale of such shares, the purported transferee shall receive the lesser of (A)(i)
the price per share such purported transferee paid for the stock in the
purported transfer that resulted in the transfer of the shares to the trust, or
(ii) if the transfer or other event that resulted in the transfer of the shares
of the trust was not a transaction in which the purported transferee gave full
value for such shares, a price per share equal to the market price on the date
of the purported transfer or other event that resulted in the transfer of the
shares to the trust and (B) the price per share received by the trustee from the
sale or other disposition of the shares held in the trust.
CLASS B COMMON STOCK
The PSI Class B Common Stock (i) does not participate in distributions
until the later to occur of Funds from Operations ("FFO") per Common Share (as
defined below by PSI) aggregating $1.80 during any period of four consecutive
calendar quarters or January 1, 2000; thereafter, the PSI Class B Common Stock
will participate in distributions (other than liquidating distributions) at the
rate of 97% of the per share distributions on the PSI Common Stock, provided
that cumulative distributions of at least $.22 per quarter per share have been
paid on the PSI Common Stock, (ii) does not participate in liquidating
distributions, (iii) is not entitled to vote (except as expressly required by
California law) and (iv) will automatically convert into PSI Common Stock, on a
share for share basis, upon the later to occur of FFO per Common Share
aggregating $3.00 during any period of four consecutive calendar quarters or
January 1, 2003.
For these purposes:
(1) FFO means net income (loss) (computed in accordance with GAAP) before
(i) gain (loss) on early extinguishment of debt, (ii) minority interest in
income and (iii) gain (loss) on disposition of real estate, adjusted as follows:
(i) plus depreciation and amortization (including PSI's pro-rata share of
depreciation and amortization of unconsolidated equity interests and
amortization of assets acquired in the PSMI Merger, including property
management agreements and goodwill), and (ii) less FFO attributable to minority
interest. FFO is a supplemental performance measure for equity REITs as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").
The NAREIT definition does not specifically address the treatment of minority
interest in the determination of FFO
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<PAGE>
or the treatment of the amortization of property management agreements and
goodwill. In the case of PSI, FFO represents amounts attributable to its
shareholders after deducting amounts attributable to the minority interests and
before deductions for the amortization of property management agreements and
goodwill. FFO does not take into consideration scheduled principal payments on
debt, capital improvements, distributions and other obligations of PSI.
Accordingly, FFO is not a substitute for PSI's cash flow or net income as a
measure of its liquidity or operating performance or ability to pay
distributions.
(2) FFO per Common Share means FFO less preferred stock dividends (other
than dividends on convertible preferred stock) divided by the outstanding
weighted average shares of PSI Common Stock assuming conversion of all
outstanding convertible securities and the PSI Class B Common Stock.
PREFERRED STOCK
PSI is authorized to issue 50,000,000 shares of preferred stock, $.01 par
value per share. PSI's Articles of Incorporation provide that the preferred
stock may be issued from time to time in one or more series and give the Board
of Directors broad authority to fix the dividend and distribution rights,
conversion and voting rights, if any, redemption provisions and liquidation
preferences of each series of preferred stock.
At June 28, 1996, PSI had ten series of preferred stock outstanding: eight
series of senior preferred stock (the "Senior Preferred Stock") and two series
of convertible preferred stock. In all respects, each of the series of Senior
Preferred Stock ranks on a parity with each other and is senior to both series
of convertible preferred stock. Each of the series of Senior Preferred Stock
(i) has a stated value of $25.00 per share, (ii) in preference to the holders of
shares of PSI Common Stock and any other capital stock ranking junior to the
Senior Preferred Stock as to payment of dividends (including both series of
convertible preferred stock), provides for cumulative quarterly dividends
calculated as a percentage of the stated value (ranging from 8.45% to 10% per
year in the case of the seven series of fixed rate preferred stock and a rate
adjustable quarterly ranging from 6.75% to 10.75% per year in the case of a
series of adjustable rate preferred stock) and (iii) is subject to redemption,
in whole or in part, at the option of PSI at a cash redemption price of $25.00
per share, plus accrued and unpaid dividends (on and after June 30, 1999 in the
case of the adjustable rate preferred stock and on or after various dates
between December 31, 2000 and April 30, 2005 in the case of the series of fixed
rate preferred stock).
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of PSI, the holders of each of the series of Senior Preferred Stock
will be entitled to receive out of PSI's assets available for distribution to
stockholders, before any distribution of assets is made to holders of PSI Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the Senior Preferred Stock (including both series of convertible
preferred stock), liquidating distributions in the amount of $25.00 per share,
plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Senior Preferred Stock are not entitled to
vote. The consent of holders of at least 66/2//3% of the outstanding shares of
the Senior Preferred Stock (and any other series of preferred stock ranking on a
parity therewith), voting as a single class, is required to authorize another
class of shares senior to such preferred stock.
In all respects, each of the series of convertible preferred stock ranks on
a parity with each other and is senior to the PSI Common Stock. One of the
series of the convertible preferred stock (i) has a stated value of $25.00 per
share, (ii) in preference to the holders of shares of the PSI Common Stock and
any other capital stock ranking junior to the convertible preferred stock as to
payment of dividends, provides for cumulative quarterly dividends at an annual
rate of 8.25% of the stated value thereof, (iii) is convertible at the option of
the holder at any time into PSI Common Stock at a conversion price of 1.6835
shares of PSI Common Stock for each share of such convertible preferred stock
(subject to adjustment in certain circumstances) and (iv) after July 1, 1998,
under certain circumstances, is redeemable for PSI Common Stock at the option of
PSI, in whole or in part, at a redemption price of 1.6835 shares of PSI Common
Stock for each share of such convertible preferred stock (subject to adjustment
in certain circumstances).
The other series of convertible preferred stock (i) has no stated value,
(ii) in preference to the holders of shares of PSI Common Stock and any other
capital stock ranking junior to the convertible preferred stock as to payment of
dividends, provides for dividends of $1,916,038 per quarter, (iii) is
convertible at the option of the holder at any time
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<PAGE>
into PSI Common Stock at a conversion price of 35.014 shares of PSI Common Stock
for each share of such convertible preferred stock (subject to adjustment under
certain circumstances) and (iv) on March 31, 2000 will be automatically
converted into PSI Common Stock at the conversion price described above.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of PSI, the holders of the convertible preferred stock will be
entitled to receive out of PSI's assets available for distribution to
stockholders, before any distribution of assets is made to holders of PSI Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the convertible preferred stock, liquidating distributions (i) in the
amount of $25.00 per share, plus all accrued and unpaid dividends, in the case
of one of the series of convertible preferred stock and (ii) a minimum
liquidation preference of $58,955,000, plus all accrued and unpaid dividends, in
the case of the other series of convertible preferred stock.
Except as expressly required by law and in certain other limited
circumstances, the holders of the convertible preferred stock are not entitled
to vote. The consent of holders of at least 66/2//3% of the outstanding shares
of one of the series of convertible preferred stock and at least 50% of the
outstanding shares of the other series is required to authorize another class of
shares senior to the convertible preferred stock and junior to the Senior
Preferred Stock.
EFFECTS OF ISSUANCE OF CAPITAL STOCK
The issuance of PSI Common Stock and the issuance of preferred stock with
special voting rights could be used to deter attempts by a single shareholder or
group of shareholders to obtain control of PSI in transactions not approved by
PSI's Board of Directors. PSI has no intention to issue PSI Common Stock or the
preferred stock for such purposes.
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<PAGE>
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Chapter 13 of the California General Corporation Law ("Chapter
13"), a holder of shares of PSP12 Common Stock may, in some instances, be
entitled to require PSP12 to purchase his or her shares of PSP12 Common Stock
for cash at their fair market value as of the day before the first announcement
of the terms of the Merger, excluding any appreciation or depreciation in
consequence of the Merger. The general terms of the Merger were first announced
on June 20, 1996. The following is a brief summary of the procedures to be
followed by a PSP12 Shareholder in order to perfect his or her right, if any, to
payments under Chapter 13 and is qualified in its entirety by reference to the
text of Chapter 13 attached to this Proxy Statement and Prospectus as Appendix
D, to which reference is hereby made for a definitive statement of the rights of
dissenting shareholders (the "Dissenting Shareholders") and the procedures to be
followed.
Shares of PSP12 Common Stock will qualify as Dissenting Shares only if
demands for payment are filed with respect to 5% or more of the outstanding
shares of PSP12 Common Stock. This 5% requirement is applicable because PSP12
Common Stock is listed on the AMEX, a national securities exchange certified by
the California Commissioner of Corporations, as provided in Section 1300(b)(1)
of Chapter 13.
A Dissenting Shareholder who wishes to require PSP12 to purchase his or her
shares of PSP12 Common Stock must:
(1) vote against the Merger any or all of the shares of PSP12 Common
Stock entitled to be voted (shares of PSP12 Common Stock not voted are not
considered to be voted against the Merger and will not be counted toward
the 5% minimum for Dissenters' Rights to exist); provided that if a PSP12
Shareholder votes part of the shares entitled to be voted in favor of the
Merger, and fails to specify the number of shares voted, it is conclusively
presumed under California law that such shareholder's approving vote is
with respect to all shares entitled to be voted;
(2) make written demand upon PSP12 or its transfer agent at the
addresses listed below, which is received not later than the date of the
meeting of shareholders of PSP12, setting forth the number of shares of
PSP12 Common Stock demanded to be purchased by PSP12 and a statement as to
claimed fair market value of such shares at June 19, 1996; and
(3) submit for endorsement, within 30 days after the date on which
the notice of approval of the Merger by shareholders of PSP12 described
below is mailed to such shareholders, to PSP12 or its transfer agent at the
addresses listed below, the certificates representing any shares in regard
to which demand for purchase is being made, or to be exchanged for
certificates of appropriate denominations so endorsed, with a statement
that the shares are Dissenting Shares.
The statement of fair market value in clause (2) above will constitute an
offer by the Dissenting Shareholder to sell his or her shares at a price equal
to such fair market value. Neither a vote against approval of the Merger nor
the giving of a proxy directing a negative vote will be sufficient to constitute
the demand described in clause (2) above. A proxy which fails to include
instructions with respect to approval of the Merger will be voted in favor of
the Merger. Accordingly, shares covered by such a proxy will not be Dissenting
Shares. In addition, a vote in favor of the Merger, or a failure to vote at
all, will nullify any previously filed written demand for payment.
If the holders of 5% or more of the outstanding shares of PSP12 Common
Stock have made demands for payment on or prior to the date of the meeting of
shareholders of PSP12 to approve the Merger, and have voted against the Merger
at the meeting, within 10 days after the date of the approval of the Merger,
PSP12 will mail to each Dissenting Shareholder who holds PSP12 Common Stock a
notice of such approval together with a statement of the price determined by
PSP12 to represent the fair market value of Dissenting Shares, a copy of certain
sections of Chapter 13, and a brief description of the procedure to be followed
if the shareholder desires to exercise Dissenter's Rights. The statement of
price will constitute an offer by PSP12 to purchase at the price stated therein
any Dissenting Shares.
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<PAGE>
If PSP12 and the Dissenting Shareholder agree that any shares of PSP12
Common Stock are Dissenting Shares and agree upon the price of the shares, the
Dissenting Shareholder will be entitled to the agreed price plus interest
thereon at the legal rate on judgments from the date of such agreement. Subject
to the provisions of the California General Corporation Law, payment of the fair
market value of the Dissenting Shares will be made within 30 days after such
agreement or within 30 days after any statutory or contractual conditions to the
Merger are satisfied, whichever is later. If PSP12 denies that the shares are
Dissenting Shares or if PSP12 and the Dissenting Shareholder fail to agree upon
the fair market value of the shares, then the Dissenting Shareholder, within six
months after the date on which notice of approval of the Merger by the
shareholders of PSP12 is mailed to such shareholder, and not thereafter, may
file a complaint in the Superior Court of Los Angeles County, California,
requiring the court to determine whether the shares are Dissenting Shares, or
the fair market value of the Dissenting Shares, or both, or may intervene in any
pending action for the appraisal of any shares of PSP12 Common Stock. The court
will direct payment of the appraised value of the shares, together with interest
thereon at the legal rate on judgments from the date on which the judgment was
entered, by PSP12 to the shareholder upon the surrender of the certificates
representing such shares to PSP12. The costs of the proceeding shall be
apportioned as the court considers equitable, but if the appraisal exceeds the
price offered by PSP12, it shall pay the costs, and if the appraisal is more
than 125% of the price offered by PSP12, PSP12 it may be required to pay
attorneys' and other fees and interest at the legal rate on judgments from the
date the shareholder complied with Sections 1300-1302 of Chapter 13.
A Dissenting Shareholder may not withdraw demand for purchase of Dissenting
Shares without PSP12's consent. Written demands for payment and submissions for
endorsement with respect to PSP12 Common Stock must be addressed to Public
Storage Properties XII, Inc., 701 Western Avenue, Suite 200, Glendale,
California 91201-2397, Attention: Investor Services Department or to PSP12's
transfer agent, American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
Any reference to "Dissenting Shareholder" in this section "Dissenting
Shareholders' Rights of Appraisal" means the recordholder of Dissenting Shares
of PSP12 and includes a transferee of record.
A shareholder receiving cash upon the exercise of rights of appraisal may
recognize gain or loss for income tax purposes. See "Certain Federal Income Tax
Matters."
PSP12 Shareholders are entitled, upon written demand, to inspect and copy
the records of PSP12 at any time during usual business hours to communicate with
other PSP12 Shareholders with respect to the Merger.
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CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations of the Merger and the subsequent ownership and disposition of
shares of PSI Common Stock that are generally applicable to PSP12 Shareholders.
PSP12 and PSI do not plan to obtain any rulings from the Internal Revenue
Service ("IRS") concerning tax issues with respect to the Merger or the
qualification of PSP12 or PSI as REITs. Thus, no assurance can be provided that
the statements set forth herein (which do not bind the IRS or the courts) will
not be challenged by the IRS or will be sustained if so challenged. Hogan &
Hartson L.L.P., counsel to PSP12, has reviewed the following discussion and is
of the opinion that this discussion fairly summarizes the material federal
income tax considerations to a PSP12 Shareholder as a result of the Merger and
the subsequent ownership of PSI Common Stock. This discussion and such opinion
are based on the Code, applicable Treasury Regulations, judicial decisions, and
IRS rulings, certain factual assumptions related to the ownership and operation
of PSP12 and PSI and certain representations made by PSP12, PSI and certain
shareholders of PSP12. There can be no assurance that the legal authorities on
which this discussion is based will not change, perhaps retroactively, that the
factual assumptions underlying this discussion will be accurate, or that there
will not be a change in the future in the circumstances of PSP12 and PSI that
would affect this discussion. BECAUSE THIS DISCUSSION DOES NOT DEAL WITH ALL
ASPECTS OF FEDERAL TAXATION, AND THE TAX CONSEQUENCES WILL NOT BE THE SAME FOR
ALL PSP12 SHAREHOLDERS, PSP12 SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL, AND FOREIGN TAX LAWS.
THE MERGER
The Merger is intended to be a "reorganization" for federal income tax
purposes, and accordingly no gain or loss will be recognized by PSP12 or PSI in
connection with the Merger and no gain or loss will be recognized by PSP12
Shareholders who receive solely PSI Common Stock in exchange for their PSP12
Common Stock in the Merger (but all PSP12 Shareholders will recognize ordinary
income in the amount of any Required REIT Distributions made to them). No
rulings have been or will be requested from the IRS regarding the Merger or any
other aspect of the matters discussed in this Proxy Statement and Prospectus.
Hogan & Hartson L.L.P., counsel to PSP12, has rendered an opinion that the
Merger will constitute a reorganization under Section 368(a) of the Code, based
on certain factual assumptions and representations made by PSP12, PSI and
certain PSP12 Shareholders. Of particular importance are certain assumptions
and representations relating to the "continuity of interest" requirement
discussed below.
Continuity of Interest Assumption. To qualify as a reorganization, among
other requirements, the Merger must satisfy a "continuity of interest" test,
under which the historic PSP12 Shareholders (shareholders who purchase shares in
anticipation of the Merger may not be included for this purpose), must continue
to retain a meaningful ownership interest in PSI after the Merger. Generally,
this test will be considered satisfied if historic PSP12 Shareholders exchange
at least 50% of the PSP12 Common Stock for PSI Common Stock in the Merger, and
the PSP12 Shareholders do not at the time of the Merger plan to dispose of that
PSI Common Stock. Management of PSP12 and PSI have represented that they are
not aware of any plan on the part of PSP12 Shareholders that would cause this
test not to be satisfied. Based upon this representation and similar
representations from Hughes, Hogan & Hartson has assumed, for purposes of its
opinion that the Merger will constitute a reorganization that the continuity of
interest test will be satisfied.
Reorganization Consequences to PSP12 and PSI. As a result of
reorganization treatment, PSP12 and PSI will not recognize gain or loss as a
result of the Merger. PSI also will succeed to the assets, liabilities, and tax
attributes of PSP12. Accordingly, following the Merger, PSI will hold the
properties of PSP12 with a carryover tax basis, determined by reference to the
relatively low, historic basis of those assets in the hands of PSP12. The tax
basis will not be increased by any cash expended by PSI pursuant to the Cash
Elections or to satisfy dissenter's rights, or by the amount of any gain
reportable by those PSP12 Shareholders who may be taxable as a result of the
Merger.
Exchange of PSP12 Common Stock Solely for PSI Common Stock. As a result of
reorganization treatment (i) no gain or loss will be recognized by PSP12
Shareholders who exchange their PSP12 Common Stock solely for PSI Common Stock
pursuant to the Merger (but see "Required REIT Distributions" below), (ii) such
a PSP12 Shareholder's aggregate tax basis in the PSI Common Stock received will
be the same as the aggregate tax basis of the shares of PSP12 Common Stock
surrendered, and (iii) provided such PSP12 Common Stock is held as a capital
asset at the
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Effective Time, the holding period of the PSI Common Stock will include the
holding period of the surrendered PSP12 Common Stock.
PSP12 Shareholders Receiving Only Cash. A PSP12 Shareholder who exchanges
PSP12 Common Stock only for cash (whether pursuant to and subject to the
conditions of the Cash Election, or as a result of the exercise of Dissenters'
Rights) will be taxed on the difference between such PSP12 shareholder's
adjusted basis in his or her PSP12 Common Stock and the amount of cash received.
This generally would produce capital gain or loss, depending on the relationship
between the cash received and the tax basis of the shares surrendered (it is
possible that dividend treatment might apply in some circumstances if the PSP12
Shareholder is actually or constructively related to continuing PSI
Shareholders).
PSP12 Shareholders Receiving Cash and PSI Common Stock. As a result of
reorganization treatment, (i) a PSP12 Shareholder who, pursuant to the Merger
and subject to the conditions of the Cash Election, exchanges PSP12 Common Stock
for a combination of PSI Common Stock and cash will not recognize any loss
realized on such exchange, and (ii) such PSP12 Shareholder will recognize gain
only to the extent of the lesser of the amount of cash received or the excess of
the fair market value of the PSI Common Stock and cash received over such PSP12
Shareholder's tax basis in the PSP12 Common Stock surrendered. The recognized
gain will be treated as capital gain (provided the PSP12 Common Stock is held as
a capital asset at the Effective Time). The aggregate tax basis of the PSI
Common Stock received will be the same as the aggregate tax basis of the PSP12
Common Stock surrendered for the PSI Common Stock, reduced by the amount of cash
received and increased by the amount of gain recognized, if any. The holding
period of the PSI Common Stock will include the holding period of the PSP12
Common Stock surrendered for the PSI Common Stock, provided that the PSP12
Common Stock is held as a capital asset at the Effective Time.
Required REIT Distributions. The Required REIT Distributions would not be
treated as cash paid in exchange for the PSP12 Common Stock, but rather as a
dividend taxable to all recipients as ordinary income.
Cash Received in Lieu of Fractional Shares of PSI Common Stock. PSP12
Shareholders that receive cash in lieu of a fractional share of PSI Common Stock
pursuant to the Merger will recognize capital gain or loss equal to the
difference between the tax basis allocable to the fractional share and the cash
paid for it, provided that the PSP12 Common Stock is held as a capital asset as
the Effective Time.
Failure to Qualify for Reorganization Treatment. In the event that the
Merger does not qualify as a reorganization, the Merger likely would be treated
as a taxable sale by PSP12 of its assets and a contemporaneous liquidation.
PSP12 presumably would not incur a federal income tax liability as a result of
this deemed sale because of the contemporaneous deemed liquidating distribution.
The PSP12 Shareholders would recognize income or loss equal to the difference
between the tax basis of their PSI Common Stock and the sum of the fair market
value of the PSI Common Stock and the cash received in exchange for PSP12 Common
Stock, but some of the income could be ordinary income. The PSP12 Shareholders
receiving PSI Common Stock would have a tax basis in those shares equal to the
fair market value of the shares at the time of the Merger, and the holding
period would not include the period during which their PSP12 Common Stock were
held. PSI would receive a basis in the properties acquired from PSP12 equal to
their fair market value.
OPINION OF COUNSEL
Hogan & Hartson L.L.P., counsel to PSP12, has rendered an opinion to PSP12
with respect to the Merger to the effect that (i) for federal income tax
purposes, the Merger will constitute a reorganization under Section 368(a) of
the Code, (ii) PSI continues to qualify as a REIT following the PSMI Merger so
long as (A) PSI continues to meet the stock ownership and gross income
requirements applicable to REITs and (B) either PSMI at the time of the PSMI
Merger was not considered to have any current or accumulated earnings and
profits for tax purposes or PSI made distributions prior to the end of 1995 in
an amount sufficient to eliminate such earnings and profits, and (iii) the
discussion under the heading "Certain Federal Income Tax Matters" fairly
summarizes the federal income tax considerations that are material to PSP12
Shareholders as a result of the Merger and the subsequent ownership of PSI
Common Stock (the "Opinion of Counsel"). Hogan & Hartson has not opined that
PSI continues to meet the stock ownership and gross income requirements
applicable to REITs following the PSMI Merger or that PSMI did not have current
or accumulated earnings and profits at the time of the PSMI Merger, due to the
numerous factual determinations
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and future events that bear on those conclusions. The Opinion of Counsel is
based upon certain extensive and detailed representations as to factual and
legal matters made by PSI and PSP12 that relate both to the qualification of PSI
as a REIT and to the qualification of the Merger as a reorganization, and
specific representations from Hughes regarding the expected continued ownership
of PSI Common Stock to be received in the Merger. In addition, as discussed
above, the Opinion of Counsel expressly assumes, based upon certain
representations of the management of PSI and PSP12, that the "continuity of
interest" requirement necessary for the Merger to qualify as a reorganization
will be satisfied. See "The Merger -- Continuity of Interest Assumption" and
"The Merger -- Failure to Qualify for Reorganization Treatment." The Opinion of
Counsel also makes certain customary assumptions regarding the accuracy and
completeness of documents reviewed by counsel and representations relied upon by
counsel and as to the consummation of the Merger in accordance with the terms of
the Merger Agreement. The Opinion of Counsel states that the conclusion set
forth therein could be adversely affected if any of these representations or
assumptions is incorrect or incomplete at the time that the Merger is
consummated. The Opinion of Counsel only represents counsel's best judgment,
based upon the underlying representations and assumptions, regarding the
application of relevant provisions of the Code and interpretations thereof, as
set forth in existing judicial decisions, administrative regulations and
published rulings and procedures of the Internal Revenue Service. The Opinion
of Counsel is not binding upon the Internal Revenue Service or the courts, and
there can be no assurance that the Internal Revenue Service would not seek to
assert a contrary position. Also, there cannot be any assurance that future
legislative, judicial or administrative changes (which could be retroactive in
effect) will not adversely affect the conclusions reached in the Opinion of
Counsel. Finally, the Opinion of Counsel is expressly limited to the specific
conclusions described in the first sentence of this section and does not purport
to address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including the tax consequences
of the Merger as applied to specific PSP12 Shareholders (or classes of PSP12
Shareholders); the tax consequences of the Merger to PSP12 or PSI (including
whether any entity will recognize any gain in the Merger and PSI's adjusted tax
basis in the assets of PSP12 acquired in the Merger); the application of the
"golden parachute" provisions, the alternative minimum tax provisions, and any
other provisions of the Code (other than Section 368(a) of the Code) to the
Merger and/or participants therein; and whether PSP12 Shareholders who have
provided or will provide services to PSP12 or PSI will recognize compensation
income, either as a result of the Merger or otherwise).
GENERAL TAX TREATMENT OF PSI
If certain detailed conditions imposed by the Code and the related
regulations are met, an entity, such as PSI, that invests principally in real
estate and that otherwise would be taxed as a corporation may elect to be
treated as a REIT. The most important consequence to PSI of being treated as a
REIT for federal income tax purposes is that this enables PSI to deduct dividend
distributions to its shareholders, thus effectively eliminating the "double
taxation" (at the corporate and shareholder levels) that typically results when
a corporation earns income and distributes that income to shareholders in the
form of dividends.
PSI elected to be taxed as a REIT beginning with its fiscal year ending
December 31, 1981. That election will continue in effect until it is revoked or
terminated. PSI believes that it has qualified during each of the past five
fiscal years, and currently qualifies, as a REIT. While PSI intends to operate
so that it will continue to qualify as a REIT, given the highly complex nature
of the rules governing REITs, the ongoing importance of factual determinations,
and the possibility of future changes in the circumstances of PSI, no assurance
can be given by PSI that PSI will so qualify for any particular year.
The following is a very brief overview of certain of the technical
requirements that PSI must meet on an ongoing basis in order to continue to
qualify as a REIT:
1. The capital stock must be widely-held and not more than 50% of the
value of the capital stock may be held by five or fewer individuals (determined
after giving effect to various ownership attribution rules). See "--
Consequences of the PSMI Merger on PSI's Qualification as a REIT -- Violation of
Ownership Limitations."
2. PSI's gross income must meet three income tests:
(a) at least 75% of the gross income must be derived from specified
real estate sources;
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(b) at least 95% of the gross income must be from the real estate
sources includable in the 75% income test, and/or from dividends,
interest, or gains from the sale or disposition of stock or
securities not held for sale in the ordinary course of business;
and
(c) less than 30% of the gross income may be derived from the sale of
real estate assets held for less than four years, from the sale of
certain "dealer" property, or from the sale of stock or securities
held for less than one year.
Rents received by PSI will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
of sales. PSI anticipates that none of its gross annual income will be
attributable to rents that are based in whole or in part on the income of any
person (excluding rents based on a percentage of receipts or sales, which, as
described above, are permitted). Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" if PSI, or an owner
of 10% or more of PSI, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). PSI does not anticipate that it will receive
income from Related Party Tenants. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." PSI does not anticipate deriving rent attributable to personal
property leased in connection with real property that exceeds 15% of the total
rents. Finally, for rents received to qualify as "rents from real property," PSI
generally must not operate or manage the property or furnish or render services
to tenants, other than through an "independent contractor" which is adequately
compensated and from whom PSI derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by PSI
are "usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant." Any
services with respect to certain Properties that PSI believes may not be
provided by PSI directly without jeopardizing the qualification of rent as
"rents from real property" will be performed by "independent contractors."
See "-- Consequences of the PSMI Merger on PSI's Qualification as a REIT --
PSI's Assumption of Management Activities With Respect to PSI's Properties," "--
Consequences of the PSMI Merger on PSI's Qualification as a REIT --Nonqualifying
Income," and "-- Consequences of the PSMI Merger on PSI's Qualification as a
REIT -- Acquisition of Affiliated Partnership Interests in the PSMI Merger" for
a discussion of specific aspects of the PSMI Merger that may impact upon PSI's
ability to satisfy the 95% gross income test following the PSMI Merger.
3. Generally, 75% by value of PSI's investments must be in real estate,
mortgages secured by real estate, cash, or government securities (including its
allocable share of real estate assets held by any partnerships in which PSI owns
an interest). Not more than 25% of PSI's total assets may be represented by
securities other than those in the 75% asset class. Of the investments included
in the 25% asset class, the value of any one issuer's securities owned by PSI
may not exceed 5% of the value of PSI's total assets, and PSI may not own more
than 10% of any one issuer's outstanding voting securities. The 5% test
generally must be met for any quarter in which PSI acquires securities of an
issuer. PSI believes that it satisfies these tests. In this regard, however,
the 10% voting stock prohibition precludes PSI from controlling the operations
of PSCP and the Lock/Box Company (in which PSI owns 95% of the equity in the
form of non-voting stock and the Hughes Family owns 5% of the equity but 100% of
the voting stock) or PS Clearing Company, Inc. ("PSCC") (in which PSI owns a
less than 10% equity interest) and may preclude PSI from exercising its rights
of first refusal with respect to the corporations owning the Canadian operations
and the reinsurance business.
4. PSI must distribute to its shareholders in each taxable year an amount
at least equal to 95% of PSI's "REIT Taxable Income" (which is generally
equivalent to net taxable ordinary income). Under certain circumstances, PSI can
rectify a failure to meet the 95% distribution test by paying dividends after
the close of a particular taxable year.
PSI in years prior to 1990 made distributions in excess of its REIT Taxable
Income. During 1990, PSI reduced its distributions to the PSI Shareholders to
permit PSI to make an optional reduction in short-term borrowings (which
previously had been used to fund distributions to the PSI Shareholders). As a
result, distributions paid by PSI
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in 1990 were less than 95% of PSI's REIT Taxable Income for 1990. PSI has
satisfied the REIT distribution requirements for 1990 through 1995 by
attributing distributions in 1991 through 1996 to the prior year's taxable
income, and PSI expects to satisfy the distribution requirement for 1996 by
attributing distributions in 1997 to the 1996 taxable income. PSI may be
required, over each of the next several years, to make distributions after the
close of a taxable year and to attribute those distributions to the prior year,
but PSI Shareholders will be treated for federal income tax purposes as having
received such distributions in the taxable years in which they were actually
made. The extent to which PSI will be required to attribute distributions to
the prior year will depend on PSI's operating results and the level of
distributions as determined by PSI's Board of Directors. Reliance on subsequent
year distributions could cause PSI to be subject to certain penalty taxes. In
that regard, if PSI should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such calendar year, (ii) 95%
of its REIT capital gain net income for such calendar year, and (iii) any
undistributed taxable income from prior periods, PSI would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed during such calendar year (not taking into account distributions
made in subsequent years but attributed to such calendar year). PSI intends to
comply with this 85% distribution requirement in an effort to minimize any
excise tax. Any distributions required to be made by PSI in order to eliminate
any accumulated earnings and profits of PSMI would not be counted in determining
whether PSI satisfies the 95% distribution test and could adversely impact upon
PSI's ability to satisfy the 95% distribution test. See "-- Consequences of the
PSMI Merger on PSI's Qualification as a REIT -- Elimination of Any Accumulated
Earnings and Profits Attributable to Non-REIT Years."
For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest. See "-- Consequences of the PSMI Merger
on PSI's Qualification as a REIT -- Acquisition of Affiliated Partnership
Interests in the PSMI Merger."
Applicable Federal Income Tax. For years in which PSI qualifies as a REIT,
PSI generally will be taxable only on its undistributed income. Certain penalty
taxes can apply if PSI delays distributions until after the close of a taxable
year. Moreover, a confiscatory tax of 100% can apply to income derived by PSI
from sales of "dealer" property. If PSI fails to meet either the 75% or 95%
source of income tests described above, but still qualifies for REIT status
under the reasonable cause exception to those tests, a 100% tax is imposed equal
to the amount obtained by multiplying (i) the greater of the amount, if any, by
which it failed either the 75% or the 95% income tests, times (ii) the fraction
that its REIT Taxable Income represents of PSI's gross income (excluding capital
gain and certain other items). It should be noted that PSI is not required to
distribute its net capital gain. However, to the extent that PSI does not
declare a capital gain dividend, that gain will be taxable to PSI at normal
corporate rates, and PSI will be subject to a 4% non-deductible excise tax to
the extent that it does not distribute 95% of its capital gain. PSI also will be
subject to the minimum tax on tax preference items (excluding items specifically
allocable to its shareholders).
Under the "Built-in Gain Rules" of IRS Notice 88-19, 1988-1 C.B. 486, PSI
will be subject to a corporate level tax if it disposes of any of the assets
acquired in the PSMI Merger at any time during the 10-year period beginning on
the closing date of the PSMI Merger (the "Restriction Period"). This tax would
be imposed on PSI at the top regular corporate rate (currently 35%) in effect at
the time of the disposition on the excess of (i) the lesser of (a) the fair
market value on the Closing Date of the assets disposed of and (b) the selling
price of such assets over (ii) PSI's adjusted basis in such assets at the time
of the PSMI Merger (such excess being referred to as the "Built-in Gain"). PSI
currently does not intend to dispose of any of the assets acquired in the PSMI
Merger during the Restriction Period, but there can be no assurance that one or
more such dispositions will not occur.
Termination of REIT Election. For any taxable year that PSI fails to
qualify as a REIT, it would be taxed at the usual corporate rates on all of its
taxable income, whether or not it makes any distributions to its shareholders.
Those taxes would reduce the amount of cash available to PSI for distribution to
its shareholders. As a result, failure of PSI to qualify during any taxable year
as a REIT could have a material adverse effect upon PSI and its shareholders,
unless certain relief provisions are available.
PSI's election to be treated as a REIT will terminate automatically if PSI
fails to meet the qualification requirements described above. If a termination
(or a voluntary revocation) occurs, unless certain relief provisions apply, PSI
will not be eligible to elect REIT status again until the fifth taxable year
that begins after the first year for which PSI's election was terminated (or
revoked). If PSI loses its REIT status, but later qualifies and elects to be
taxed as a REIT again, PSI may face significant adverse tax consequences.
Immediately prior to the effectiveness of the
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election to return to REIT status, PSI would be treated as if it disposed of all
of its assets in a taxable transaction, triggering taxable gain with respect to
PSI's appreciated assets. (PSI would, however, be permitted to elect an
alternative treatment under which the gains would be taken into account only as
and when they actually are recognized upon sales of the appreciated property
occurring within the 10-year period after return to REIT status.) PSI would not
receive the benefit of a dividends paid deduction to reduce any such taxable
gains. Thus, any such gains on appreciated assets would be subject to double
taxation, at the corporate as well as the shareholder level.
CONSEQUENCES OF THE PSMI MERGER ON PSI'S QUALIFICATION AS A REIT
In light of the unique federal income tax requirements applicable to REITs,
the PSMI Merger could have adverse consequences on PSI's continued qualification
as a REIT, as discussed in greater detail below. Hogan & Hartson L.L.P. is of
the opinion that PSI will continue to qualify as a REIT following the PSMI
Merger so long as (A) PSI has met at all times since the PSMI Merger and
continues to meet the stock ownership and gross income requirements applicable
to REITs and (B) either PSMI at the time of (and giving effect to) such merger
was not considered to have any current or accumulated earnings and profits for
tax purposes or PSI made distributions prior to the end of 1995 in an amount
sufficient to eliminate such earnings and profits. See "-- Nonqualifying
Income," "-- Violation of Ownership Requirements," and "-- Elimination of Any
Accumulated Earnings and Profits Attributable to Non-REIT Years." Hogan &
Hartson L.L.P., however, has not opined that PSI will continue to meet the stock
ownership and gross income requirements applicable to REITs following the PSMI
Merger or that PSMI did not have current or accumulated earnings and profits at
the time of the PSMI Merger, due to the numerous factual determinations and
future events that bear on those conclusions.
Nonqualifying Income. PSI must meet several annual gross income tests to
retain its REIT qualification. See "-- Tax Treatment of PSI -- Technical
Requirements for Taxation as a REIT." Under the 95% gross income test, PSI must
derive at least 95% of its total gross income from specified classes of income
related to real property, dividends, interest or gains from the sale or other
disposition of stock or other securities that do not constitute "dealer
property." Income related to real property includes: (i) proceeds from the
rental of mini-warehouse facilities; (ii) interest on obligations secured by
mortgages on real property; and (iii) gains from the sale or other disposition
of real property (other than real property held by PSI as a dealer).
After the merger with PSMI, PSI assumed and performs property management
activities for the various partnerships and REITs in which PSI has an interest
that own Properties, as well as for various other entities that own mini-
warehouse properties and/or business parks. PSI will receive management fees
from such partnerships, REITs, and other owners in exchange for the performance
of such management activities. The gross income received by PSI from these
property management activities with respect to Properties owned by other
entities (including the REITs in which PSI has an ownership interest) is treated
as income not qualifying under the 95% test ("Nonqualifying Income"). See "--
Acquisition of Affiliated Partnership Interests in the PSMI Merger."
In addition, in order to reduce the amount of Nonqualifying Income, in
December 1995, certain Properties pre-paid to PSI approximately $4.5 million of
management fees that PSI otherwise would have been expected to receive for 1996
discounted to compensate for early payment. Pre-payment of management fees
reduced the percentage of Nonqualifying Income received by PSI in taxable years
subsequent to such prepayment. Hogan & Hartson L.L.P. is of the opinion that it
is more likely than not that the IRS would respect the inclusion of the prepaid
management fees in the gross income of PSI when they are received. Hogan &
Hartson's opinion is based on numerous cases where courts have upheld the IRS's
position that fees should be included in income when they are received, rather
than when the services to which such fees relate are performed. There are,
however, several contrary authorities where courts, over the IRS's objections,
have held that prepaid amounts are not included in income in advance of
performance. Because of these contrary authorities, there can be no assurance
that the IRS might not assert that such management fees should be included in
the gross income of PSI as the related management services are provided, rather
than being included in the gross income when they are received. If the IRS were
to successfully challenge the treatment of such management fees and the
inclusion of such fees in PSI's gross income resulted in it failing the 95% test
for a taxable year ending after the PSMI Merger, PSI's REIT status may terminate
for such year and future years unless it meets the "good cause" exception
described above.
Finally, PSI and the various other owners of mini-warehouses and business
parks for which PSI performs management activities (the "Owners") have entered
into an agreement (the "Administrative and Cost-Sharing
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Agreement") with PSCC pursuant to which PSCC provides the Owners and PSI certain
administrative and cost-sharing services in connection with the operation of the
Properties and the performance of certain administrative functions. Such
services include the provisions of corporate office space and certain equipment,
personnel required for the operation and maintenance of the properties, and
corporate or partnership administration. Each of the Owners and PSI pay the PSCC
directly for services rendered by PSCC in connection with the Administrative and
Cost Sharing Agreement. That payment is separate from and in addition to the
compensation paid to PSI under the management agreement for the management of
the Properties owned by the Owners. PSI has received a private letter ruling
from the IRS to the effect that the reimbursements and other payments made to
PSCC by the Owners will not be treated as revenues of PSI for purposes of the
95% test.
If PSI fails to meet the 95% test during any taxable year, its REIT status
would terminate for that year and future years unless it qualifies for the "good
cause" exception. In order to qualify for the "good cause" exception, PSI would
have to satisfy each of the following: (i) it reported the source and nature of
each item of its gross income in its federal income tax return for such year;
(ii) the inclusion of any incorrect information in its return is not due to
fraud with intent to evade tax; and (iii) the failure to meet such test is due
to a reasonable cause and not to willful neglect. PSI intends to conduct its
operations and affairs so that it meets the 95% test for each taxable year. PSI
also intends to operate so that, in the event it were to fail to meet the 95%
test, it would satisfy the "reasonable cause" requirement of the "good cause"
exception because it exercised ordinary business care and prudence in attempting
to satisfy the 95% test (including by receiving opinions of counsel where
appropriate). There can be no assurance, however, that if PSI were unable to
satisfy the 95% test, the IRS would necessarily agree that PSI had operated in a
manner that qualifies for the "good cause" exception. Furthermore, even if
PSI's REIT status were not terminated because of the "good cause" exception, PSI
still would be subject to an excise tax on any excess nonqualifying income.
Generally, if PSI fails the 95% test but still retains its qualification as a
REIT under the "good cause" exception, it would be subject to a 100% excise tax
on the amount of the excess nonqualifying income multiplied by a fraction, the
numerator of which would be PSI's taxable income (computed without its
distribution deduction) and the denominator of which would be PSI's gross income
from all sources. This excise tax would have the general effect of causing PSI
to pay all net profits generated from this excess nonqualifying income to the
IRS.
Violation of Ownership Requirements. For PSI to qualify as a REIT under the
Code, no more than 50% in value of its outstanding stock may be owned, directly
or constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. Following the PSMI Merger, the value of the
outstanding capital stock held by the Hughes Family was estimated to be
approximately 45%. Accordingly, no four individuals other than the Hughes Family
may own directly or constructively, in the aggregate, more than 5% of the value
of outstanding stock of PSI. In order to assist PSI in meeting these ownership
restrictions, the PSI Articles of Incorporation and Bylaws prohibit the actual
or constructive ownership of more than 2.0% of the outstanding shares of all
common stock of PSI or more than 9.9% of the outstanding shares of each class or
series of shares of preferred stock of PSI. (The PSI Articles of Incorporation
and Bylaws provide, however, that no person is deemed to exceed this ownership
limitation solely by reason of the beneficial ownership of shares of any class
of stock to the extent that such shares of stock were beneficially owned by such
person at the time of the PSMI Merger.) However, even with these ownership
limitations, there still could be a violation of the ownership restrictions if
four individuals unrelated to the Hughes Family were to own the maximum amount
of capital stock permitted under the PSI Articles of Incorporation. Therefore,
to further assist PSI in meeting the ownership restrictions, the Hughes Family
entered into an agreement with PSI for the benefit of PSI and certain designated
charitable beneficiaries restricting their acquisition of additional shares of
PSI's capital stock and providing that if, at any time, for any reason, more
than 50% in value of PSI's outstanding stock otherwise would be considered owned
by five or fewer individuals, then a number of shares of PSI Common Stock owned
by Wayne Hughes necessary to cure such violation will automatically and
irrevocably be transferred to a designated charitable beneficiary. These
provisions are modeled after certain arrangements that the IRS has ruled in
private letter rulings will preclude a REIT from being considered to violate the
ownership restrictions so long as such arrangements are enforceable as a matter
of state law and the REIT seeks to enforce them as and when necessary. There can
be no assurance, however, that the IRS might not seek to take a different
position with respect to PSI (a private letter ruling is legally binding only
with respect to the taxpayer to whom it was issued) or contend that PSI failed
to enforce these various arrangements and, hence, there can be no absolute
assurance that these arrangements will necessarily preserve PSI's REIT status.
No private letter ruling has been sought by PSI from the IRS on the effect of
these arrangements.
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Elimination of Any Accumulated Earnings and Profits Attributable to Non-
REIT Years. A REIT is not allowed to have accumulated earnings and profits
attributable to non-REIT years. A REIT has until the close of its first taxable
year in which it has non-REIT earnings and profits to distribute any such
accumulated earnings and profits. In a corporate reorganization qualifying as a
tax free statutory merger, the acquired corporation's current and accumulated
earnings and profits are carried over to the surviving corporation. Under
Treasury regulations, any earnings and profits treated as having been acquired
by a REIT through such a merger will be treated as accumulated earnings and
profits of a REIT attributable to non-REIT years. Accordingly, any accumulated
earnings and profits of PSMI and its predecessors (including earnings and
profits resulting from transactions undertaken in contemplation of the PSMI
Merger or from the PSMI Merger itself) carried over to PSI in the PSMI Merger
and PSI would have been required to distribute any such accumulated earnings and
profits prior to the close of 1995 (the year in which the merger occurred).
Failure to do so would result in disqualification of PSI as a REIT (unless the
"deficiency dividend" procedures described below apply and PSI complies with
those procedures).
The amount of any accumulated earnings and profits of PSMI acquired by PSI
was based on the consolidated earnings and profits of PSMI (including each of
its predecessors) through and including the date of the PSMI Merger
("Consolidated Accumulated Earnings"). As a condition to the merger with PSMI,
PSI received a study prepared by PSMI of the earnings and profits of PSMI and
its subsidiaries that showed, taking into account projected income of PSMI and
its affiliates to and including the time of the PSMI Merger and distributions to
the PSMI shareholders made at or prior to the time of the PSMI Merger, PSMI had
no Consolidated Accumulated Earnings at the time of the PSMI Merger. The
determination of the accumulated earnings and profits acquired by PSI in the
PSMI Merger ("Acquired Earnings") depends upon a number of factual matters
related to the activities and operations of PSMI and its predecessors during
their entire corporate existence and is subject to review and challenge by the
IRS. There can be no assurance that the IRS will not examine the tax returns of
PSMI and its predecessors for years prior to and including the PSMI Merger and
propose adjustments to increase their taxable income. Because the earnings and
profits study used to calculate the amount of Acquired Earnings is based on
these returns, such adjustments could increase the amount of the Acquired
Earnings. In this regard, the IRS can consider all taxable years of PSMI and its
predecessors as open for review for purposes of determining earnings and
profits.
Although not free from doubt, it appears that pursuant to Treasury
regulations PSI may be able to use certain "deficiency dividend" procedures to
distribute any Acquired Earnings that were subsequently determined to exist as a
result of an IRS audit. In order to use this "deficiency dividend" procedure,
PSI would have to make an additional dividend distribution to its shareholders
(in addition to distributions made for purposes of satisfying the normal REIT
distribution requirements), in the form of cash, notes, other property, or stock
in a taxable stock dividend, within 90 days of the IRS determination. In
addition, PSI would have to pay to the IRS an interest charge on 50% of the
Acquired Earnings that were not distributed prior to December 31, 1995, from the
date on which its 1995 tax return was due to the date the IRS determination was
made. The statute and Treasury regulations related to the application of the
"earnings and profits distribution" requirement to a REIT that acquires a "non-
REIT" in a reorganization and the availability of the "deficiency dividend"
procedure in those circumstances are not entirely clear, and there can be no
assurance that the IRS would not take the position either that the "deficiency
dividend" procedure is not available (in which case, PSI would cease to qualify
as a REIT effective for its taxable year in which the PSMI Merger occurs) or,
alternatively, that even if the procedure is available, PSI cannot qualify as a
REIT for the taxable year in which the Merger occurs (but it could qualify as a
REIT for subsequent years).
Acquisition of Affiliated Partnership Interests in the PSMI Merger. In the
PSMI Merger, PSI acquired interests in various partnerships that own and operate
Properties. PSI, for purposes of satisfying its REIT asset and income tests,
will be treated as if it directly owns a proportionate share of each of the
assets of these partnerships. For these purposes, under current Treasury
regulations PSI's interest in each of the partnerships must be determined in
accordance with its "capital interest" in such partnership. The character of
the various assets in the hands of the partnership and the items of gross income
of the partnership will retain their same character in the hands of PSI for
these purposes. Accordingly, to the extent the partnership receives real estate
rentals and holds real property, a proportionate share of such qualified income
and assets will be treated as qualified rental income and real estate assets of
PSI for purposes of determining its REIT qualification. It is expected that
substantially all of the properties of the partnerships will constitute real
estate assets and generate qualified rental income for these REIT qualification
purposes.
The acquisition of these partnership interests in the PSMI Merger created
several issues regarding PSI's satisfaction of the 95% gross income test.
First, PSI earns property management fees from these partnerships.
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Existing Treasury regulations do not address the treatment of management fees
derived by a REIT from a partnership in which the REIT holds a partnership
interest, but the IRS has issued a number of private letter rulings holding that
the portion of the management fee that corresponds to the REIT interest in the
partnership in effect is disregarded in applying the 95% gross income test where
the REIT holds a "substantial" interest in the partnership. PSI disregards the
portion of management fees derived from partnerships in which it is a partner
that corresponds to its interest in these partnerships in determining the amount
of its Nonqualifying Income, and PSI's prepayment of management fees set forth
above was computed based upon this approach. There can be no assurance,
however, that the IRS would not take a contrary position with respect to PSI,
either rejecting the approach set forth in the private letter rulings mentioned
above or contending that PSI's situation is distinguishable from those addressed
in the private letter rulings (for example, because PSI does not have a
"substantial" interest in the partnerships).
Second, PSI acquired interests in certain of these partnerships that
entitles PSI to a percentage of profits (either from operations, or upon a sale,
or both) in excess of the percentage of total capital originally contributed to
the partnership with respect to such interest. Existing Treasury Regulations do
not specifically address this situation, and it is uncertain, based on existing
authority, how PSI's "capital interest" in these partnerships should be
determined. This determination is relevant because it affects both the
percentage of the gross rental income of the partnership that is considered
gross rental income (or qualifying income) to PSI and the percentage of the
management fees paid to PSI that are disregarded in determining PSI's
Nonqualifying Income. For example, if PSI takes the position that it has a 25%
"capital interest" in a partnership (because it would receive 25% of the
partnership's assets upon a sale and liquidation) but the IRS determines it only
has a 1% "capital interest" (because the original holder of PSI's interest only
contributed 1% of the total capital contributed to the partnership), PSI's share
of the qualifying income from the partnership would be reduced and the portion
of the management fee from the partnership that would be treated as
Nonqualifying Income would be increased, thereby adversely affecting PSI's
ability to satisfy the 95% gross income test. In determining its "capital
interest" in the various partnerships in which PSI acquired an interest in the
PSMI Merger, PSI determines the percentage of the partnership's assets that
would be distributed to it if those assets were sold and distributed among the
partners in accordance with the applicable provisions of the partnership
agreements. There can be no assurance, however, that the IRS will agree with
this methodology and not contend that another, perhaps less favorable, method
must be used for purposes of determining PSI "capital interests." If that were
to occur, it could adversely affect PSI's ability to satisfy the 95% gross
income test following the PSMI Merger.
TAXATION OF PSI SHAREHOLDERS
Distributions generally will be taxable to PSI Shareholders as ordinary
income to the extent of PSI's earnings and profits. For this purpose, earnings
and profits of PSI first will be allocated to distributions paid on preferred
stock until an amount equal to such distributions has been allocated thereto. As
a result, it is likely that any distributions paid on the preferred stock will
be taxable in full as dividends to the holders of the preferred stock. Dividends
declared during the last quarter of a calendar year and actually paid during
January of the immediately following calendar year generally are treated as if
received by the shareholders on December 31 of the calendar year during which
they were declared. Distributions paid to shareholders will not constitute
passive activity income and as a result, generally cannot be offset by losses
from passive activities of shareholders subject to the passive activity rules.
Distributions designated by PSI as capital gain dividends generally will be
taxed as long-term capital gain to shareholders, to the extent that the
distributions do not exceed PSI's actual net capital gain for the taxable year.
Corporate shareholders may be required to treat up to 20% of any such capital
gain dividends as ordinary income. Distributions by PSI, whether characterized
as ordinary income or as capital gain, are not eligible for the 70% dividends
received deduction for corporations. If PSI should realize a loss, shareholders
will not be permitted to deduct any share of that loss. Future regulations may
require that the shareholders take into account, for purposes of computing their
individual alternative minimum tax liability, certain tax preference items of
PSI.
PSI may distribute cash in excess of its net taxable income. Upon
distribution of such cash by PSI to shareholders (other than as a capital gain
dividend), if all of PSI's current and accumulated earnings and profits have
been distributed, the excess cash will be deemed to be a non-taxable return of
capital to each shareholder to the extent of the adjusted tax basis of the
shareholder's capital stock. Distributions in excess of the adjusted tax basis
will be treated as gain from the sale or exchange of the capital stock. A
shareholder who has received a distribution in excess of current and accumulated
earnings and profits of PSI may, upon the sale of the capital stock, realize a
higher taxable gain or a smaller loss because the basis of PSI Common Stock as
reduced will be used for purposes of computing the
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amount of the gain or loss. Generally, gain or loss realized by a shareholder
upon the sale of capital stock will be reportable as capital gain or loss. If a
shareholder receives a long-term capital gain dividend from PSI and has held the
capital stock for six months or less, any loss incurred on the sale or exchange
of the capital stock is treated as a long-term capital loss, to the extent of
the corresponding long-term capital gain dividend received.
If a shareholder is subject to "backup withholding," PSI will be required
to deduct and withhold from any dividends payable to the shareholder a tax of
31%. These rules may apply when a shareholder fails to supply a correct taxpayer
identification number, or when the IRS notifies PSI that the shareholder is
subject to the rules or has furnished an incorrect taxpayer identification
number. The Treasury Department has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current clarification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for payments
made after December 31, 1997, subject to certain transition rules.
PSI is required to demand annual written statements from the record holders
of designated percentages of its capital stock disclosing the actual owners of
the capital stock and to maintain permanent records showing the information it
has received as to the actual ownership of such capital stock and a list of
those persons failing or refusing to comply with such demand.
In any year in which PSI does not qualify as a REIT, distributions by PSI
to shareholders will be taxable in the same manner discussed above, except that
no distributions can be designated as capital gain dividends, distributions will
be eligible for the corporate dividends received deduction, and shareholders
will not receive any share of PSI's tax preference items.
TAX EXEMPT INVESTORS. In general, a tax exempt entity that is a
shareholder is not subject to tax on distributions from PSI or gain realized on
the sale of capital stock, provided that the tax exempt entity has not financed
the acquisition of its capital stock with "acquisition indebtedness" within the
meaning of the Code. Special rules apply to organizations exempt under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), and such prospective investors
should consult their own tax advisors concerning the applicable "set aside" and
reserve requirements.
FOREIGN INVESTORS. The rules governing United States income, gift and
estate taxation of foreign entities and individuals who are neither citizens nor
residents of the United States are complex. They depend not only upon United
States federal and state income, gift and estate tax principles, but also upon
the treaties, if any, between the United States and the country of the
nonresident investor. Therefore, any prospective foreign investor is urged to
consult its own tax advisor with respect to both the United States and foreign
tax consequences of owning stock of PSI. The following discussion sets forth
several points that may be relevant to particular foreign investors. It assumes
that any such investor holds the stock of PSI as an investment and not in
connection with the conduct of a U.S. trade or business. Ordinary dividends
generally will be subject to withholding at the source, at a 30% rate (which may
be reduced under applicable treaties if the shareholder satisfies all pertinent
requirements). Capital gain dividends may be subject to such withholding at a
35% rate if they relate to dispositions of U.S. real property interests
(including the sale or disposition prior to maturity of loans where interest is
based upon a "participation" in the income or appreciation from real property).
Such dispositions would generally include the sale (but not the retirement) of
profit-sharing loans relating to U.S. real property. In addition, such capital
gain dividends (net of the amount of regular income tax) may be subject to a 30%
branch tax in the hands of any foreign corporate recipients. Such tax may be
reduced or eliminated in the case of a corporation that is a resident of a
country with which the U.S. has a tax treaty, provided that a majority of such
corporation's ultimate shareholders are residents of the country in question and
that various filing requirements are satisfied. Investors may be able to obtain
a partial refund of taxes withheld in respect of capital gain distributions by
filing a nonresident U.S. tax return. Because only a minority of PSI
Shareholders are expected to be foreign taxpayers, PSI should qualify as a
"domestically-controlled REIT." Accordingly, a foreign taxpayer will not be
subject to U.S. tax from gains recognized upon disposition of capital stock
(unless the shareholder was present in the U.S. for more than 183 days in the
year of sale and certain other requirements are met). Upon the death of a
foreign individual shareholder, the investor's stock in PSI will be treated as
part of the investor's U.S. estate for purposes of the U.S. estate tax, except
as may be otherwise provided in an applicable estate tax treaty.
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STATE AND LOCAL TAXES
The tax treatment of PSI, and PSP12 Shareholders, in states having taxing
jurisdiction over them may differ from the federal income tax treatment.
Accordingly, no discussion of state taxation of PSI, and PSP12 Shareholders is
provided nor is any representation made as to the tax status of PSI in such
states. All investors should consult their own tax advisors as to the treatment
of PSI under the respective state tax laws applicable to them.
LEGAL OPINIONS
David Goldberg, senior vice president and general counsel of PSI, will
deliver an opinion to the effect that the shares of Common Stock of PSI to be
issued in the Merger will be validly issued, fully paid and nonassessable. Mr.
Goldberg owns 69,637 shares of PSI Common Stock, 1,000 shares of PSI convertible
preferred stock and 500 shares of PSI Senior Preferred Stock and has options to
acquire an additional 142,500 shares of PSI Common Stock. Mr. Goldberg also owns
3,200 shares of PSP12 Common Stock. Hogan & Hartson L.L.P., Washington, D.C.,
has rendered an opinion to the effect that the discussion under "Certain Federal
Income Tax Matters" fairly summarizes the material federal income tax
considerations to a PSP12 Shareholder as a result of the Merger, and the
subsequent ownership of PSI Common Stock, as well as to the effect that the
Merger will constitute a reorganization under Section 368(a) of the Code (based
on certain factual assumptions and representations made by PSP12, PSI and
certain shareholders of PSP12). Hogan & Hartson L.L.P. has performed certain
legal services on behalf of PSI, including the representation of PSI in the PSMI
Merger.
EXPERTS
The consolidated financial statements of PSI appearing in PSI's Annual
Report (Form 10-K), as amended by a Form 10-K/A (Amendment No. 3) dated May 15,
1996, for the year ended December 31, 1995 and incorporated by reference in this
Proxy Statement and Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report with respect thereto, and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of PSP12 for the year ended December 31, 1995
appearing in this Proxy Statement and Prospectus and in the Annual Report on
Form 10-K of PSP12 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report included herein. Such financial statements are
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
INDEPENDENT AUDITORS
It is anticipated that representatives of Ernst & Young LLP, which has
acted as the independent auditors of PSI and PSP12 since their respective
organization, will be in attendance at the special meeting of PSP12 Shareholders
with the opportunity to make a statement if they desire to do so and to respond
to any appropriate inquiries of shareholders or their representatives.
SHAREHOLDER PROPOSALS
Any proposal that a PSP12 Shareholder wishes to submit for consideration
for inclusion in the proxy statement for the 1996 annual meetings of
shareholders was required to have been received by PSP12 no later than July 1,
1996. No such proposals were received.
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GLOSSARY
The following are definitions of certain terms used in this Proxy Statement
and Prospectus:
"Merger." The merger of PSP12 with and into PSI.
"PSCP." Public Storage Commercial Properties Group, Inc., a California
corporation.
"PSI." Public Storage, Inc., a REIT organized as a California corporation
(formerly Storage Equities, Inc.).
"PSI Common Stock." Shares of Common Stock, par value $.10 per share, of
PSI.
"PSI Shareholder." A holder of shares of PSI Common Stock.
"PSMI." Public Storage Management, Inc., a California corporation, which,
together with its affiliates, was merged into Storage Equities, Inc. in November
1995.
"PSP12." Public Storage Properties XII, Inc., a REIT organized as a
California corporation.
"PSP12 Common Stock." Shares of Common Stock Series A, par value $.01 per
share, of PSP12.
"PSP12 Common Stock Series B." Shares of Common Stock Series B, par value
$.01 per share, of PSP12.
"PSP12 Common Stock Series C." Shares of Common Stock Series C, par value
$.01 per share, of PSP12.
"PSP12 Partnership." Public Storage Properties XII, Ltd., a California
limited partnership, the predecessor to PSP12.
"PSP12 Shareholder." A holder of shares of PSP12 Common Stock.
"REIT." A real estate investment trust.
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Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is entered into as
of this 20th day of June, 1996, by and between PUBLIC STORAGE, INC., a
California corporation ("PSI"), and PUBLIC STORAGE PROPERTIES XII, INC., a
California corporation ("PSP12").
A. The parties intend that this Agreement shall constitute a Plan of
Reorganization for purposes of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended. The Plan of Reorganization provides for the merger of
PSP12 with and into PSI in accordance with the applicable provisions of the
General Corporation Law of California (the "GCLC") and an Agreement of Merger
substantially in the form attached hereto as Exhibit A ("Merger Agreement").
B. PSI and PSP12 believe that it is in the best interests of such
corporations and their respective shareholders to enter into and complete this
Agreement and they have approved this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, the parties agree as follows:
1. ADOPTION OF PLAN. The parties hereby adopt the Plan of Reorganization
hereinafter set forth.
2. THE MERGER.
2.1 COMPLETION OF THE MERGER. At the Effective Time (as defined
below), PSP12 will be merged with and into PSI (the "Merger") in accordance with
the terms, conditions and provisions of this Agreement and the Merger Agreement.
The Merger shall become effective at the time at which the Merger Agreement,
together with the requisite Officers' Certificates of PSI and PSP12, are filed
with the California Secretary of State in accordance with the GCLC (the
"Effective Time"). PSI and PSP12 are sometimes collectively referred to herein
as the "Constituent Corporations" and PSI, as the surviving corporation of the
Merger, is sometimes referred to herein as the "Surviving Corporation."
2.2 EFFECT OF THE MERGER. At the Effective Time:
2.2.1 CONSTITUENT CORPORATIONS. The separate corporate
existence of PSP12 shall cease and the Surviving Corporation shall thereupon
succeed, without other transfer, to all the rights and property of PSP12 and
shall be subject to all the debts and liabilities of PSP12 in the same manner as
if the Surviving Corporation had itself incurred them; all rights of creditors
and all liens upon the property of each of the Constituent Corporations shall be
preserved unimpaired, provided that such liens upon property of PSP12 shall be
limited to the property affected thereby immediately prior to the Effective
Time; and any action or proceeding pending by or against PSP12 may be prosecuted
to judgment, which shall bind the Surviving Corporation, or the Surviving
Corporation may be proceeded against or substituted in its place.
2.2.2 ARTICLES AND BYLAWS. The Articles of Incorporation and
the Bylaws of PSI, as then amended, shall continue to be the Articles of
Incorporation and the Bylaws of the Surviving Corporation until changed as
provided by law and their respective provisions.
2.2.3 OFFICERS AND DIRECTORS. The officers and directors of
PSI shall continue as officers and directors of the Surviving Corporation until
their successors are elected and qualified as provided by law and in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation.
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2.3 CONVERSION OF COMMON STOCK SERIES A. The manner of converting
the outstanding shares of Common Stock Series A ($.01 par value) of PSP12 (the
"PSP12 Shares") into cash and/or shares of Common Stock ($.10 par value) of PSI
(the "PSI Shares") shall be as follows:
2.3.1 CASH ELECTION. At the Effective Time, subject to
Sections 2.6 and 6.8 hereof, each PSP12 Share as to which a cash election has
been made in accordance with the provisions of Section 2.5 hereof and has not
been revoked, relinquished or lost pursuant to Section 2.5 hereof (the "Cash
Election Shares") shall be converted into and shall represent the right to
receive $22.34 in cash (the "Cash Election Price"). As soon as practicable after
the Effective Time, the registered holders of Cash Election Shares shall be paid
the cash to which they are entitled hereunder in respect of such Cash Election
Shares.
2.3.2 SHARE EXCHANGE. At the Effective Time, subject to
Sections 2.4, 2.5, 2.7 and 6.8 hereof, each PSP12 Share (other than Cash
Election Shares) shall be converted into that number of PSI Shares equal to,
rounded to the nearest thousandth, the quotient (the "Conversion Number")
derived by dividing $22.34 by the average of the per share closing prices on the
New York Stock Exchange, Inc. (the "NYSE") of PSI Shares during the 20
consecutive trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP12 provided for in Section 6.2 hereof. If, prior to the
Effective Time, PSI should split or combine the PSI Shares, or pay a stock
dividend, the Conversion Number will be appropriately adjusted to reflect such
action.
2.4 NO FRACTIONAL SHARES. Notwithstanding any other term or
provision of this Agreement, no fractional PSI Shares and no certificates or
script therefor, or other evidence of ownership thereof, will be issued in the
Merger. In lieu of any such fractional share interests, each holder of PSP12
Shares who would otherwise be entitled to such fractional share will, upon
surrender of the certificate representing such PSP12 Shares, receive a whole PSI
Share if such fractional share to which such holder would otherwise have been
entitled is .5 of a PSI Share or more, and such fractional share shall be
disregarded if it represents less than .5 of a PSI Share; provided, however,
that, such fractional share shall not be disregarded if such fractional share to
which such holder would otherwise have been entitled represents .5 of 1% or more
of the total number of PSI Shares such holder is entitled to receive in the
Merger. In such event, such holder shall be paid an amount in cash (without
interest), rounded to the nearest $.01, determined by multiplying (i) the per
share closing price on the NYSE of the PSI Shares at the Effective Time by (ii)
the factional interest.
2.5 PROCEDURE FOR CASH ELECTION. At the time of the mailing of the
Proxy Statement and Prospectus provided for in Section 6.5 hereof, PSI will send
to each holder of record of PSP12 Shares at the record date for PSP12 meeting of
shareholders referred to in Section 6.2 hereof a cash election form (the "Form
of Election") providing such holder with the option to elect to receive the Cash
Election Price with respect to all or any portion of such holder's PSP12 Shares.
Any such election to receive the cash payment contemplated by Section 2.3.1
hereof shall have been properly made only if The First National Bank of Boston
(the "Exchange Agent") shall have received at its designated office, by 5:00
p.m., New York time, on the last business day preceding the day of such meeting
of shareholders, a Form of Election properly completed and accompanied by
certificates for the shares to which such Form of Election relates (or an
appropriate guarantee of delivery in a form and on terms satisfactory to PSI),
as set forth in such Form of Election. Any Form of Election may be revoked by
the person submitting the same to the Exchange Agent only by written notice
received by the Exchange Agent prior to 5:00 p.m., New York time, on the last
business day before the day of the meeting of shareholders referred to in
Section 6.2 hereof. In addition, all Forms of Election shall automatically be
revoked if the Exchange Agent is notified in writing by the parties hereto that
the Merger has been abandoned. If a Form of Election is revoked pursuant to this
Section 2.5, the certificate or certificates or any guarantee of delivery in
respect of the PSP12 Shares to which such Form of Election relates shall be
promptly returned to the person submitting the same to the Exchange Agent. The
Exchange Agent may determine whether or not elections to receive cash have been
properly made or revoked pursuant to this Section 2.5, and any such
determination shall be conclusive and binding. If the Exchange Agent determines
that any election to receive cash was not properly or timely made, the PSP12
Shares covered thereby shall not be treated as Cash Election Shares, and shall
be converted in the Merger as provided in Section 2.3.2 hereof. The Exchange
Agent may, with the mutual agreement of PSI and PSP12, establish such
procedures, not inconsistent with this Section 2.5, as may be necessary or
desirable to implement this Section 2.5.
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2.6 PROCEDURE FOR PRORATION.
2.6.1 NO PRORATION. If the aggregate number of Cash
Election Shares and Dissenting Shares (as defined below) is 20% or less than the
number of PSP12 Shares outstanding as of the record date for the meeting of
shareholders of PSP12 referred to in Section 6.2, then each Cash Election Share
shall be converted in the Merger into the right to receive the Cash Election
Price.
2.6.2 PRORATION. If the aggregate number of Cash Election
Shares and Dissenting Shares exceeds 20%, then each Cash Election Share shall be
converted in the Merger into the right to receive cash or into PSI Shares as
follows: the number of Cash Election Shares owned by a holder of PSP12 Shares
that shall be converted into the right to receive the Cash Election Price shall
equal the number obtained by multiplying (i) (A) 20% of outstanding PSP12 Shares
less (B) the number of Dissenting Shares (as hereinafter defined), if any, by
(ii) a fraction of which the numerator shall be the number of Cash Election
Shares owned by such holder and the denominator shall be the aggregate number of
Cash Election Shares. The balance of such Cash Election Shares shall be
converted into PSI Shares in accordance with the provisions of Section 2.3.2
hereof. Notwithstanding the foregoing, PSI, in its sole discretion, may allow
Cash Election Shares to receive the Cash Election Price even if the aggregate
number of Cash Election Shares and Dissenting Shares exceeds 20% (but not 50%)
of the number of PSP12 Shares outstanding as of the record date for the meeting
of shareholders of PSP12 referred to in Section 6.2.
2.7 DISSENTING SHARES. PSP12 Shares held by a holder who has
demanded and perfected his right to an appraisal of such shares in accordance
with Section 1300 et seq. of the GCLC and who has not effectively withdrawn or
lost his right to appraisal ("Dissenting Shares") shall not be converted into or
represent the right to receive cash and/or PSI Shares, but the holder thereof
shall be entitled only to such rights as are granted by Section 1300 et seq. of
the GCLC. Each holder of Dissenting Shares who becomes entitled to payment for
PSP12 Shares pursuant to these provisions of the GCLC shall receive payment
therefor from the Surviving Corporation in accordance therewith. If any holder
of PSP12 Shares who demands appraisal in accordance with Section 1300 et seq. of
the GCLC shall effectively withdraw with the consent of the Surviving
Corporation or lose (through failure to perfect or otherwise) his right to
appraisal with respect to PSP12 Shares, such PSP12 Shares shall automatically be
converted into the right to receive PSI Shares pursuant to Section 2.3.2 hereof.
2.8 PSI SHARES UNAFFECTED. The Merger shall effect no change in any
of the outstanding PSI Shares and no outstanding PSI shares shall be converted
or exchanged as a result of the Merger, and no cash shall be exchangeable, and
no securities shall be issuable, with respect thereto.
2.9 CANCELLATION OF SHARES HELD OR OWNED BY PARTIES. At the
Effective Time, any PSP12 Shares owned by PSI shall be cancelled and retired and
no shares shall be issuable, and no cash shall be exchangeable, with respect
thereto.
2.10 EXCHANGE OF CERTIFICATES. After the Effective Time, each holder
of a certificate theretofore evidencing outstanding PSP12 Shares which were
converted into PSI Shares pursuant hereto, upon surrender of such certificate to
the Exchange Agent or such other agent or agents as shall be appointed by the
Surviving Corporation, shall be entitled to receive a certificate representing
the number of whole PSI Shares into which the PSP12 Shares theretofore
represented by the certificate so surrendered shall have been converted as
provided in Section 2.3.2 hereof and cash payment in lieu of fractional share
interests, if any, as provided in Section 2.4 hereof. As soon as practicable
after the Effective Time, the Exchange Agent will send a notice and a
transmittal form to each holder of PSP12 Shares of record at the Effective Time
whose stock shall have been converted into PSI Shares, advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent certificates evidencing PSP12 Shares in exchange for
certificates evidencing PSI Shares.
2.11 STATUS UNTIL SURRENDERED. Until surrendered as provided in
Section 2.10 hereof, each outstanding certificate which, prior to the Effective
Time, represented PSP12 Shares (other than Cash Election Shares and Dissenting
Shares, if any) will be deemed for all corporate purposes to evidence ownership
of the number of whole PSI Shares into which the PSP12 Shares evidenced thereby
were converted. However, until such outstanding certificates formerly
evidencing PSP12 Shares are so surrendered, no dividend payable to holders of
record of PSI Shares shall be
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paid to the holders of such outstanding certificates in respect of PSP12 Shares,
but upon surrender of such certificates by such holders there shall be paid to
such holders the amount of any dividends (without interest) theretofore paid
with respect to such whole PSI Shares as of any record date on or subsequent to
the Effective Time and the amount of any cash (without interest) payable to such
holder in lieu of fractional share interests pursuant to Section 2.4 hereof.
2.12 TRANSFER OF SHARES. After the Effective Time, there shall be no
further registration of transfers of PSP12 Shares on the records of PSP12 and,
if certificates formerly evidencing such shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for certificates evidencing
PSI Shares and cash in lieu of fractional share interests as herein provided.
2.13 CONVERSION OF COMMON STOCK SERIES B AND C. At the Effective
Time, subject to Section 6.8 hereof, each share of Common Stock Series B and C
($.01 par value) of PSP12 (other than shares owned by PSI) shall be converted
into that number of PSI Shares equal to, rounded to the nearest thousandth, the
quotient derived by dividing $17.95 by the average per share closing prices on
the NYSE of PSI Shares during the 20 consecutive trading days ending on the
fifth trading day prior to the meeting of shareholders of PSP12 provided for in
Section 6.2 hereof. If PSI should split or combine the PSI Shares, or pay a
stock dividend, such conversion number will be appropriately adjusted to reflect
such action.
3. CLOSING.
3.1 TIME AND PLACE OF CLOSING. If this Agreement is approved by the
shareholders of PSP12, a meeting (the "Closing") shall take place as promptly as
practicable thereafter at which the parties will exchange certificates and other
documents as required by this Agreement. Such Closing shall take place at such
time and place as PSI may designate. The date of the Closing shall be referred
to as the "Closing Date."
3.2 EXECUTION AND FILING OF MERGER AGREEMENT. At or before the
Closing and after shareholder approval by PSP12, PSI and PSP12 shall execute and
deliver the Merger Agreement, together with the requisite Officers'
Certificates, for filing with the California Secretary of State. The Merger
Agreement, together with the requisite Officers' Certificates, shall be duly
filed with the California Secretary of State in accordance with the GCLC as soon
as practicable following the Closing.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PSP12. PSP12
represents, warrants and agrees with PSI that:
4.1 AUTHORIZATION. Subject to approval of this Agreement by the
shareholders of PSP12, (i) the execution, delivery and performance of this
Agreement by PSP12 has been duly authorized and approved by all necessary
corporate action of PSP12, and (ii) PSP12 has necessary corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to complete the transactions contemplated hereby.
4.2 ORGANIZATION AND RELATED MATTERS. PSP12 is a corporation duly
organized, existing and in good standing under the laws of the State of
California with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as and where now owned,
leased, operated or carried on, as the case may be; and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business carried on by it requires such qualification and where the failure to
so qualify would have a material adverse effect on the business, properties,
results of operations or financial condition of PSP12. PSP12 has no direct or
indirect equitable or beneficial interest in any other corporation other than
PSCC, Inc.
4.3 CAPITAL STOCK. The authorized capital stock of PSP12 consists
solely of (i) 2,828,929 shares of Common Stock Series A ($.01 par value),
1,732,399 of which were issued and outstanding as of February 29, 1996, (ii)
184,453 shares of Common Stock Series B ($.01 par value), all of which were
issued and outstanding as of February 29, 1996 and (iii) 522,618 shares of
Common Stock Series C ($.01 par value), all of which were issued and outstanding
as of February 29, 1996. All of the issued and outstanding shares of capital
stock of PSP12 have been duly and validly authorized and issued, and are fully
paid and nonassessable. There are no options or agreements to which PSP12 is a
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party or by which it is bound calling for or requiring the issuance of any of
PSP12's capital stock except that the Common Stock Series B and Common Stock
Series C are convertible into shares of Common Stock Series A in accordance with
PSP12's Articles of Incorporation.
4.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming approval of the
Merger and of this Agreement by the shareholders of PSP12, neither the execution
and delivery of this Agreement nor the consummation by PSP12 of the transactions
contemplated hereby will: (i) conflict with or result in any breach of any
provision of its Articles of Incorporation or Bylaws; (ii) require any consent,
waiver, approval, authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, except (A) in connection with the
applicable requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (B) pursuant to the applicable
requirements of the federal securities laws and the rules and regulations
promulgated thereunder, (C) the filing of the Merger Agreement and Officers'
Certificates pursuant to the GCLC and appropriate documents with the relevant
authorities of other states in which PSP12 is authorized to do business, (D) in
connection with any state or local tax which is attributable to the beneficial
ownership of PSP12's real property, (E) as may be required by any applicable
state securities or takeover laws, or (F) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a material adverse effect on PSP12
or adversely affect the ability of PSP12 to consummate the transactions
contemplated hereby; (iii) result in a violation or breach of, or constitute a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, license, mortgage,
agreement or other instrument or obligation to which PSP12 is a party or any of
its properties or assets may be bound, except for such violations, breaches and
defaults which, in the aggregate, would not have a material adverse effect on
PSP12 or adversely affect the ability of PSP12 to consummate the transactions
contemplated hereby; or (iv) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in this Section 4.4 are duly
and timely obtained or made, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to PSP12 or its properties or assets,
except for violations which would not in the aggregate have a material adverse
effect on PSP12 or adversely affect the ability of PSP12 to consummate the
transactions contem plated hereby.
4.5 LITIGATION. There is no litigation, proceeding or governmental
investigation which, individually or in the aggregate, is or may be material and
adverse, pending or, to the knowledge of PSP12, threatened against PSP12 or
involving any of its properties or assets.
4.6 SEC REPORTS. Since January 1, 1993, PSP12 has filed all forms,
reports and documents with the Securities and Exchange Commission ("SEC")
required to be filed by it pursuant to the federal securities laws and the rules
and regulations promulgated by the SEC thereunder, all of which complied in all
material respects with all applicable requirements of the federal securities
laws and such rules and regulations (collectively, the "PSP12 SEC Reports").
None of the PSP12 SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.7 FINANCIAL STATEMENTS. The financial statements included in the
PSP12 SEC Reports complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods (except
as otherwise noted therein), and present fairly the financial position of PSP12
as of their respective dates, and the results of operations of PSP12 for the
periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1996, the
business of PSP12 has been carried on only in the ordinary and usual course and
there has not been any material adverse change in its business, results of
operations or financial condition, or any damage or destruction in the nature of
a casualty loss, whether covered by insurance or not, that would materially and
adversely affect its properties, business or results of operations.
4.9 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS.
None of the information supplied or to be supplied by PSP12 for inclusion or
incorporation by reference in the S-4 Registration Statement or the
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Proxy Statement and Prospectus (as such terms are defined in Section 6.5 hereof)
will (i) in the case of the S-4 Registration Statement, at the time it becomes
effective and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or (ii) in the
case of the Proxy Statement and Prospectus, at the time of the mailing of the
Proxy Statement and Prospectus and at the time of the meetings of the
shareholders of PSP12, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
4.10 INSURANCE. All material insurance of PSP12 is currently in full
force and effect and PSP12 has reported all claims and occurrences to the extent
required by such insurance.
4.11 DISCLOSURE. The representations and warranties by PSP12 in this
Agreement and any certificate or document delivered by it pursuant hereto do not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PSI. PSI hereby
represents, warrants and agrees with PSP12 that:
5.1 AUTHORIZATION. The execution, delivery and performance of this
Agreement by PSI has been duly authorized and approved by all necessary
corporate action of PSI, and PSI has all necessary corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
complete the transactions contemplated hereby.
5.2 ORGANIZATION AND RELATED MATTERS. PSI is a corporation duly
organized, existing and in good standing under the laws of the State of
California, with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as and where now owned,
leased, operated or carried on, as the case may be; and is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business carried on by it requires such qualification and where the failure to
so qualify would have a material adverse effect on the business, properties,
results of operations or financial condition of PSI.
5.3 CAPITAL STOCK. The authorized capital stock of PSI consists
solely of (i) 200,000,000 shares of Common Stock ($.10 par value), 71,518,796 of
which were issued and outstanding as of January 31, 1996, (ii) 7,000,000 shares
of Class B Common Stock ($.10 par value), all of which are issued and
outstanding and (iii) 50,000,000 shares of Preferred Stock ($.01 par value),
13,450,850 of which were issued and outstanding as of January 31, 1996. All of
the issued and outstanding shares of Common Stock, Class B Common Stock and
Preferred Stock of PSI have been duly and validly authorized and issued, and are
fully paid and nonassessable. Upon approval of this Agreement by the Board of
Directors of PSI, the issuance of the PSI Shares in the Merger will have been
duly and validly authorized and, when issued and delivered as provided in this
Agreement, the PSI Shares will be duly and validly issued, fully paid and
nonassessable; and the shareholders of PSI have no preemptive rights with
respect to any shares of capital stock of PSI.
5.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming the approval of
the Merger and this Agreement by the Board of Directors of PSI, neither the
execution and delivery of this Agreement nor the consummation by PSI of the
transactions contemplated hereby will: (i) conflict with or result in any breach
of any provision of its Articles of Incorporation or Bylaws; (ii) require any
consent, waiver, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the applicable requirements, if any, of the HSR Act, (B)
pursuant to the applicable requirements of the federal securities laws and the
rules and regulations promulgated thereunder, (C) the filing of the Merger
Agreement and Officers' Certificates pursuant to the GCLC and appropriate
documents with the relevant authorities of other states in which PSI is
authorized to do business, (D) in connection with any state or local tax which
is attributable to the beneficial ownership of PSP12's real property, (E) as may
be required by any applicable state securities or takeover laws, or (F) where
the failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, would not in the aggregate have a material
adverse effect on PSI or adversely affect the ability of PSI to consummate the
transactions contemplated hereby; (iii) result in a violation or breach of, or
constitute a default (or give rise to any right of termination, cancellation or
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acceleration) under any of the terms, conditions or provisions of any note,
license, mortgage, agreement or other instrument or obligation to which PSI is a
party or any of its properties or assets may be bound, except for such viola
tions, breaches and defaults which, in the aggregate, would not have a material
adverse effect on PSI or adversely affect the ability of PSI to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this
Section 5.4 are duly and timely obtained or made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to PSI or its
properties or assets, except for violations which would not in the aggregate
have a material adverse effect on PSI or adversely affect the ability of PSI to
consummate the transactions contemplated hereby.
5.5 LITIGATION. There is no litigation, proceeding or governmental
investigation which, individually or in the aggregate, is or may be material and
adverse, pending or, to the knowledge of PSI, threatened against PSI or
involving any of its properties or assets.
5.6 SEC REPORTS. Since January 1, 1993, PSI has filed all forms,
reports and documents with the SEC required to be filed by it pursuant to the
federal securities laws and the rules and regulations promulgated by the SEC
thereunder, all of which complied in all material respects with all applicable
requirements of the federal securities laws and such rules and regulations
(collectively, the "PSI SEC Reports"). None of the PSI SEC Reports, including
without limitation any financial statements or schedules included therein, at
the time filed contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
5.7 FINANCIAL STATEMENTS. The financial statements included in
PSI's SEC Reports complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods (except
as otherwise noted therein), and present fairly the financial position of PSI as
of their respective dates, and the results of operations of PSI for the periods
presented therein (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments).
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1996,
the business of PSI has been carried on only in the ordinary and usual course
and there has not been any material adverse change in its business, results of
operations or financial condition, or any damage or destruction in the nature of
a casualty loss, whether covered by insurance or not, that would materially and
adversely affect its properties, business or results of operations.
5.9 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS.
None of the information supplied or to be supplied by PSI for inclusion or
incorporation by reference in the S-4 Registration Statement or the Proxy
Statement and Prospectus (as those terms are defined in Section 6.5 hereof) will
(i) in the case of the S-4 Registration Statement, at the time it becomes
effective and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or (ii) in the
case of the Proxy Statement and Prospectus, at the time of the mailing of the
Proxy Statement and Prospectus and at the time of the meetings of the
shareholders of PSP12, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
5.10 INSURANCE. All material insurance of PSI is currently in full
force and effect and PSI has reported all claims and occurrences to the extent
required by such insurance.
5.11 DISCLOSURE. The representations and warranties by PSI in this
Agreement and any certificate or document delivered by it pursuant hereto do not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
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6. COVENANTS AND AGREEMENTS.
6.1 ORDINARY COURSE. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, each of
PSI and PSP12 will carry on its business in the ordinary course in substantially
the same manner as heretofore conducted and use all reasonable efforts to: (a)
preserve intact its present business, organization and goodwill, (b) maintain
all permits, licenses and authorizations required by applicable laws, and (c)
keep available the services of its present employees and preserve its
relationships with customers, suppliers, lenders, lessors, governmental entities
and others having business or regulatory dealings with it. PSP12 will not issue
any capital stock or debt securities convertible into capital stock. Each of PSI
and PSP12 will promptly notify the other of any event or occurrence not in the
ordinary and usual course of business or which may have a material adverse
effect on the properties or financial condition of such party.
6.2 MEETING OF SHAREHOLDERS. PSP12 will take all action necessary
in accordance with applicable law to convene a meeting of its shareholders as
promptly as practicable to consider and vote upon approval of this Agreement, it
being understood that (i) the principal terms of the Agreement must be approved
by the affirmative vote of a majority of the outstanding shares of Common Stock
Series A, Common Stock Series B and Common Stock Series C, counted together as a
single class, and (ii) the shares of Common Stock Series B and Common Stock
Series C will be voted with the holders of a majority of the unaffiliated shares
of Common Stock Series A.
6.3 TAX REPORTING. Each of PSI and PSP12 agrees to report the
Merger for federal and state income tax purposes, as a reorganization of the
type described in Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended.
6.4 ACQUISITION PROPOSALS. PSP12 will not initiate, solicit or
encourage, directly or indirectly, any inquiries or the making of any proposal
with respect to a merger, consolidation, share exchange or similar transaction
involving PSP12, or any purchase of all or any significant portion of the assets
of PSP12, or any equity interest in PSP12, other than the transactions
contemplated hereby (an "Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal; provided,
however, that the Board of Directors on behalf of PSP12 may furnish or cause to
be furnished information and may participate in such discussions and
negotiations through its representatives with persons who have sought the same
if the failure to provide such information or participate in such negotiations
and discussions might cause the members of the Board of Directors to breach
their fiduciary duty to PSP12's shareholders under applicable law as advised by
counsel. PSP12 will notify PSI immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with PSP12,
and will keep PSI informed of the status and terms of any such proposals and any
such negotiations or discussions.
6.5 REGISTRATION AND PROXY STATEMENTS. PSI and PSP12 will promptly
prepare and file with the SEC a preliminary proxy statement in connection with
the vote of shareholders of PSP12 with respect to the Merger. PSI will, as
promptly as practicable, prepare and file with the SEC a registration statement
on Form S-4 (the "S-4 Registration Statement"), containing a proxy
statement/prospectus, in connection with the registration under the Securities
Act of 1933, as amended (the "Securities Act") of the PSI Shares to be issued to
holders of PSP12 Shares in the Merger (such proxy statement/prospectus, together
with any amendments thereof or supplements thereto, in the form or forms to be
mailed to the shareholders of PSP12, being herein called the "Proxy Statement
and Prospectus"). PSI and PSP12 will each use its best efforts to have or cause
the S-4 Registration Statement to be declared effective as promptly as
practicable, and also will take any other action required to be taken under
federal or state securities laws, and PSP12 will use its best efforts to cause
the Proxy Statement and Prospectus to be mailed to its shareholders at the
earliest practicable date. PSP12 agrees that if at any time prior to the
Effective Time any event with respect to PSP12 should occur which is required to
be described in an amendment of, or a supplement to, the Proxy Statement and
Prospectus or the S-4 Registration Statement, such event shall be so described,
and such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the shareholders of PSP12 and (ii) the Proxy
Statement and Prospectus will (with respect to PSP12) comply as to form in all
material respects with the requirements of the federal securities laws. PSI
agrees that (i) if at any time prior to the Effective Time any event with
respect to PSI should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement and Prospectus or the S-4
Registration Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with
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the SEC and, as required by law, disseminated to the shareholders of PSP12 and
(ii) the Proxy Statement and Prospectus will (with respect to PSI) comply as to
form in all material respects with the requirements of the federal securities
laws.
6.6 BEST EFFORTS. Each of PSI and PSP12 shall: (i) promptly make
its respective filings and thereafter make any other required submissions under
all applicable laws with respect to the Merger and the other transactions
contemplated hereby; and (ii) use its best efforts to promptly take, or cause to
be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable.
6.7 REGISTRATION AND LISTING OF PSI SHARES. PSI will use its best
efforts to register the PSI Shares under the applicable provisions of the
Securities Act and to cause the PSI Shares to be listed for trading on the NYSE
upon official notice of issuance.
6.8 DISTRIBUTIONS. PSP12 will not, at any time prior to the
Effective Time, declare or pay any cash distribution on its capital stock or
make any other distribution of assets to its shareholders, except (i) regular
quarterly dividends on its Common Stock at a quarterly rate not in excess of
$.33 per share, (ii) distributions to shareholders of record immediately prior
to the Effective Time in an aggregate amount equal to the amount by which the
estimated Net Asset Value of PSP12 (as defined below) as of the Effective Time
exceeds the estimated Net Asset Value of PSP12 as of September 30, 1996 and
(iii) additional pre-Merger cash distributions required to satisfy PSP12's REIT
distribution requirements (the number of PSI Shares issued in the Merger and the
amount receivable upon Cash Elections would be reduced on a pro rata basis in an
aggregate amount equal to such additional distributions). For this purpose, the
Net Asset Value of PSP12 is the sum of (a) the fair market value of PSP12's real
estate assets as determined by appraisal by Nicholson-Douglas Realty
Consultants, Inc. as of May 31, 1996, and (b) the book value of PSP12's non-real
estate assets as of the date of determination and less (c) PSP12's liabilities
as of the date of determination. The determination of book value and liabilities
shall be from PSP12's financial statements prepared in accordance with generally
accepted accounting principles on a basis consistent with prior periods.
7. CONDITIONS.
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or prior to the Closing of each of
the following conditions, any or all of which may be waived in whole or in part,
to the extent permitted by applicable law:
7.1.1 SHAREHOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been duly approved by the
shareholders of PSP12 as contemplated by Section 6.2.
7.1.2 GOVERNMENTAL AND REGULATORY CONSENTS. All filings
required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, governmental and regulatory authorities in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (including the expiration of the waiting period
requirements of the HSR Act) shall have been made or obtained (as the case may
be) without material restrictions, except where the failure to obtain such
consents, approvals, permits and authorizations could not reasonably be expected
to have a material adverse effect on either PSI or PSP12.
7.1.3 LITIGATION. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) or taken any action
which prohibits the consummation of the transactions contemplated by this
Agreement; provided, however, that the party invoking this condition shall use
its best efforts to have any such judgment, decree, injunction or other order
vacated.
7.1.4 REGISTRATION STATEMENT. The S-4 Registration Statement
shall have been declared effective and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under federal and state securities laws
relating to the issuance or trading of the PSI Shares shall have been received.
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7.1.5 LISTING OF PSI SHARES ON NYSE. The PSI Shares shall
have been approved for listing on the NYSE upon official notice of issuance.
7.1.6 PSP12 FAIRNESS OPINION. The Board of Directors of
PSP12 shall have received the opinion of Robert A. Stanger & Co., Inc. in form
and substance satisfactory to it to the effect that the consideration to be
received by the shareholders of PSP12 in the Merger is fair to such shareholders
from a financial point of view, and such opinion shall not have been withdrawn
or revoked.
7.1.7 TAX OPINION. The Board of Directors of PSI and PSP12
shall have received a legal opinion of Hogan & Hartson L.L.P. that the Merger
will qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
7.2 CONDITIONS TO OBLIGATIONS OF PSI. The obligations of PSI to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Closing of the following conditions, which may be
waived in whole or in part by PSI to the extent permitted by applicable law:
7.2.1 ACCURACY OF REPRESENTATIONS; PERFORMANCE OF AGREEMENTS.
Each of the representations and warranties of PSP12 contained in this Agreement
shall be true and correct in all material respects at and as of the Closing Date
as if made at and as of the Closing Date (except to the extent they relate to a
particular date) and PSP12 shall have performed or complied with all agreements
and covenants required by this Agreement to be performed or complied with by it
at or prior to the Closing.
7.2.2 CERTIFICATE OF OFFICERS. PSI shall have received such
certificates of officers of PSP12 as PSI may reasonably request in connection
with the Closing, including upon request a certificate satisfactory to it of the
Chief Executive Officer and the Chief Financial Officer of PSP12, to the effect
that, to the best of their knowledge, all representations and warranties of
PSP12 contained in this Agreement are true and correct in all material respects
at and as of the Closing Date as if made at and as of the Closing Date, and
PSP12 has performed or complied with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Closing.
7.2.3 TITLE TO PROPERTIES; ENVIRONMENTAL AUDITS. PSI in its
sole discretion shall be satisfied as to the status of title to (including the
existence and effect of liens and encumbrances), and the results of an
environmental audit of, each of the real properties owned by PSP12.
7.2.4 TRADING PRICE OF PSI SHARES. The average of the per
share closing prices of the PSI Shares on the NYSE during the 20 consecutive
trading days ending on the fifth trading day prior to the meeting of
shareholders of PSP12 provided for in Section 6.2 hereof (the "Average PSI Share
Price") shall be not less than $20.
7.2.5 DISSENTING SHARES. The number of Dissenting Shares
shall be less than 5% of the outstanding PSP12 Shares.
7.3 CONDITIONS TO OBLIGATIONS OF PSP12. The obligations of PSP12 to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Closing of the following conditions, which may be
waived in whole or in part by PSP12 to the extent permitted by applicable law.
7.3.1 ACCURACY OF REPRESENTATIONS; PERFORMANCE OF AGREEMENTS.
Each of the representations and warranties of PSI contained in this Agreement
shall be true and correct in all material respects at and as of the Closing Date
as if made at and as of the Closing Date (except to the extent they relate to a
particular date) and PSI shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Closing.
7.3.2 CERTIFICATE OF OFFICERS. PSP12 shall have received
such certificates of officers of PSI as PSP12 may reasonably request in
connection with the Closing, including upon request a certificate satisfactory
to it of the Chief Executive Officer and the Chief Financial Officer of PSI, to
the effect that, to the best of their knowledge, all representations and
warranties of PSI contained in this Agreement are true and correct in all
material respects at and
A-10
<PAGE>
as of the Closing Date as if made at and as of the Closing Date, and PSI has
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing.
8. TERMINATION.
8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after shareholder approval, by the mutual written consent of PSI and PSP12.
8.2 TERMINATION BY EITHER PSI OR PSP12. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either PSI or PSP12 if (i) the Merger shall not have been consummated by
March 31, 1997 (provided that the right to terminate this Agreement under this
Section 8.2(i) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date); (ii) any court of competent
jurisdiction in the United States or some other governmental body or regulatory
authority shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
or (iii) the shareholders of PSP12 shall have failed to approve this Agreement
and the transactions contemplated hereby at its meeting of shareholders.
8.3 TERMINATION BY PSI. This Agreement may be terminated by PSI and
the Merger may be abandoned at any time prior to the Effective Time, if (i)
PSP12 shall have failed to comply in any material respect with any of the
covenants, conditions or agreements contained in this Agreement to be complied
with or performed by PSP12 at or prior to such date of termination, which
failure to comply has not been cured within five business days following notice
to PSP12 of such failure to comply, or (ii) any representation or warranty of
PSP12 contained in this Agreement shall not be true in all material respects
when made, which inaccuracy or breach (if capable of cure) has not been cured
within five business days following notice to PSP12 of the inaccuracy or breach,
or on and as of the Closing as if made on and as of the Closing Date.
8.4 TERMINATION BY PSP12. This Agreement may be terminated by PSP12
and the Merger may be abandoned at any time prior to the Effective Time, before
or after shareholder approval, if (i) PSI shall have failed to comply in any
material respect with any of the covenants, conditions or agreements contained
in this Agreement to be complied with or performed by PSI at or prior to such
date of termination, which failure to comply has not been cured within five
business days following notice to PSI of such failure to comply, or (ii) any
representation or warranty of PSI contained in this Agreement shall not be true
in all material respects when made, which inaccuracy or beach (if capable of
cure) has not been cured within five business days following notice to PSI of
the inaccuracy or breach, or on and as of the Closing as if made on and as of
the Closing Date.
8.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Section 8, no party (or any directors, officers, employees, agents or
representatives of any party) shall have any liability or further obligation to
any other party or any person who controls a party within the meaning of the
Securities Act, except as provided in Section 9.1 and except that nothing herein
will relieve any party from liability for any breach of this Agreement.
9. MISCELLANEOUS.
9.1 PAYMENT OF EXPENSES. If the Merger is consummated, the Surviving
Corporation shall pay all the expenses incident to preparing for, entering into
and carrying out this Agreement and the consummation of the transactions
contemplated hereby. If the Merger is not consummated, each of PSI and PSP12
shall pay its own expenses, except that they shall each pay 50% of any expenses
incurred in connection with the printing of the S-4 Registration Statement and
the Proxy Statement and Prospectus, the real estate appraisals and environmental
audits of PSP12's properties and preparation for real estate closings, and any
filing fees under the HSR Act, the Securities Act and the Securities Exchange
Act of 1934, as amended.
A-11
<PAGE>
9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
respective representations and warranties of PSI and PSP12 contained herein or
in any certificate or document delivered pursuant hereto shall expire with and
be terminated and extinguished by the effectiveness of the Merger and shall not
survive the Effective Time. The sole right and remedy arising from a
misrepresentation or breach of warranty, or from the failure of any of the
conditions to be met, shall be the termination of this Agreement by the other
party. This Section 9.2 shall not limit any covenant or agreement of the
parties, which by its terms contemplates performance after the Effective Time.
9.3 MODIFICATION OR AMENDMENT. The parties may modify or amend this
Agreement by written agreement authorized by the Boards of Directors and
executed and delivered by officers of the respective parties; provided, however,
that after approval of this Agreement by the shareholders of PSP12, no amendment
shall be made which changes any of the principal terms of the Merger or this
Agreement, without the approval of such shareholders.
9.4 WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
the principles of conflict of laws thereof.
9.6 INTERPRETATION. This Agreement has been negotiated by the
parties and is to be interpreted according to its fair meaning as if the parties
had prepared it together and not strictly for or against any party. Each of the
capitalized terms defined in this Agreement shall, for all purposes of this
Agreement (and whether defined in the plural and used in the singular, or vice
versa), have the respective meaning assigned to such term in the Section in
which such meaning is set forth. References in this Agreement to "parties" or a
"party" refer to parties to this Agreement unless expressly indicated otherwise.
At each place in this Agreement where the context so requires, the masculine,
feminine or neuter gender includes the others and the singular or plural number
includes the other. "Including" means "including without limitation."
9.7 HEADINGS. The descriptive headings contained in the Sections and
subsections of this Agreement are for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
9.8 PARTIES IN INTEREST. This Agreement, and the rights, interests
and obligations created by this Agreement, shall bind and inure to the benefit
of the parties and their respective successors and permitted assigns, and shall
confer no right, benefit or interest upon any other person, including
shareholders of the respective parties.
9.9 NOTICES. All notices or other communications required or
permitted under this Agreement shall be in writing and shall be delivered
personally or sent by U.S. mail, postage prepaid, addressed as follows or such
other address as the party to be notified has furnished in writing by a notice
given in accordance with this Section 9.9:
If to PSI:
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attention: Harvey Lenkin
President
If to PSP12:
Public Storage Properties XII, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attention: B. Wayne Hughes
Chief Executive Officer
A-12
<PAGE>
Any such notice or communication shall be deemed given as of the date of
delivery, if delivered personally, or on the second day after deposit with the
U.S. Postal Service, if sent by U.S. mail.
9.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be considered one and the same agreement.
9.11 ASSIGNMENT. No rights, interests or obligations of either party
under this Agreement may be assigned or delegated without the prior written
consent of the other party.
9.12 ENTIRE AGREEMENT. This Agreement, including the Merger
Agreement, embodies the entire agreement and understanding between the parties
pertaining to the subject matter hereof, and supersedes all prior agreements,
understandings, negotiations, representations and discussions, whether written
or oral.
9.13 SEVERABLE PROVISIONS. If any of the provisions of this
Agreement may be determined to be illegal or otherwise unenforceable, in whole
or in part, the remaining provisions, and any partially enforceable provisions
to the extent enforceable, shall nevertheless be binding and enforceable.
9.14 FURTHER ACTION. If at any time after the Effective Time, the
Surviving Corporation shall determine that any assignments, transfers, deeds or
other assurances are necessary or desirable to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation, title to any property or
rights of PSP12, the officers of either Constituent Corporation are fully
authorized in the name of PSP12 or otherwise to execute and deliver such
documents and do all things necessary and proper to vest, perfect or confirm
title to such property or rights in the Surviving Corporation.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first above written.
PUBLIC STORAGE, INC.
By: /s/ HARVEY LENKIN
------------------------------------
Harvey Lenkin
President
PUBLIC STORAGE PROPERTIES XII, INC.
By: /s/ B. WAYNE HUGHES
------------------------------------
B. Wayne Hughes
Chief Executive Officer
A-13
<PAGE>
Exhibit A to
Appendix A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is entered into as of this _____ day
of _____________, 1996, by and between PUBLIC STORAGE, INC., a California
corporation ("PSI"), and PUBLIC STORAGE PROPERTIES XII, INC., a California
corporation ("PSP12"), with reference to the following:
A. PSI was incorporated in 1980 under the laws of California, and on the
date hereof its authorized capital stock consists of 200,000,000 shares of
Common Stock, $.10 par value (the "PSI Shares"), ___________ of which are issued
and outstanding, 7,000,000 shares of Class B Common Stock, all of which are
issued and outstanding and 50,000,000 shares of Preferred Stock ($.01 par
value), __________ of which are issued and outstanding.
B. PSP12 was incorporated in 1990 under the laws of California, and on the
date hereof has outstanding _______________ shares of Common Stock Series A,
$.01 par value (the "PSP12 Shares"),__________ shares of Common Stock Series B
and __________ shares of Common Stock Series C.
C. PSI and PSP12 have entered into an Agreement and Plan of Reorganization
dated as of June ___, 1996 (the "Plan"), setting forth certain representations,
warranties, conditions and agreements pertaining to the Merger (as defined
below).
D. The Boards of Directors of PSI and PSP12 have approved the Plan and
this Agreement of Merger, and the requisite shareholder approval has been
obtained.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
---------
1.1 THE MERGER. At the Effective Time (as defined below), PSP12 will
be merged with and into PSI (the "Merger") and PSI shall be the surviving
corporation. PSI and PSP12 are sometimes collectively referred to herein as the
"Constituent Corporations" and PSI, as the surviving corporation of the Merger,
is sometimes referred to herein as the "Surviving Corporation."
1.2 EFFECTIVE TIME. The Merger shall become effective at the time at
which this Agreement, together with the requisite Officers' Certificates of PSI
and PSP12, are filed with the California Secretary of State (the "Effective
Time").
1.3 EFFECT OF THE MERGER. At the Effective Time:
(a) The separate corporate existence of PSP12 shall cease and
the Surviving Corporation shall thereupon succeed, without other transfer, to
all the rights and property of PSP12 and shall be subject to all the debts and
liabilities of PSP12 in the same manner as if the Surviving Corporation had
itself incurred them; all rights of creditors and all liens upon the property of
each of the Constituent Corporations shall be preserved unimpaired, provided
that such liens upon property of PSP12 shall be limited to the property affected
thereby immediately prior to the Effective Time; and any action or proceeding
pending by or against PSP12 may be prosecuted to judgment, which shall bind the
Surviving Corporation, or the Surviving Corporation may be proceeded against or
substituted in its place.
E.A-1
<PAGE>
(b) The Articles of Incorporation and the Bylaws of PSI, as then
amended, shall continue to be the Articles of Incorporation and the Bylaws of
the Surviving Corporation until changed as provided by law and their respective
provisions.
(c) The directors of PSI shall continue as directors of the
Surviving Corporation until their successors are elected and qualified as
provided by law and in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation.
ARTICLE II
----------
2.1 CONVERSION OF PSP12 SHARES. The manner of converting the
outstanding PSP12 Shares into cash and/or PSI Shares shall be as follows:
(a) At the Effective Time, subject to Section 2.6 of the Plan,
each PSP12 Share as to which a cash election has been made in accordance with
the provisions of Section 2.5 of the Plan and has not been revoked, relinquished
or lost pursuant to Section 2.5 of the Plan (the "Cash Election Shares") shall
be converted into and shall represent the right to receive $_______ in cash (the
"Cash Election Price"). As soon as practicable after the Effective Time, the
registered holders of Cash Election Shares shall be paid the cash to which they
are entitled hereunder in respect of such Cash Election Shares.
(b) At the Effective Time, subject to Sections 2.4, 2.5 and 2.7
of the Plan, each PSP12 Share (other than Cash Election Shares) shall be
converted into __________ PSI Shares.
2.2 NO FRACTIONAL SHARES. Notwithstanding any other term or
provision of this Agreement or the Plan, no fractional PSI Shares and no
certificates or script therefor, or other evidence of ownership thereof, will be
issued in the Merger. In lieu of any such fractional share interests, each
holder of PSP12 Shares who would otherwise be entitled to such fractional share
will, upon surrender of the certificate representing such PSP12 shares, receive
a whole PSI Share if such fractional share to which such holder would otherwise
have been entitled is .5 of an PSI Share or more, and such fractional share
shall be disregarded if it represents less than .5 of an PSI Share; provided,
however, that, such fractional share shall not be disregarded if such fractional
share to which such holder would otherwise have been entitled represents .5 of
1% or more of the total number of PSI Shares such holder is entitled to receive
in the Merger. In such event, such holder shall be paid an amount in cash
(without interest), rounded to the nearest $.01, determined by multiplying (i)
the per share closing price on the New York Stock Exchange, Inc. of the PSI
Shares at the Effective Time by (ii) the fractional interest.
2.3 DISSENTING SHARES. PSP12 Shares held by a holder who has
demanded and perfected his right to an appraisal of such shares in accordance
with Section 1300 et seq. of the General Corporation Law of California (the
"GCLC") and who has not effectively withdrawn or lost his right to appraisal
("Dissenting Shares") shall not be converted into or represent the right to
receive cash and/or PSI Shares, but the holder thereof shall be entitled only to
such rights as are granted by Section 1300 et seq. of the GCLC. Each holder of
Dissenting Shares who becomes entitled to payment for PSP12 Shares pursuant to
these provisions of the GCLC shall receive payment therefor from the Surviving
Corporation in accordance therewith. If any holder of PSP12 Shares who demands
appraisal in accordance with Section 1300 et seq. of the GCLC shall effectively
withdraw with the consent of the Surviving Corporation or lose (through failure
to perfect or otherwise) his right to appraisal with respect to PSP12 Shares,
such PSP12 Shares shall automatically be converted into the right to receive PSI
Shares pursuant to Section 2.1(b) hereof.
2.4 PSI SHARES UNAFFECTED. The Merger shall effect no change in any
of the PSI Shares and no outstanding PSI shares shall be converted or exchanged
as a result of the Merger, and no cash shall be exchangeable and no securities
shall be issuable, with respect thereto.
2.5 CANCELLATION OF SHARES HELD OR OWNED BY PARTIES. At the
Effective Time, any PSP12 Shares owned by PSI shall be cancelled and retired and
no shares shall be issuable, and no cash shall be exchangeable, with respect
thereto.
E.A-2
<PAGE>
2.6 EXCHANGE OF CERTIFICATES. After the Effective Time, each holder
of a certificate theretofore evidencing outstanding PSP12 Shares which were
converted into PSI Shares pursuant hereto, upon surrender of such certificate to
First National Bank of Boston (the "Exchange Agent") or such other agent or
agents as shall be appointed by the Surviving Corporation, shall be entitled to
receive a certificate representing the number of whole PSI Shares into which the
PSP12 Shares theretofore represented by the certificate so surrendered shall
have been converted and cash payment in lieu of fractional share interests, if
any. As soon as practicable after the Effective Time, the Exchange Agent will
send a notice and a transmittal form to each holder of PSP12 Shares of record at
the Effective Time whose stock shall have been converted into PSI Shares,
advising such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent certificates evidencing PSP12 Shares in
exchange for certificates evidencing PSI Shares.
2.7 STATUS UNTIL SURRENDERED. Until surrendered as provided in
Section 2.6 hereof, each outstanding certificate which, prior to the Effective
Time, represented PSP12 Shares (other than Cash Election Shares and Dissenting
Shares, if any) will be deemed for all corporate purposes to evidence ownership
of the number of whole PSI Shares into which the PSP12 Shares evidenced thereby
were converted. However, until such outstanding certificates formerly evidencing
PSP12 Shares are so surrendered, no dividend payable to holders of record of PSI
Shares shall be paid to the holders of such outstanding certificates in respect
of PSP12 Shares, but upon surrender of such certificates by such holders there
shall be paid to such holders the amount of any dividends (without interest)
theretofore paid with respect to such whole PSI Shares as of any record date on
or subsequent to the Effective Time and the amount of any cash (without
interest) payable to such holder in lieu of fractional share interests.
2.8 TRANSFER OF SHARES. After the Effective Time, there shall be no
further registration of transfers of PSP12 Shares on the records of PSP12 and,
if certificates formerly evidencing such shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for certificates evidencing
PSI Shares and cash in lieu of fractional share interests as herein provided.
2.9 CONVERSION OF COMMON STOCK SERIES B AND C. At the Effective
Time, each share of Common Stock Series B (other than shares owned by PSI) shall
be converted into ______ PSI Shares and each share of Common Stock Series C
(other than shares owned by PSI) shall be converted into ______ PSI Shares.
ARTICLE III
-----------
3.1 HEADINGS. The descriptive headings contained in the Sections of
this Agreement are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
3.2 PARTIES IN INTEREST. This Agreement, and the rights, interests
and obligations created by this Agreement, shall bind and inure to the benefit
of the parties and their respective successors and permitted assigns, and shall
confer no right, benefit or interest upon any other person, including
shareholders of the respective parties.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be considered one and the same agreement.
3.4 FURTHER ACTION. If at any time after the Effective Time, the
Surviving Corporation shall determine that any assignments, transfers, deeds or
other assurances are necessary or desirable to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation, title to any property or
rights of PSP12, the officers of either Constituent Corporation are fully
authorized in the name of PSP12 or otherwise to execute and deliver such
documents and do all things necessary and proper to vest, perfect or confirm
title to such property or rights in the Surviving Corporation.
3.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
the principles of conflict of laws thereof.
E.A-3
<PAGE>
3.6 ABANDONMENT OF MERGER. The Constituent Corporations have the
power to abandon the Merger by mutual written consent prior to the filing of
this Agreement with the California Secretary of State.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
PUBLIC STORAGE, INC.
By: _________________________________
Harvey Lenkin
President
By: _________________________________
Obren B. Gerich
Senior Vice President
PUBLIC STORAGE PROPERTIES XII, INC.
By: _________________________________
B. Wayne Hughes
Chairman of the Board of Directors
and Chief Executive Officer
By: _________________________________
Obren B. Gerich
Secretary
E.A-4
<PAGE>
APPENDIX B
[LETTERHEAD OF NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC.]
June 28, 1996
PUBLIC STORAGE PROPERTIES XII, INC.
and PUBLIC STORAGE, INC.
Glendale, California
Subject: Public Storage Properties XII, Inc.: A Thirteen Property Portfolio
(11 Self-Storage Properties & 2 Business Park Properties)
Self-Storage Properties
- -----------------------
Project #01201 4901 Brentwood Stair, Fort Worth, Texas
Project #01202 4820 San Fernando Road, Glendale, California
Project #01203 7780 Harwin Drive, Houston, Texas
Project #01204 17792 Cowan Street, Irvine, California
Project #01205 6010 N. Dixie Highway, Fairfield, Ohio
Project #01206 810 S. Country Club Drive, Mesa, Arizona
Project #01207 2690 Geary Boulevard, San Francisco, California
Project #01208 8430 Gulf Freeway, Houston, Texas
Project #01210 2727 S. Decatur Boulevard, Las Vegas, Nevada
Project #01211 1737 E. McKellips Road, Tempe, Arizona (*)
Project #01213 7601 Airport Freeway, Richland Hills, Texas
Business Park Properties
- ------------------------
Project #01209 4723 Eisenhower Avenue, Alexandria, Virginia
Project #01214 2421 West 205th Street, Torrance, California
(*) - includes business park space
We have completed a limited appraisal of the real estate identified above and
submit our findings in this Restricted Appraisal Report. We understand that our
valuation opinion will be utilized in conjunction with the proposed merger of
Public Storage Properties XII, Inc. into Public Storage, Inc. and may be
included or referred to in solicitation materials filed with the Securities and
Exchange Commission and distributed to shareholders of Public Storage Properties
XII, Inc. and Public Storage, Inc.
This report is a Restricted Appraisal Report which is intended to comply with
the reporting requirements set forth under Standards Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Restricted Appraisal Report.
As such, it does not include discussions of the data, reasoning, and analyses
that were used in the appraisal process to develop the appraiser's opinion of
value. Supporting documentation concerning the data, reasoning, and analyses is
retained in the appraiser's file. The depth of discussion contained in this
report is specific to the needs of the client and for the intended use stated
above. The appraiser is not responsible for unauthorized use of this report.
<PAGE>
[LOGO APPEARS HERE] Public Storage Properties XII
Page 2
___________________________________________________________
Furthermore, as agreed, this report is the result of a limited appraisal process
in that certain allowable departures from specific guidelines of the Uniform
Standards of Appraisal Practice were invoked. The valuation analysis has
considered all appropriate approaches to value: the Cost, Income Capitalization
and Sales Comparison approaches. Our appraisal is limited in that we physically
inspected the subject properties, conducted some investigative market due
diligence, and have relied primarily on the Income Capitalization Approach to
value; the results were then compared to the indicated value by the Sales
Comparison Approach which used a regression analysis of sales of self-storage
facilities located throughout the nation. The Cost Approach was not considered
appropriate since today's investors do not rely upon the Cost Approach in making
investment decisions. Given the income-producing nature of the subject
properties, the income capitalization approach is considered the most applicable
approach to value. Utilizing this methodology, in our opinion, we have
performed all actions necessary to ensure a fair valuation of the portfolio.
For the Self-Storage Properties, the general analytical process that was
undertaken included a review of each property's unit mix, rental rates and
historical financial statements. Following these reviews, a stabilized level of
operating performance was projected for each property. The value estimate by
the Income Capitalization Approach was then made using direct capitalization
and/or a discounted cash flow analysis. As additional support for the indicated
value for the self-storage properties, we prepared a regression analysis on
sales of self-storage properties that have occurred over the last several years.
Based upon a correlation of these methodologies, we arrived at an opinion of
value for the portfolio of properties. Lastly, as a reasonableness check, the
resultant property and portfolio level capitalization rates were compared to
reported capitalization rates of recent and pending transactions of self-storage
property portfolios, some of which involved Public Storage, Inc. as a party to
the transaction.
For the Business Park Properties, the general analytical process that was
undertaken included a review of each property's rent roll, lease abstracts and
historical financial statements. Following these reviews, a stabilized level of
operating performance was projected for each property. The value estimate was
then made using direct capitalization. Considering the high occupancy rates,
the stable operating levels and the relative short-term leases at rates
reasonably reflective of market rents, the direct capitalization technique
provides the most reliable method of estimating market value for each of the
business park properties. Furthermore, based on our review of the leases in-
place, no significant adjustments to the indicated values were necessary for
income stabilization factors. As additional support for the indicated value for
the business park properties, we reviewed sale prices of comparable properties
in the respective market areas. Analyses of these sales resulted in an
indicated value for the subject property. Based upon a correlation of these
methodologies, we arrived at an opinion of value for the properties.
Historical operating statements, unit mix, net rentable area, rental rates, rent
rolls, lease summaries and other property-specific data for the properties
appraised were furnished by Public Storage, Inc. These financial operating
statements and other information have been accepted as correctly representing
operations and conditions of the subject properties.
______________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC
<PAGE>
[LOGO APPEARS HERE] Public Storage Properties XII
Page 3
___________________________________________________________
Assets included within the scope of our valuation include land, land
improvements, building improvements, and all fixed service equipment. Assets
excluded are furniture, fixtures, machinery or equipment, personal property,
supplies, materials on hand, inventories, company records, and any current or
intangible assets that may exist.
We have made no investigations of, nor assume any responsibility for the
existence or impact of any hazardous substance, which may or may not be present
on the properties, in the development of our limited appraisal opinion.
Market value is defined as:
"the most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised and acting in what they
consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale."
Fee Simple Interest (Estate) is defined as:
"Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power, and escheat."
(Note that the interest appraised for the business park properties is as
encumbered by the leases that are in place at each of the properties).
The market value estimate set forth herein assumes that the portfolio of
properties would be disposed of in an orderly manner, allowing sufficient time
for exposure on the open market.
______________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC.
<PAGE>
[LOGO APPEARS HERE] Public Storage Properties XII
Page 4
___________________________________________________________
Based upon the analyses as described, it is our opinion, as of May 31, 1996,
that the market value of the fee simple interest in the Public Storage
Properties XII, Inc. 13-property portfolio, is:
FIFTY MILLION DOLLARS
($50,000,000)
Our compensation was not contingent upon the reporting of a predetermined value
or direction in value that favors the cause of the client, the amount of the
value estimate, the attainment of a stipulated result, the occurrence of a
subsequent event, or the approval of a loan.
Attached to this letter report please find the following exhibits:
Exhibit A - Assumptions and Limiting Conditions
B - Appraisal Certification
The undersigned certifies that they have the professional qualifications and
competency necessary to complete this appraisal assignment in an appropriate
manner.
No investigation was made of the title to, or any liabilities against the
property appraised.
Respectfully submitted,
Nicholson-Douglas Realty Consultants, Inc.
/s/ Lawrence R. Nicholson /s/ Duncan O. Douglas
Lawrence R. Nicholson, MAI Duncan O. Douglas
Professional Assistance By:
Michael J. Tompkins
Ann M. Donohoo
attachments
_____________________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC.
Correspondence Offices in 19 Cities Nationwide
<PAGE>
[LOGO APPEARS HERE] Public Storage Properties XII
Page 5
___________________________________________________________
EXHIBIT A
ASSUMPTIONS AND LIMITING CONDITIONS
As agreed upon with the client prior to the preparation of this appraisal, this
is a Limited Appraisal; it invokes the Departure Provision of the Uniform
Standards of Professional Appraisal Practice. The intended user of this report
is warned that the reliability of the value conclusion provided may be impacted
to the degree there is a departure from specific guidelines of USPAP. Given
that the Departure Provision has been invoked, it is our opinion that we have
performed actions necessary to develop an opinion as to the market value of the
portfolio.
This is a Restricted Report which is intended to comply with the reporting
requirements set forth under Standard Rule 2-2(c) of the Uniform Standards of
Professional Appraisal Practice for a Restricted Appraisal Report. As such, it
does not include discussion of the data, reasoning, and analyses that were used
in the appraisal process to develop the appraiser's opinion of value.
Supporting documentation concerning the data, reasoning, and analyses is
retained in the appraiser's file. The information contained in this report is
specific to the needs of the client and for the intended use stated in this
report. The appraiser is not responsible for unauthorized use of the report.
No responsibility is assumed for matters legal in nature. No investigation has
been made of the title to or any liabilities against the property appraised.
The appraisal presumes, unless otherwise noted, that the owner's claim is valid,
the property rights are good and marketable, and there are no encumbrances which
cannot be cleared through normal processes.
To the best of our knowledge, all data set forth in this report are true and
accurate. Although gathered from reliable sources, no guarantee is made nor
liability assumed for the accuracy of any data, opinions, or estimates
identified as being furnished by others which have been used in formulating this
analysis.
No soil analysis or geological studies were ordered or made in conjunction with
this report, nor were any water, oil, gas, coal, or other subsurface mineral and
use rights or conditions investigated.
Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals,
toxic wastes, or other potentially hazardous materials could, if present,
adversely affect the value of the property. Unless otherwise stated in this
report, the existence of hazardous substance, which may or may not be present on
or in the property, was not considered by the appraiser in the development of
the conclusion of value. The stated value estimate is predicated on the
assumption that there is no material on or in the property that would cause such
a loss in value. No responsibility is assumed for any such conditions, and the
client has been advised that the appraiser is not qualified to detect such
substances, quantify the impact on values, or develop the remediation cost.
______________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC.
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Page 6
___________________________________________________________
ASSUMPTIONS AND LIMITING CONDITIONS, PAGE 2
No environmental impact study has been ordered or made. Full compliance with
applicable federal, state, and local environmental regulations and laws is
assumed unless otherwise stated, defined, and considered in the report. It is
also assumed that all required licenses, consents, or other legislative or
administrative authority from any local, state, or national government or
private entity organization either have been or can be obtained or renewed for
any use which the report covers.
It is assumed that all applicable zoning and use regulations and restrictions
have been complied with unless a nonconformity has been stated, defined, and
considered in the appraisal report. Further, it is assumed that the utilization
of the land and improvements is within the boundaries of the property described
and that no encroachment or trespass exists unless noted in the report.
The value or values presented in this report are based upon the premises
outlined herein and are valid only for the purpose or purposes stated.
The date of value to which the conclusions and opinions expressed apply is set
forth in this report. Unless otherwise noted, this date represents the last
date of our physical inspection of the property. The value opinion herein
rendered is based on the status of the national business economy and the
purchasing power of the U.S. dollar as of that date.
Testimony or attendance in court or at any other hearing is not required by
reason of this appraisal unless arrangements are previously made within a
reasonable time in advance therefor.
One or more of the signatories of this appraisal report is a member or candidate
of the Appraisal Institute. The Bylaws and Regulations of the Institute require
each member and candidate to control the use and distribution of each appraisal
report signed by them.
Except as specifically presented in the letter of transmittal, possession of
this report or any copy thereof does not carry with it the right of publication
and no portion of this report (especially any conclusion of value, the identity
of the appraiser or the firm with which he/she is connected, or any reference to
the Appraisal Institute or the designations awarded by this organization) shall
be disseminated to the public through prospectus, advertising, public relations,
news, or any other means of communication without the written consent and
approval of Nicholson-Douglas Realty Consultants, Inc.
______________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC
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___________________________________________________________
EXHIBIT B
APPRAISAL CERTIFICATION
We certify that, to the best of my knowledge and belief:
. the statements of fact contained in this report are true and accurate.
. the reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, unbiased professional analyses, opinions, and conclusions.
. we have no present or prospective interest in the properties that are
the subject of this report, and we have no personal interest or bias
with respect to the parties involved.
. our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event.
. this appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
. our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the requirements of the
Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute and in conformance with
the Uniform Standards of Professional Appraisal Practice.
. we certify that the use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
individuals.
. we have not personally inspected each of the properties that are the
subject of this report, however, employees of Nicholson-Douglas Realty
Consultants, Inc. have inspected each of the subject properties.
. unless noted in this report, no one else has provided significant
professional assistance to the persons signing this report.
. I, Lawrence R. Nicholson, MAI, certify that as of the date of this
report, I have completed the requirements under the continuing
education program of the Appraisal Institute.
/s/ Lawrence R. Nicholson /s/ Duncan O. Douglas
Lawrence R. Nicholson, MAI Duncan O. Douglas
______________________________________________
NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC
<PAGE>
APPENDIX C
[LETTERHEAD OF ROBERT A. STANGER & CO.,INC.]
The Special Committee of
The Board of Directors of
Public Storage Properties XII, Inc.
701 Western Avenue, Suite 200
Glendale, CA 91201
Gentlemen:
We have been advised that Public Storage Properties XII, Inc. ("PSP12") is
entering into a transaction (the "Transaction") in which PSP12 will be merged
with Public Storage, Inc. ("PSI"), an affiliated, publicly traded real estate
investment trust. In the Transaction, the shareholders of PSP12 will be asked to
approve the merger of PSP12 into PSI and the conversion of outstanding shares of
PSP12 Common Stock Series A, other than shares held by shareholders of PSP12 who
have properly exercised dissenters rights under California law ("Dissenting
Shares"), into newly issued shares of PSI Common Stock or, at the option of the
PSP12 shareholders with respect to up to 20% of the outstanding PSP12 Common
Stock less any Dissenting Shares, cash (collectively, the "Consideration"). We
have been further advised that each share of PSP12 Common Stock, other than
Dissenting Shares held by PSP12 shareholders, will be converted into $20.92 (the
net asset value per share of PSP12 Common Stock based on an independent
appraisal of PSP12's properties) in cash or shares of PSI Common Stock with an
equivalent market value based on average closing prices on the New York Stock
Exchange of PSI Common Stock during the twenty consecutive trading days ending
on the fifth trading day prior to the special meeting of the shareholders of
PSP12. We also have been advised that (i) the net asset value per share of PSP12
reflects the contribution to PSP12 of $880,000 by PSI and affiliates in respect
of certain obligations due upon liquidation of PSP12, (ii) additional
distributions will be made to the shareholders of PSP12 prior to the
consummation of the Transaction to the extent required to cause PSP12's net
asset value as of the date of the Transaction to be substantially equivalent to
the estimate of PSP12's net asset value as of September 30, 1996 contained in
the Joint Proxy Statement and Prospectus filed with the Securities and Exchange
Commission dated July 24, 1996, and (iii) if additional cash distributions are
required to satisfy PSP12's REIT distribution requirements and are paid to PSP12
shareholders prior to the consummation of the Transaction, the Consideration
would be reduced to reflect such additional cash distributions.
<PAGE>
PSP12 has formed a Special Committee of the Board of Directors to consider
certain matters relating to the Transaction, and the Special Committee has
requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as
to the fairness to the public shareholders of PSP12 (excluding PSI and its
affiliates), from a financial point of view, of the Consideration to be received
in the Transaction.
In the course of our review to render this opinion, we have, among other
things:
o Reviewed the Joint Proxy Statement and Prospectus related to the
Transaction and filed with the Securities and Exchange Commission (the
"SEC") on July 24, 1996;
o Reviewed PSP12's and PSI's annual reports to shareholders filed with the
SEC on Form 10-K for the three fiscal years ending December 31, 1993,
1994 and 1995, and PSP12's and PSI's quarterly reports filed with the
SEC on Form 10-Q for the quarter ending March 31, 1996, which reports
PSP12's management and PSI's management have indicated to be the most
current financial statements available;
o Reviewed PSI pro forma financial statements and pro forma schedules
prepared by PSP12's management and PSI's management;
o Reviewed the MAI-certified portfolio appraisal of the properties owned
by PSP12 dated May 31, 1996 performed by Charles R. Wilson & Associates,
Inc. (the "Appraisal"), and discussed with management of PSP12 and the
appraiser the methodologies and procedures employed in preparing the
Appraisal;
o Reviewed information regarding purchases and sales of self-storage
properties by PSI or any affiliated entities during the prior 24-month
period and other information available relating to acquisition criteria
for self-storage properties;
o Reviewed internal financial analyses and forecasts prepared by PSP12,
and based in part on the Appraisal, of the current net liquidation value
per common share of PSP12's assets and projections of cash flow from
operations, dividend distributions and going-concern values for PSP12,
and the calculation of the allocation of such values among the PSP12
Shareholders and the holders of PSP12 Common Stock Series B and C;
o Discussed with members of senior management of PSP12 and PSI conditions
in self-storage property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by PSP12,
current and projected operations and performance, financial condition
and future prospects of PSP12 and PSI;
o Reviewed historical market prices, trading volume and dividends for
PSP12 and PSI Common Stock; and
o Conducted other studies, analyses, inquiries and investigations as we
deemed appropriate.
2
<PAGE>
[LETTERHEAD OF ROBERT A. STANGER & CO. INC.]
In rendering this fairness opinion, we have relied upon and assumed,
without independent verification, the accuracy and completeness of all financial
and other information contained in the Joint Proxy Statement and Prospectus or
that was furnished or otherwise communicated to us by PSP12 and PSI. We have not
performed an independent appraisal of the assets and liabilities of PSP12 or PSI
and have relied upon and assumed the accuracy of the appraisals performed by
Charles R. Wilson & Associates. We have also relied on the assurance of PSP12
and PSI that any pro forma financial statements, projections, budgets, estimates
of environmental liability and capital repair costs, or value estimates
contained in the Joint Proxy Statement and Prospectus or otherwise provided to
us, were reasonably prepared on bases consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; that no material changes have occurred in the appraised value of the
properties or the information reviewed between the date of the Appraisal or the
date of the other information provided and the date of this letter; and that
PSP12 and PSI are not aware of any information or facts that would cause the
information supplied to us to be incomplete or misleading in any material
respect.
We have not been requested to, and therefore did not: (i) select the
method of determining the Consideration offered in the Transaction; (ii) make
any recommendation to the shareholders of PSP12 or PSI with respect to whether
to approve or reject the Transaction or whether to select the cash or Common
Stock option in the Transaction; or (iii) express any opinion as to the business
decision to effect the Transaction, alternatives to the Transaction, or tax
factors resulting from the PSMI Merger or relating to PSI's continued
qualification as a REIT. Our opinion is based on business, economic, real estate
and securities markets, and other conditions as of the date of our analysis and
addresses the Transaction in the context of information available as of the date
of our analysis. Events occurring after that date may materially affect the
assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of this letter the Consideration to be received in
the Transaction is fair to the public shareholders of PSP12, from a financial
point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised the Board of Directors of PSP12 that our entire analysis must be
considered as a whole and that selecting portions of our analysis and the
factors considered by us, without considering all analyses and facts, could
create an incomplete view of the evaluation process underlying this opinion.
Yours truly,
/s/ ROBERT A. STANGER & CO., INC.
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
July 24, 1996
3
<PAGE>
Appendix D
GENERAL CORPORATION LAW OF CALIFORNIA
CHAPTER 13
DISSENTERS' RIGHTS
(S) 1300. RIGHT TO REQUIRE PURCHASE - "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value of the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall be
determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization
or short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the
determination of shareholders entitled to vote on the reorganization and
(A) were not voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the provisos
in that paragraph), were voted against the reorganization, or which were
held of record on the effective date of a short-form merger; provided,
however, that subparagraph (A) rather than subparagraph (B) of this
paragraph applies in any case where the approval required by Section 1201
is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means
the recordholder of dissenting shares and includes a transferee of record.
D-1
<PAGE>
(S) 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
(S) 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
(S) 1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
D-2
<PAGE>
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S) 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the
issues. If the status of the shares as dissenting shares is in issue, the court
shall first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.
(S) 1305. APPRAISERS' REPORT -- PAYMENT COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file
a report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by
D-3
<PAGE>
the court for the shares is more than 125 percent of the price offered by the
corporation under subdivision (a) of Section 1301).
(S) 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S) 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
(S) 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
(S) 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
D-4
<PAGE>
(S) 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
(S) 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization set aside or rescinded, the shareholder
shall not thereafter have any right to demand payment of cash for the
shareholder's shares pursuant to this chapter. The court in any action attacking
the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10-days prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the reorgani
zation or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
D-5
<PAGE>
Appendix E
PROPOSED AMENDMENT TO PSP12'S BYLAWS
Add a new subsection (f) to Article IX, Section 8 of the Bylaws of PSP12 so
that Section 8 would read in its entirety as follows:
Section 8. Restrictions on Transactions with Affiliates.
--------------------------------------------
(a) The corporation shall not purchase or lease
property in which PSI or any of its affiliates have an interest. The
provisions of this Section 8(a) notwithstanding, PSI or its affiliates
may purchase property in their own name and temporarily hold title
thereto for the purpose of facilitating the acquisition of such
property, for the corporation, provided that such property is
purchased by the corporation for a price no greater than the cost of
such property to PSI or its affiliates, including development costs
actually incurred by PSI or its affiliates.
(b) The corporation shall not sell or lease property
to PSI or its affiliates, except that the corporation may lease space
to PSI or its affiliates for their use, provided that (i) the terms of
any such lease are competitive with those contained in leases with
persons who are not affiliated with PSI or its affiliates, (ii) the
aggregate amount of space rented pursuant to such leases does not
exceed 2% of the aggregate net rentable area of the corporation's
properties and (iii) neither PSI nor its affiliates receive any
property management fees in connection with such leases.
(c) No loans may be made by the corporation to PSI or
any of its affiliates.
(d) Except as permitted by Section 8(a) of this Article
IX, the corporation shall not acquire property from any of the
following persons or entities in which PSI or any of its affiliates
has an interest: a limited or general partnership, joint venture,
unincorporated association or similar organization other than a
corporation formed and operated for the primary purpose of investment
in and the operation of or gain from an interest or interests in real
property.
(e) The compensation paid to the General Partners or
their affiliates for insurance services, property management services
and real estate brokerage services shall be competitive in price and
terms with persons who are not affiliated with the General Partners or
their affiliates rendering comparable services which could reasonably
be made available to the corporation.
(f) Notwithstanding anything in the Bylaws to the
contrary, the corporation may merge with Public Storage, Inc. or a
subsidiary, provided that such merger is approved by the vote or
written consent of holders of a majority of the outstanding shares of
the corporation entitled to vote.
<PAGE>
Appendix F
PUBLIC STORAGE PROPERTIES XII, INC.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
-----------
<S> <C>
Report of independent auditors F - 1
Balance sheets at December 31, 1995 and 1994 F - 2
For the years ended December 31, 1995, 1994 and 1993:
Statements of income F - 3
Statements of shareholders' equity F - 4
Statements of cash flows F - 5
Notes to financial statements F - 6 - F - 10
Condensed balance sheets at March 31, 1996 and December 31, 1995 F - 11
Condensed statements of income for the three
months ended March 31, 1996 and 1995 F - 12
Condensed statement of shareholders' equity for the
three months ended March 31, 1996 F - 13
Condensed statements of cash flows for the
three months ended March 31, 1996 and 1995 F - 14
Notes to condensed financial statements F - 15
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Public Storage Properties XII, Inc.
We have audited the accompanying balance sheets of Public Storage Properties
XII, Inc. as of December 31, 1995 and 1994, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statementss are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statementss based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Storage Properties XII,
Inc. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 27, 1996
Los Angeles, California
F-1
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 1,406,000 $ 1,087,000
Rent and other receivables 15,000 34,000
Prepaid expenses 279,000 67,000
Real estate facilities at cost:
Building, land improvements and equipment 25,127,000 24,954,000
Land 13,968,000 13,968,000
------------ ------------
39,095,000 38,922,000
Less accumulated depreciation (10,869,000) (9,841,000)
------------ ------------
28,226,000 29,081,000
------------ ------------
Total assets $ 29,926,000 $ 30,269,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 737,000 $ 411,000
Dividends payable 1,255,000 661,000
Advance payments from renters 258,000 281,000
Shareholders' equity:
Series A common, $.01 par value,
2,828,929 shares authorized,
1,746,099 shares issued and
outstanding (1,816,099 shares
issued and outstanding in 1994) 17,000 18,000
Convertible Series B common,
$.01 par value, 184,453 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 522,618 shares
authorized, issued and
outstanding 5,000 5,000
Paid-in-capital 31,361,000 32,599,000
Cumulative income 24,505,000 21,303,000
Cumulative distributions (28,214,000) (25,011,000)
------------ ------------
Total shareholders' equity 27,676,000 28,916,000
------------ ------------
Total liabilities and shareholders' equity $ 29,926,000 $ 30,269,000
============ ============
</TABLE>
See accompanying notes
F-2
<PAGE>
PUBLIC STORAGE PROPERTIES XII INC.
STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income $6,996,000 $6,587,000 $6,295,000
Interest income 52,000 26,000 25,000
---------- ---------- ----------
7,048,000 6,613,000 6,320,000
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 1,880,000 1,791,000 1,740,000
Management fees paid to affiliates 408,000 386,000 367,000
Depreciation and amortization 1,122,000 1,114,000 1,246,000
Environmental cost 245,000 - -
Administrative 191,000 195,000 207,000
---------- ---------- ----------
3,846,000 3,486,000 3,560,000
---------- ---------- ----------
NET INCOME $3,202,000 $3,127,000 $2,760,000
========== ========== ==========
Primary earnings per share-Series A $ 1.63 $ 1.56 $ 1.30
========== ========== ==========
Fully diluted earnings per share-Series A $ 1.29 $ 1.22 $ 1.04
========== ========== ==========
Dividends declared per share:
Series A $ 1.64 $ 1.29 $ 1.24
========== ========== ==========
Series B $ 1.64 $ 1.29 $ 1.24
========== ========== ==========
Series C - - -
========== ========== ==========
Weighted average Common shares outstanding:
Primary Series A 1,779,157 1,857,316 1,952,566
========== ========== ==========
Fully diluted-Series A 2,486,228 2,564,387 2,659,637
========== ========== ==========
</TABLE>
See accompanying notes
F-3
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Convertible Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 2,010,112 $20,000 184,453 $2,000 522,618 $5,000
Net income - - - - - -
Repurchase of shares (99,988) (1,000) - - - -
Cash distributions
declared:
$1.24 per share - Series A - - - - - -
$1.24 per share - Series B - - - - - -
----------------------------------------------------------------------------------
Balances at December 31, 1993 1,910,124 19,000 184,453 2,000 522,618 5,000
Net income - - - - - -
Repurchase of shares (94,025) (1,000) - - - -
Cash distributions
declared:
$1.29 per share - Series A - - - - - -
$1.29 per share - Series B - - - - - -
----------------------------------------------------------------------------------
Balances at December 31, 1994 1,816,099 18,000 184,453 2,000 522,618 5,000
Net income - - - - - -
Repurchase of shares (70,000) (1,000) - - - -
Cash distributions
declared:
$1.64 per share - Series A - - - - - -
$1.64 per share - Series B - - - - - -
----------------------------------------------------------------------------------
Balances at December 31, 1995 1,746,099 $17,000 184,453 $2,000 522,618 $5,000
==================================================================================
<CAPTION>
Cumulative Total
Paid-in Net Cumulative Shareholders'
Capital Income Distributions Equity
------- ------ ------------- ------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 $35,636,000 $15,416,000 ($19,744,000) $31,335,000
Net income - 2,760,000 - 2,760,000
Repurchase of shares (1,500,000) - - (1,501,000)
Cash distributions
declared:
$1.24 per share - Series A - - (2,414,000) (2,414,000)
$1.24 per share - Series B - - (229,000) (229,000)
-------------------------------------------------------
Balances at December 31,
1993 34,136,000 18,176,000 (22,387,000) 29,951,000
Net income - 3,127,000 - 3,127,000
Repurchase of shares (1,537,000) - - (1,538,000)
Cash distributions
declared:
$1.29 per share - Series A - - (2,386,000) (2,386,000)
$1.29 per share - Series B - - (238,000) (238,000)
-------------------------------------------------------
Balances at December 31, 1994 32,599,000 21,303,000 (25,011,000) 28,916,000
Net income
Repurchase of shares
- 3,202,000 - 3,202,000
Cash distributions (1,238,000) - - (1,239,000)
declared:
$1.64 per share - Series A
$1.64 per share - Series B
- - (2,900,000) (2,900,000)
- - (303,000) (303,000)
Balances at December 31, 1995 -------------------------------------------------------
$31,361,000 $24,505,000 ($28,214,000) $27,676,000
=======================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,202,000 $ 3,127,000 $ 2,760,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,122,000 1,114,000 1,246,000
Decrease in rent and
other receivables 19,000 11,000 45,000
Increase in prepaid expenses (212,000) (3,000) (19,000)
Increase (decrease) in accounts payable 326,000 (25,000) (68,000)
Decrease in advance
payments from renters (23,000) - (29,000)
----------- ----------- -----------
Total adjustments 1,232,000 1,097,000 1,175,000
----------- ----------- -----------
Net cash provided provided by operating activities 4,434,000 4,224,000 3,935,000
----------- ----------- -----------
Cash flows from investing activities:
Additions to real estate facilities (267,000) (254,000) (277,000)
----------- ----------- -----------
Net cash used in investing activities (267,000) (254,000) (277,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions paid to shareholders (2,609,000) (2,613,000) (2,672,000)
Purchase of Company Series A common stock (1,239,000) (1,538,000) (1,501,000)
----------- ----------- -----------
Net cash used in financing activities (3,848,000) (4,151,000) (4,173,000)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 319,000 (181,000) (515,000)
Cash and cash equivalents at
the beginning of the year 1,087,000 1,268,000 1,783,000
----------- ----------- -----------
Cash and cash equivalents at
the end of the year $ 1,406,000 $ 1,087,000 $ 1,268,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS
Public Storage Properties XII, Inc. (the "Company") is a California
corporation which has elected to qualify as a real estate investment trust
("REIT") for Federal income tax purposes. The Company succeeded to the
business of Public Storage Properties XII, Ltd. (the "Partnership") in a
reorganization transaction which was effective December 31, 1990 (the
"Reorganization").
The Company owns and operates primarily self-storage facilities and,
to a lesser extent, business park facilities containing commercial or
industrial spaces.
The term of the Company is until all properties have been sold and, in
any event, not later than December 31, 2038. The bylaws of the Company
provide that, during 1997, unless shareholders have previously approved such
a proposal, the shareholders will be presented with a proposal to approve or
disapprove (a) the sale or financing of all or substantially all of the
properties and (b) the distribution of the proceeds from such transaction
and, in the case of a sale, the liquidation of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes:
The Company has and intends to continue to qualify as a REIT, as
defined in Section 856 of the Internal Revenue Code (the Code). As a REIT,
the Company is not taxed on that portion of its taxable income which is
distributed to its shareholders provided that the Company meets the
requirements of the Code. The Company believes it is in compliance with
these requirements and, accordingly, no provision for income taxes has been
made.
Statements of Cash Flows:
For purposes of financial statement presentation, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Real Estate Facilities:
Cost of land includes appraisal and legal fees related to acquisition
and closing costs. Buildings, land improvements and equipment reflect costs
incurred through December 31, 1995 and 1994 to develop primarily mini-
warehouse facilities and to a lesser extent, business park facilities. The
mini-warehouse facilities provide self-service storage spaces for lease,
usually on a month-to-month basis, to the general public. The buildings and
equipment are depreciated on the straight-line basis over estimated useful
lives of 25 and 5 years, respectively.
At December 31, 1995, the basis of real estate facilities (excluding
land) for Federal income tax purposes (after adjustment for accumulated
depreciation of $13,660,000) is $10,635,000.
Revenue Recognition:
Property rents are recognized as earned.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Share:
Net income per share is based on net income attributable to each
series of common shares and the weighted average number of such shares
outstanding during the periods presented.
Net income per share is presented on a primary and fully diluted
basis. Primary earnings per share represents the Series A shareholders'
right to distributions out of the respective period's net income, which is
calculated by dividing net income after reduction for distributions to the
Convertible Series B shareholders (Convertible Series C shareholders are not
entitled to cash distributions) by the weighted average number of Series A
shares (Note 4). Fully diluted earnings per share assumes conversion of the
Convertible Series B and Series C shares into Series A shares.
Environmental Cost:
Substantially all of the Company's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995,
the Company completed environmental assessments onf its properties to
evaluate the environmental condition of, and potential environmental
liabilities of such properties. These assessments were performed by an
independent environmental consulting firm. Based on the assessments, the
Company has expensed, as of December 31, 1995, an estimated $245,000 for
known environmental remediation requirements. Although there can be no
assurance, the Company is not aware of any environmental contamination of
any of its property sites which individually or in the aggregate would be
material to the Company's overall business, financial condition, or results
of operations.
3. RELATED PARTY TRANSACTIONS
In 1995, there were a series of mergers among Pubic Storage
Management, Inc. (which was the Company's mini-warehouse operator), Public
Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in
the November 16 ,1995 merger (the "PSMI merger") of PSMI into Storage
Equities, Inc. ("SEI"). In the PSMI merger, Storage Equities, Inc.'s name
was changed to Public Storage, Inc. ("PSI"). B. Wayne Hughes and members of
his family (the "Hughes Family") are the majority shareholders of PSI. PSI
has a 95% economic interest and the Hughes family has a 5% economic interest
in Public Storage Commercial Properties Group, Inc. (PSCPG).
The Company has Management Agreements with PSI (as successor-in-
interest to PSMI) and PSCPG. Under the terms of the agreements, PSI operates
the mini-warehouse facilities and PSCPG operates the business park
facilities for fees equal to 6% and 5%, respectively, of the facilities'
monthly gross revenue (as defined).
Each Management Agreement provides that the agreement will expire in
February 2002 provided that in February of each year commencing February 21,
1996 it shall be automatically extended for one year (thereby maintaining a
seven-year term) unless either party notifies the other that the Management
Agreement is not being extended, in which case it expires on the first
anniversary of its then scheduled expiration date. Each Management Agreement
may also be terminated by either party for cause, but if terminated for
cause by the Company, the Company retains the rights to use the service
marks and related designs until the then scheduled expiration date, if
applicable, or otherwise a date seven years after such termination.
F-7
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
In August 1995, the Management Agreement with PSMI was amended to
provide that upon a demand from PSI or PSMI made prior to December 15, 1995,
the Company agreed to prepay (within 15 days after such demand) up to 12
months of management fees (based on the management fees for the comparable
period during the calendar year immediately preceding such prepayment)
discounted at the rate of 14% per year to compensate for early payment. In
November 1995, the Company prepaid, to PSI, 8 months of 1996 management fees
at a cost of $210,000. The amount is included in prepaid expenses in the
Balance Sheet at December 31, 1995 and will be amortized as management fee
expense in 1996.
4. SHAREHOLDERS' EQUITY
Series A shares are entitled to all distributions of cash from sale or
refinancing and participate ratably with the Convertible Series B shares in
distributions of cash flow from operations. The Convertible Series C shares
(prior to conversion into Series A shares) will not participate in any
distributions.
The Convertible Series B shares and Convertible Series C shares will
convert automatically into Series A shares on a share-for-share basis (the
"Conversion") when (A) the sum of (1) all cumulative dividends and other
distributions from all sources paid with respect to the Series A shares
(including liquidating distributions, but not including payments made to
redeem such stock other than in liquidation) and (2) the cumulative
Partnership distributions from all sources with respect to all units equals
(B) the product of $20 multiplied by the number of the then outstanding
"Original Series A shares". The term "Original Series A shares" means the
Series A shares issued in the Reorganization. Through December 31, 1995, the
Company has made and declared cumulative cash distributions of approximately
$25,854,000 with respect to the Series A shares. Accordingly, assuming no
repurchases or redemptions of Series A shares, Conversion will occur when
$9,068,000 in additional distributions with respect to the Series A shares
have been made.
Assuming liquidation of the Company at its net book value at December
31, 1995 and 1994, each Series of common shares would receive the following
as a liquidating distribution:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Series A $22,484,000 $24,730,000
Convertible Series B 1,355,000 1,092,000
Convertible Series C 3,837,000 3,094,000
----------- -----------
Total $27,676,000 $28,916,000
=========== ===========
</TABLE>
The Series B and Series C shareholders have agreed that 40,882 shares
of the Series A shares received upon conversion of the Convertible Series B
and Convertible Series C shares will not be entitled to distributions
attributable to sale or financing proceeds. This agreement, which is binding
on transferees of such Series A shares, is reflected in the liquidation
values applicable to the Series A and Convertible Series B and C shares.
The Series A shares, Convertible Series B shares and Convertible
Series C shares have equal voting rights. The holders of the Convertible
Series B and Convertible Series C shares have agreed to vote along with the
majority of the unaffiliated Series A shareholders on matters other than
control of the Company and its business.
F-8
<PAGE>
4. SHAREHOLDERS' EQUITY (CONTINUED)
The Company's Board of Directors has authorized the Company to
purchase up to 500,000 shares of the Company's Series A common stock. As of
December 31, 1995, the Company had purchased and retired 375,113 shares of
Series A common stock, of which 70,000 and 94,025 were purchased and retired
in 1995 and 1994, respectively.
For Federal income tax purposes, all distributions declared by the
Board of Directors in 1995 and 1994 were ordinary income.
5. LEASE AGREEMENTS
The Company has invested primarily in mini-warehouses which are
operated as self-storage facilities. Leases for such space are generally on
a month-to-month basis.
The Company has also invested in office and industrial properties
which are operated as business parks. Leases for such space are generally
long-term non-cancelable operating leases. At December 31, 1995, the minimum
amounts receivable under these non-cancelable leases were as follows:
<TABLE>
<S> <C>
1996 $3,289,000
1997 1,327,000
1998 425,000
1999 129,000
2000 37,000
Thereafter 1,000
----------
$5,208,000
==========
</TABLE>
6. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------
March 1995 June 1995 Sept 1995 Dec. 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $1,682,000 $1,778,000 $1,805,000 $1,783,000
---------- ----------- ----------- -----------
Expenses 876,000 858,000 921,000 1,191,000
---------- ----------- ----------- -----------
Net income $ 806,000 $ 920,000 $ 884,000 $ 592,000
========== =========== =========== ===========
Earnings per share:
Primary - Series A $0.41 $0.48 $0.37 $0.37
===== ===== ===== =====
Fully Diluted - Series A $0.32 $0.37 $0.36 $0.24
===== ===== ===== =====
</TABLE>
F-9
<PAGE>
6. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------
March 1994 June 1994 Sept 1994 Dec. 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $1,582,000 $1,637,000 $1,691,000 $1,703,000
---------- ---------- ---------- ----------
Expenses 899,000 850,000 887,000 850,000
---------- ---------- ---------- ----------
Net Income $ 683,000 $ 787,000 $ 804,000 $ 853,000
========== ========== ========== ==========
Earnings per share:
Primary- Series A $0.33 $0.39 $0.40 $0.44
===== ===== ===== =====
Fully diluted- Series A $0.26 $0.31 $0.31 $0.34
===== ===== ===== =====
</TABLE>
F-10
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------------- --------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 990,000 $ 1,406,000
Rent and other receivables 18,000 15,000
Prepaid expenses 200,000 279,000
Real estate facilities at cost:
Building, land improvements and equipment 25,146,000 25,127,000
Land 13,968,000 13,968,000
------------ ------------
39,114,000 39,095,000
Less accumulated depreciation (11,146,000) (10,869,000)
------------ ------------
27,968,000 28,226,000
------------ ------------
Total assets $ 29,176,000 $ 29,926,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 668,000 $ 737,000
Dividends payable 632,000 1,255,000
Advance payments from renters 269,000 258,000
Shareholders' equity:
Series A common, $.01 par value,
2,828,929 shares authorized,
1,730,199 shares issued and
outstanding (1,746,099 shares
outstanding in 1995) 17,000 17,000
Convertible Series B common,
$.01 par value, 184,453 shares
authorized, issued and outstanding 2,000 2,000
Convertible Series C common,
$.01 par value, 522,618 shares
authorized, issued and outstanding 5,000 5,000
Paid-in-capital 31,050,000 31,361,000
Cumulative income 25,379,000 24,505,000
Cumulative distributions (28,846,000) (28,214,000)
------------ ------------
Total shareholders' equity 27,607,000 27,676,000
------------ ------------
Total liabilities and shareholders' equity $ 29,176,000 $ 29,926,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
F-11
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
REVENUES:
Rental income $1,760,000 $1,672,000
Interest income 6,000 10,000
---------- ----------
1,766,000 1,682,000
---------- ----------
COSTS AND EXPENSES:
Cost of operations 475,000 452,000
Management fees paid to affiliates 94,000 98,000
Depreciation 277,000 273,000
Administrative 46,000 53,000
---------- ----------
892,000 876,000
---------- ----------
NET INCOME $ 874,000 $ 806,000
========== ==========
Primary earnings per share - Series A $0.47 $0.41
===== =====
Fully diluted earnings per share - Series A $0.36 $0.32
===== =====
Dividends declared per share:
Series A $0.33 $0.33
===== =====
Series B $0.33 $0.33
===== =====
Weighted average Common shares outstanding:
Primary - Series A 1,734,332 1,806,366
========== ==========
Fully diluted - Series A 2,441,403 2,513,437
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-12
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Convertible
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
------------ ----------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995 1,746,099 $17,000 184,453 $2,000 522,618 $5,000
Net income - - - - - -
Repurchase of shares (15,900) - - - - -
Cash distributions
declared: - -
$.33 per share - Series A - - - - - -
$.33 per share - Series B - - - - - -
---------------------------------------------------------------------
Balances at March 31, 1996 1,730,199 $17,000 184,453 $2,000 522,618 $5,000
=====================================================================
<CAPTION>
Cumulative Total
Paid-in Net Cumulative Shareholders'
Capital Income Distributions Equity
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $31,361,000 $24,505,000 ($28,214,000) $27,676,000
Net income - 874,000 - 874,000
Repurchase of shares (311,000) - - (311,000)
Cash distributions declared:
$.33 per share - Series A - - (571,000) (571,000)
$.33 per share - Series B - - (61,000) (61,000)
--------------------------------------------------------
Balances at March 31, 1996 $31,050,000 $25,379,000 ($28,846,000) $27,607,000
========================================================
</TABLE>
See accompanying notes to condensed financial statements.
F-13
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 874,000 $ 806,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 277,000 273,000
Increase in rent and other receivables (3,000) (5,000)
Amortization of prepaid management fees 79,000 -
Decrease in prepaid expenses - 1,000
Decrease in accounts payable (69,000) (82,000)
Increase (decrease) in advance payments from renters 11,000 (16,000)
----------- ----------
Total adjustments 295,000 171,000
----------- ----------
Net cash provided by operating activities 1,169,000 977,000
----------- ----------
Cash flows from investing activities:
Additions to real estate facilities (19,000) (28,000)
----------- ----------
Net cash used in investing activities (19,000) (28,000)
----------- ----------
Cash flows from financing activities:
Distributions paid to shareholders (1,255,000) (661,000)
Purchase of Company Series A common stock (311,000) (284,000)
----------- ----------
Net cash used in financing activities (1,566,000) (945,000)
----------- ----------
Net (decrease) increase in cash and cash equivalents (416,000) 4,000
Cash and cash equivalents at the beginning of the period 1,406,000 1,087,000
----------- ----------
Cash and cash equivalents at the end of the period $ 990,000 $1,091,000
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-14
<PAGE>
PUBLIC STORAGE PROPERTIES XII, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information
presented not misleading. These unaudited condensed financial statements
should be read in conjunction with the financial statements and related
notes appearing in the Company's Form 10-K for the year ended December 31,
1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Company's financial position at
March 31, 1996 and December 31, 1995, the results of its operations for
the three months ended March 31, 1996 and 1995 and its cash flows for the
three months then ended.
3. The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results expected for the full year.
4. In February 1996, the Company's Board of Directors authorized the Company
to obtain a line of credit facility for a maximum of $2,000,000 for
working capital purposes, including the repurchase of the Company's
stock.
In April 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $2,000,000. Outstanding
borrowings on the credit facility which, at the Company's option, bear
interest at either the bank's prime rate plus .25% or the bank's LIBOR
rate plus 2.25%, will convert to a term loan on December 31, 1997.
Interest is payable monthly until maturity. Commencing on January 31,
1998, principal will be payable monthly in eleven installments equal to
one forty-eighth of the outstanding principal amount of the line of
credit on December 31, 1997. On December 31, 1998, the remaining unpaid
principal and interest is due and payable.
5. In 1995, the Company prepaid eight months of 1996 management fees at
a total cost of $210,000. The Company expensed $79,000 of the 1996
prepaid management fees for the three months ended March 31, 1996. The
balance of prepaid management fees, $131,000, is included in other assets
in the Balance Sheet at March 31, 1996.
F-15
<PAGE>
Appendix G
PUBLIC STORAGE PROPERTIES XII, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS.
- ----------------------
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH
----------------------------------------------------------------------
31, 1995: Public Storage Properties XII, Inc.'s ("the Company") net income for
- ---------
the three months ended March 31, 1996 was $874,000 compared to $806,000 for the
three months ended March 31, 1995, representing an increase of $68,000 or 8%.
This increase is primarily a result of an increase in property net operating
income (rental revenue less cost of operations, management fees paid to
affiliates and depreciation expense).
Rental income for the three months ended March 31, 1996 and 1995 was
$1,760,000 and $1,672,000, respectively, representing an increase of $88,000.
Approximately $35,000 of the increase in rental revenues is attributable to an
increase in rental rates and occupancy levels at the Company's four mini-
warehouse properties located in Texas. Rental revenues increased by $53,000 at
the Company's business park operations for the three month period ended March
31, 1996 compared to the same period in 1995. This increase was mainly due to
an increase in rental rates and occupancy levels at all three of the Company's
business park facilities.
The Company's mini-warehouse operations had weighted average occupancy
levels of 88.3% and 90.0% for the three month periods ended March 31, 1996 and
1995, respectively. The Company's business park operations had weighted average
occupancy levels of 97.4% and 93.3% for the three month periods ended March 31,
1996 and 1995, respectively.
Cost of operations (including management fees paid to affiliates and
depreciation expense) increased to $846,000 from $823,000 for the three months
ended March 31, 1996 and 1995, respectively, representing an increase of
$23,000. This increase is mainly attributable to an increase in snow removal
cost. Snow removal cost increased due to higher than normal snow levels in the
Company's eastern states facilities.
In 1995, the Company prepaid eight months of 1996 management fees on its
mini-warehouse operations (based on the management fees for the comparable
period during the calendar year immediately preceding the prepayment) discounted
at the rate of 14% per year to compensate for early payment. During the three
month period ended March 31, 1996, the Company expensed $79,000 of prepaid
management fees. The amount is included in management fees paid to affiliate in
the condensed statement of income. As a result of the prepayment, the Company
saved approximately $8,000 in management fees, based on the management fees that
would have been payable on rental income generated in the three months ended
March 31, 1996 compared to the amount prepaid.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994: Net
----------------------------------------------------------------------
income in 1995 was $3,202,000 compared to $3,127,000 in 1994, representing an
increase of $75,000. Net income per fully diluted Series A share was $1.29 in
1995 compared to $1.22 in 1994, representing an increase of $.07 or 5% per
share. This increase is primarily due to an increase in property net operating
income offset by environmental cost incurred in 1995. Net income per share in
1995 also benefited by the reduction in the number of Series A shares
outstanding due to the Company's repurchase of Series A shares.
During 1995, property net operating income (rental income less cost of
operations, management fees paid to affiliates and depreciation expense)
increased $290,000 from $3,296,000 in 1994 to $3,586,000 in 1995. This increase
is primarily attributable to an increase in rental revenues at the Company's
mini-warehouse and business park facilities offset by an increase in operating
expense.
Rental income for the mini-warehouse operations increased $287,000 or 5%
from $5,562,000 in 1994 to $5,849,000 in 1995. Cost of operations (including
management fees paid to an affiliate of the Company)
G-1
<PAGE>
increased $91,000 or 5% from $1,673,000 in 1994 to $1,764,000 in 1995. The
increase in rental income is primarily due to an increase in rental rates offset
by a slight decrease in occupancy levels. Approximately $83,000 of the increase
occurred at the Company's two Arizona properties as a result of increases in
rental rates. The increase in cost of operations is mainly due to increases in
property taxes due to slight increases in property tax rates and management fees
paid to affiliates as a result of increased rental income.
Property net operating income before depreciation expense with respect to
the Company's business park facilities increased by $102,000 or 19% from
$520,000 in 1994 to $622,000 in 1995. This increase is primarily due to an
increase in rental revenues of approximately $122,000 as a result of increases
in rental rates combined with a six point increase in occupancy levels, offset
by a slight increase in cost of operations. The increase in cost of operations
is due to increases in payroll and management fees.
Substantially all of the Company's facilities were acquired prior to the
time that it was customary to conduct environmental investigations in connection
with property acquisitions. During the fourth quarter of 1995, the Company
completed environmental assessments of its properties to evaluate the
environmental condition of, and potential environmental liabilities of such
properties. These assessments were performed by an independent environmental
consulting firm. Based on the assessments, the Company has expensed, as of
December 31, 1995, an estimated $245,000 for known environmental remediation
requirements. Although there can be no assurance, the Company is not aware of
any environmental contamination of any of its property sites which individually
or in the aggregate would be material to the Company's overall business,
financial condition, or results of operations.
Weighted average occupancy levels were 91% for the mini-warehouse
facilities and 96% for the business park facilities in 1995 compared to 89% for
the mini-warehouse facilities and 90% for the business park facilities in 1994.
MINI-WAREHOUSE OPERATING TRENDS.
- --------------------------------
The following table illustrates the operating trends for the Company's 10
mini-warehouses:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Weighted average occupancy level 91% 89% 88%
Realized monthly rent per occupied
square foot (1) $.78 $.75 $.71
Operating margin (2)
Before reduction for depreciation expense 70% 67% 67%
After reduction for depreciation expense 51% 50% 47%
</TABLE>
_____________
(1) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions. Includes administrative and late fees.
(2) Operating margin (before reduction for depreciation expense) is computed
by dividing rental income less cost of operations by rental income.
Operating margin (after reduction for depreciation expense) is computed by
dividing rental income less cost of operations and depreciation by rental
income.
Management believes that the trends in property operations are due to:
. Increasing occupancy levels resulting from decreased levels of new
supply in the industry and promotion of the Company's facilities by
PSI.
G-2
<PAGE>
. Increasing realized rents per square foot of mini-warehouse space
resulting from increased demand for space and fewer promotional
discounts of scheduled rents required to maintain relatively high
occupancies.
. Increasing revenues due to increasing realized rents and occupancy
levels offset in part by an increase in expenses (approximately 5% for
1995 as compared to 1994).
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
Capital structure. The Company's financial profile is characterized
-----------------
by increasing net income, increasing cash provided by operating activities and
increasing funds from operations ("FFO").
Net Cash Provided by Operating Activities and Funds from Operations.
-------------------------------------------------------------------
The Company believes that important measures of its performance as well as
liquidity are net cash provided by operating activities and FFO.
Net cash provided by operating activities reflects the cash generated
from the Company's business before distributions to shareholders and capital
expenditures. Net cash provided by operating activities increased over the past
years from $3,935,000 in 1993 to $4,434,000 in 1995. Net cash provided by
operating activities increased from $977,000 for the three months ended March
31, 1995 to $1,169,000 for the three months ended March 31, 1996.
The Company's FFO is defined generally by the National Association of
Real Estate Investment Trusts as net income before loss on early extinguishment
of debt and gain on disposition of real estate, plus depreciation and
amortization. FFO is a supplemental performance measure for equity Real Estate
Investment Trusts used by industry analysts. FFO does not take into
consideration principal payments on debt, capital improvements, distributions
and other obligations of the Company. The only depreciation or amortization that
is added to income to derive FFO is depreciation and amortization directly
related to physical real estate. All depreciation and amortization reported by
the Company relates to physical real estate and does not include any
depreciation or amortization related to goodwill, deferred financing costs or
other intangibles. FFO is not a substitute for the Company's net cash provided
by operating activities or net income computed in accordance with generally
accepted accounting principles, as a measure of liquidity or operating
performance.
The following table summarizes the Company's ability to make capital
improvements to maintain its facilities through the use of cash provided by
operating activities. The remaining cash flow is available to the Company to pay
distributions to shareholders and repurchase its stock.
<TABLE>
<CAPTION>
Three months ended
March 31, Years ended December 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $874 $806 $3,202 $3,127 $2,760
Environmental cost - - 245 - -
Depreciation and amortization 277 273 1,122 1,114 1,246
------- ------ ------- ------- -------
Funds from operations
(Net cash provided by operating
activities before changes in
working capital components) 1,151 1,079 4,569 4,241 4,006
Capital improvements to
maintain facilities (19) (28) (267) (254) (277)
------- ------ ------- ------- -------
Excess funds available for
distributions to shareholders
and repurchase of stock 1,132 1,051 4,302 3,987 3,729
Cash distributions to shareholders (1,255) (661) (2,609) (2,613) (2,672)
------- ------ ------- ------- -------
Excess funds (deficit) available for
cash distributions to share-
holders and repurchase of stock $ (123) $ 390 $ 1,693 $ 1,374 $ 1,057
======= ====== ======= ======= =======
</TABLE>
G-3
<PAGE>
Cash flows from operating activities is expected to be sufficient to
cover operating expenses, capital improvements, debt service requirements and
distributions to shareholders.
The Company believes its geographically diverse portfolio has resulted
in a relatively stable and predictable investment portfolio.
The Company's Board of Directors has authorized the Company to purchase
up to 500,000 shares of Series A common stock. The Company has repurchased
391,013 shares of Series A common stock, of which 15,900 shares were purchased
in the first quarter of 1996.
In April 1996, the Company obtained an unsecured revolving credit
facility with a bank for borrowings up to $2,000,000. Outstanding borrowings on
the credit facility which, at the Company's option, bear interest at either the
bank's prime rate plus .25% or the bank's LIBOR rate plus 2.25%, will convert to
a term loan on December 31, 1997. Interest is payable monthly until maturity.
Commencing on January 31, 1998, principal will be payable monthly in eleven
installments equal to one forty-eighth of the outstanding principal amount on
the line of credit at December 31, 1997. On December 31, 1998, the remaining
unpaid principal and interest is due and payable.
The Company has elected and intends to continue to qualify as a real
estate investment trust ("REIT") for federal income tax purposes. As a REIT, the
Company must meet, among other tests, sources of income, share ownership, and
certain asset tests. 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 to its shareholders prior to filing of the
Company's tax return. The primary difference between book income and taxable
income is depreciation expense. In 1995, the Company's federal tax depreciation
was $1,168,000.
The bylaws of the Company provide that, during 1997, unless
shareholders have previously approved such a proposal, the shareholders will be
presented with a proposal to approve or disapprove (a) the sale or financing of
all or substantially all of the properties and (b) the distribution of the
proceeds from such transaction and, in the case of a sale, the liquidation of
the Company.
G-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS, OFFICERS AND AGENTS.
In August 1988, the Company's Articles of Incorporation were amended (as
approved by the shareholders in August 1988) to provide that the Company may
indemnify the agents of the Company to the maximum extent permitted under
California law. See Section V of the Certificate of Amendment of Articles of
Incorporation (Exhibit 3.11) and Article VII of the By-Laws (Exhibit 3.16) which
are incorporated herein by this reference. In October 1988, the Company also
entered into indemnity agreements (in the form approved by the shareholders in
August 1988) with its management and non-management directors and executive
officers. The agreements permit the Company to indemnify directors and executive
officers to the maximum extent permitted under California law and prohibit the
Company from terminating its indemnification obligations as to acts or omissions
of any director or executive officer occurring before the termination. The
indemnification and limitations on liability permitted by the amendment to the
Articles of Incorporation and the agreements are subject to the limitations set
forth by California law. The Company believes the indemnification agreements
will assist it in attracting and retaining qualified individuals to serve as
directors and executive officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS: See Exhibit Index contained herein.
(b) FINANCIAL STATEMENT SCHEDULES:
See Index to Financial Statement Schedules in registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference.
All other financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
S-1
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs 3.(i) and 3.(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
5. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
6. That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
7. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
8. Except as permitted by General Instruction H to Form S-4 (in a
transaction not covered by General Instruction I), to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described under Item 20 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glendale, State of
California, on the 23rd day of July, 1996.
PUBLIC STORAGE, INC.
By: B. WAYNE HUGHES
---------------------------------------
B. Wayne Hughes, Chairman of the Board
Each person whose signature appears below hereby authorizes B. Wayne Hughes
and Harvey Lenkin, and each of them, as attorney-in-fact, to sign on his behalf,
individually and in each capacity stated below, any amendment, including post-
effective amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
----------- ---------- ----
<S> <C> <C>
B. WAYNE HUGHES Chairman of the Board, Chief Executive July 23, 1996
- ---------------------- Officer and Director (principal executive
B. Wayne Hughes officer)
HARVEY LENKIN President and Director July 23, 1996
- ----------------------
Harvey Lenkin
RONALD L. HAVNER, JR. Senior Vice President and Chief July 23, 1996
- ---------------------- Financial Officer (principal financial
Ronald L. Havner, Jr. officer)
JOHN REYES Vice President and Controller (principal July 23, 1996
- ---------------------- accounting officer)
John Reyes
ROBERT J. ABERNETHY Director July 23, 1996
- ----------------------
Robert J. Abernethy
DANN V. ANGELOFF Director July 23, 1996
- ----------------------
Dann V. Angeloff
WILLIAM C. BAKER Director July 23, 1996
- ----------------------
William C. Baker
URI P. HARKHAM Director July 23, 1996
- ----------------------
Uri P. Harkham
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization between Registrant and Public
Storage Properties XII, Inc. ("PSP12") dated as of June 20, 1996 (filed
as Appendix A to the Proxy Statement and Prospectus).
3.1 Restated Articles of Incorporation. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.2 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series A. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.3 Certificate of Determination for the 9.20% Cumulative Preferred Stock,
Series B. Filed with Registrant's Registration Statement No. 33-54557
and incorporated herein by reference.
3.4 Amendment to Certificate of Determination for the 9.20% Cumulative
Preferred Stock, Series B. Filed with Registrant's Registration
Statement No. 33-56925 and incorporated herein by reference.
3.5 Certificate of Determination for the 8.25% Convertible Preferred Stock.
Filed with Registrant's Registration Statement No. 33-54557 and
incorporated herein by reference.
3.6 Certificate of Determination for the Adjustable Rate Cumulative
Preferred Stock, Series C. Filed with Registrant's Registration
Statement No. 33-54557 and incorporated herein by reference.
3.7 Certificate of Determination for the 9.50% Cumulative Preferred Stock,
Series D. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.50% Cumulative Preferred Stock, Series D and
incorporated herein by reference.
3.8 Certificate of Determination for the 10% Cumulative Preferred Stock,
Series E. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 10% Cumulative Preferred Stock, Series E and
incorporated herein by reference.
3.9 Certificate of Determination for the 9.75% Cumulative Preferred Stock,
Series F. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 9.75% Cumulative Preferred Stock, Series F and
incorporated herein by reference.
3.10 Certificate of Determination for the Convertible Participating Preferred
Stock. Filed with Registrant's Registration Statement No. 33-63947 and
incorporated herein by reference.
3.11 Certificate of Amendment of Articles of Incorporation. Filed with
Registrant's Registration Statement No. 33-63947 and incorporated herein
by reference.
3.12 Certificate of Determination for the 8-7/8% Cumulative Preferred Stock,
Series G. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 8-7/8% Cumulative Preferred Stock, Series G and
incorporated herein by reference.
3.13 Certificate of Determination for the 8.45% Cumulative Preferred Stock,
Series H. Filed with Registrant's Form 8-A/A Registration Statement
relating to the 8.45% Cumulative Preferred Stock, Series H and
incorporated herein by reference.
3.14 Certificate of Determination for the Convertible Preferred Stock, Series
CC. Filed with Registrant's Registration Statement No. 333-03749 and
incorporated herein by reference.
3.15. Certificate of Correction of Certificate of Determination for the
Convertible Participating Preferred Stock. Filed herewith.
S-4
<PAGE>
3.16 Bylaws, as amended. Filed with Registrant's Registration Statement No.
33-64971 and incorporated herein by reference.
3.17 Amendment to Bylaws adopted on May 9, 1996. Filed with Registrant's
Registration Statement No. 333-03749 and incorporated herein by
reference.
5.1 Opinion on legality. Filed herewith.
8.1 Opinion on tax matters. Filed herewith.
10.1 Loan Agreement between Registrant and Aetna Life Insurance Company dated
as of July 11, 1988. Filed with Registrant's Current Report on Form 8-K
dated July 14, 1988 and incorporated herein by reference.
10.2 Amendment to Loan Agreement between Registrant and Aetna Life Insurance
Company dated as of September 1, 1993. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
10.3 Credit Agreement by and among Registrant, Wells Fargo Bank, National
Association, as agent, and the financial institutions party thereto
dated as of May 22, 1995. Filed with Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1995 and incorporated herein by
reference.
10.4 Note Assumption and Exchange Agreement by and among Public Storage
Management, Inc., Public Storage, Inc., Registrant and the holders of
the notes dated as of November 13, 1995. Filed with Registrant's
Registration Statement No. 33-64971 and incorporated herein by
reference.
*10.5 Registrant's 1990 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
*10.6 Registrant's 1994 Stock Option Plan. Filed with Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.7 Agreement and Plan of Reorganization by and among Public Storage, Inc.,
Public Storage Management, Inc. and Registrant dated as of June 30,
1995. Filed as Appendix A to Registrant's Proxy Statement dated October
11, 1995 (filed October 13, 1995) and incorporated herein by reference.
10.8 Amendment to Agreement and Plan of Reorganization by and among Public
Storage, Inc., Public Storage Management, Inc. and Registrant dated as
of November 13, 1995. Filed with Registrant's Current Report on Form 8-K
dated November 16, 1995 and incorporated herein by reference.
23.1 Consent of Independent Auditors. Filed herewith.
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
23.4 Consent of Nicholson-Douglas Realty Consultants, Inc. Filed herewith.
99.1 Proxy card for PSP12. Filed herewith.
99.2 Cash Election Form. Filed herewith.
99.3 Real Estate Appraisal Report by Nicholson-Douglas Realty Consultants,
Inc. dated June 28, 1996 (filed as Appendix B to the Proxy Statement and
Prospectus).
99.4 Opinion of Robert A. Stanger & Co., Inc. dated July 24, 1996 (filed as
Appendix C to the Proxy Statement and Prospectus).
_______________
* Compensatory benefit plan.
S-5
<PAGE>
EXHIBIT 3.15
CERTIFICATION OF CORRECTION
OF
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
PUBLIC STORAGE, INC.
a California corporation
[As filed in the Office of the Secretary of State of the State of California
June 14, 1996]
Harvey Lenkin and Sarah Hass certify that:
1. They are the President and Secretary, respectively, of PUBLIC STORAGE,
INC., a California corporation (the "Corporation").
2. The name of the corporation is PUBLIC STORAGE, INC., and it is a
California corporation.
3. The instrument being corrected is entitled "CERTIFICATE OF
DETERMINATION OF PREFERENCES OF CONVERTIBLE PARTICIPATING PREFERRED STOCK OF
STORAGE EQUITIES, INC." and said instrument was filed with the Secretary of
State of the State of California on August 17, 1995. At the time said instrument
was filed the name of the corporation was STORAGE EQUITIES, INC.
4. Paragraph "(2)" under "(a) Dividend Rights" of the RESOLUTION OF THE
BOARD OF DIRECTORS OF STORAGE EQUITIES, INC. ESTABLISHING A SERIES OF
CONVERTIBLE PARTICIPATING PREFERRED STOCK attached to, and incorporated by
reference into, said Certificate of Determination, as corrected, should read in
its entirety as follows:
The full dividend on each Share for each Dividend Period shall be (i)
$12.50 plus (ii) an additional amount which (A) for each of the first eight
Dividend Periods shall be .003205% of the amount by which (1) "Adjusted
Property Cash Flow" (as
<PAGE>
hereinafter defined) for the same Dividend Period exceeds (2) $45,000, and
(B) for the ninth Dividend Period, and each subsequent Dividend Period,
shall be .003205% of the amount by which (1) the Adjusted Property Cash
Flow for the same Dividend Period exceeds (2) $525,000. (The full dividend
on each Share for the first Dividend Period shall be computed on the basis
of the Adjusted Cash Flow for the entire first Dividend Period,
notwithstanding that the Shares will have been outstanding for less than
the entire first Dividend Period.)
5. That said paragraph "(2)," as corrected, conforms the wording of the
resolution, as amended, to that adopted by the Board of Directors.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on May
13, 1996.
/s/ Harvey Lenkin
------------------------------
Harvey Lenkin
President
/s/ Sarah Hass
------------------------------
Sarah Hass
Secretary
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that the matters set forth in the foregoing Certificate
are true and correct of his own knowledge.
Executed at Glendale, California on May 13, 1996.
/s/ Harvey Lenkin
------------------------------
Harvey Lenkin
/s/ Sarah Hass
------------------------------
Sarah Hass
2
<PAGE>
DAVID GOLDBERG
Senior Vice President and General Counsel
701 Western Avenue, Suite 200
Glendale, California 91201-2397
July 23, 1996
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Gentlemen:
As Senior Vice President and General Counsel of Public Storage, Inc. (the
"Company"), I have examined the Registration Statement on Form S-4, which is
expected to be filed by the Company with the Securities and Exchange Commission
on or about the date of delivery of this opinion (the "Registration Statement"),
which relates to the offer and sale of the Company's common stock, par value
$.10 per share (the "Shares").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Shares in the manner set forth
in the Registration Statement. I have also examined the Company's Restated
Articles of Incorporation and Revised Bylaws and have made such other
investigation as I have deemed necessary in order to express the opinions
contained herein.
It is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of California.
2. The Shares, when issued and delivered in the manner and on the terms
described in the Registration Statement, will be legally issued, fully paid and
nonassessable.
I hereby consent to the reference to me under the caption "Legal Opinions"
in the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement or amendments thereto.
Very truly yours,
/S/ DAVID GOLDBERG
DAVID GOLDBERG
EXHIBIT 5.1
<PAGE>
Exhibit 8.1
July 23, 1996
Public Storage Properties XII, Inc.
701 Western Ave., Suite 200
Glendale, California 91201-2397
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section
7.1.7 of the Agreement and Plan of Merger by and among Public Storage, Inc., a
California corporation ("PSI") and Public Storage Properties XII, Inc., a
California corporation ("PSP12"). Pursuant to the Agreement and Plan of
Reorganization dated June 20, 1996 (the "Merger Agreement"), PSP12 will merge
with and into PSI (the "Merger").
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Merger Agreement and in the Proxy Statement
and Prospectus filed with the Securities and Exchange Commission on or about the
date of delivery of this opinion (the "Proxy Statement and Prospectus"). All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as legal counsel to PSP12 in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules thereto):
1. The Merger Agreement;
2. Representations made to us by PSI;
3. Representations made to us by PSP12;
4. The Proxy Statement and Prospectus;
5. The Shareholder's Representations provided to us by B. Wayne
Hughes; and
<PAGE>
Public Storage Properties XII, Inc.
July 23, 1996
Page 2
6. Such other instruments and documents related to the formation,
organization and operation of PSI and PSP12 or to the consummation of the Merger
and the transactions contemplated thereby as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites to
effectiveness thereof.
2. The Merger will be effective under the applicable state law.
3. The continuity of interest requirement as specified in Treas.
Reg. (S) 1.368-1(b) and as interpreted in certain Internal Revenue Service
rulings and federal judicial decisions will be satisfied.
4. No outstanding indebtedness of PSP12 or PSI has or will represent
equity for tax purposes; no outstanding equity of PSP12 or PSI has represented
or will represent indebtedness for tax purposes.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion (1) that for federal income tax purposes, the Merger will
constitute a "reorganization" as defined in Section 368(a) of the Code, (2) that
PSI continues to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code (the "Code") following the merger of Public Storage
Management, Inc. ("PSMI") into PSI (the "PSMI Merger") SO LONG AS (A) PSI has
met at all times since the PSMI Merger and continues to meet the stock ownership
and gross income requirements applicable to REITs and (B) PSMI at the time of
(and after giving effect to) the PSMI Merger was not considered to have any
current or accumulated earnings and profits for tax purposes, and (3) that the
discussion under the heading "Certain Federal Income Tax Matters" in the Proxy
Statement and Prospectus fairly
<PAGE>
Public Storage Properties XII, Inc.
July 23, 1996
Page 3
summarizes the federal income tax considerations that are material to a PS12
Shareholder.
In addition to the assumptions set forth above, this opinion is
subject to the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of relevant current provisions of the Code and
interpretations of the foregoing as expressed in existing judicial decisions,
administrative regulations and published rulings and procedures. Our opinion is
not binding upon the Internal Revenue Service or the courts, and the Internal
Revenue Service is not precluded from asserting a contrary position.
Furthermore, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the opinion expressed herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
2. This opinion addresses only the specific tax opinion set forth
above, and does not address any other federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction (including
any transaction undertaken in connection with the Merger). In particular, we
express no opinion regarding, among other things:
(i) whether and the extent to which any PS12 Shareholder who has
provided or will provide services to PS12 or PSI will have compensation income
under any provision of the Code and the effects of such compensation income,
including but not limited to the effect upon the basis and holding period of the
PSI Common Stock received by any such shareholder in the Merger;
(ii) the potential application of the "golden parachute" provisions
(Sections 280G, 3121(v)(2) and 4999) of the Code, the alternative minimum tax
provisions (Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, and
708 of the Code, or the regulations promulgated thereunder;
(iii)the tax consequences of the Merger to PS12 or PSI, including
without limitation the recognition of any gain after application of any
provision of the Code, as well as the regulations promulgated thereunder and
judicial interpretations thereof;
<PAGE>
Public Storage Properties XII, Inc.
July 23, 1996
Page 4
(iv) the basis of any equity interest in PSP12 acquired by PSI in the
Merger; and
(v) the tax consequences of the Merger (including the opinion set
forth above) as applied to specific stockholders of PSP12 and/or holders of
options or warrants for PSP12 stock or that may be relevant to particular
classes of PSP12 Shareholders and/or holders of options or warrants for PSP12
stock, including but not limited to dealers in securities, corporate
shareholders subject to the alternative minimum tax, foreign persons, and
holders of shares acquired upon exercise of stock options or in other
compensatory transactions.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Merger Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger Agreement
are not consummated in accordance with the terms of such Merger Agreement and
without waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
4. This opinion is intended solely for the purposes set forth in
Section 7.1.7 of the Merger Agreement; it may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent.
We hereby consent to the filing of this opinion letter as Exhibit 8.1
to the Registration Statement and to the reference to this firm under the
captions "Legal Opinions" and "Certain Federal Income Tax Matters" in the Proxy
Statement and Prospectus. In giving the consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 (No. 333- ) with respect to Public
Storage, Inc.'s registration of common stock and in the related Proxy Statement
and Prospectus of Public Storage, Inc. and Public Storage Properties XII, Inc.
and to the incorporation by reference therein of our report dated February 26,
1996 with respect to the consolidated financial statements and schedules of
Public Storage, Inc. in its Annual Report on Form 10-K, as amended by a Form 10-
K/A (Amendment No. 3) dated May 15, 1996, for the year ended December 31, 1995
filed with the Securities and Exchange Commission, and to the use of our report
dated February 27, 1996 with respect to the financial statements and schedules
of Public Storage Properties XII, Inc. included in the Registration Statement
and Proxy Statement and Prospectus.
ERNST & YOUNG LLP
Los Angeles, California
July 23, 1996
<PAGE>
Exhibit 23.4
CONSENT OF NICHOLSON-DOUGLAS REALTY CONSULTANTS, INC.
We hereby consent to the references to our firm under "The Merger -- Real
Estate Portfolio Appraisal by NDRC" in the Proxy Statement and Prospectus which
is a part of this Registration Statement and to the other references to our firm
therein.
/s/ Nicholson-Douglas Realty Consultants, Inc.
July 23, 1996
Hartland, Wisconsin
<PAGE>
Exhibit 99.1
PUBLIC STORAGE PROPERTIES XII, INC.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints B. Wayne Hughes and Harvey Lenkin, or
either of them, with power of substitution, as Proxies, to appear and vote, as
designated below, all the shares of Common Stock Series A of Public Storage
Properties XII, Inc. ("PSP12") held of record by the undersigned on July 25,
1996, at the Special Meeting of Shareholders to be held on September 11, 1996,
and any adjournments thereof.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED.
IN THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR THE PROPOSED
MERGER AND THE PROPOSED AMENDMENT TO BYLAWS.
[x] Please mark votes as in this example.
1. PROPOSED MERGER. To consider and vote upon an Agreement and Plan of
Reorganization between PSI and PSP12 described in the accompanying Proxy
Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSED AMENDMENT TO BYLAWS. To consider and vote upon a related amendment
to PSP12's bylaws to authorize the Merger in the form of Appendix E to the
accompanying Proxy Statement and Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Other matters: In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement and Prospectus dated _______________, 1996.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE TO
AMERICAN STOCK TRANSFER & TRUST COMPANY, 40 WALL STREET, 46TH FLOOR, NEW YORK,
NEW YORK 10005.
Dated: ____________________, 1996
______________________________________
Signature
______________________________________
Signature if held jointly
Please sign exactly as your name
appears. Joint owners should each
sign. Trustees and others acting in a
representative capacity should
indicate the capacity in which they
sign.
<PAGE>
Exhibit 99.2
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XII, INC.
Please read and follow carefully the instructions set forth below,
which set forth the requirements that need to be complied with in order to make
an effective election. Nominees, trustees or other persons who hold shares of
Public Storage Properties XII, Inc. ("PSP12") Common Stock Series A, par value
$.01 per share ("PSP12 Common Stock"), in a representative capacity are directed
to Instruction F(4).
TO BE EFFECTIVE, THIS CASH ELECTION FORM, PROPERLY COMPLETED AND
SIGNED IN ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS, TOGETHER WITH
CERTIFICATES FOR THE PSP12 COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS
GUARANTEED IN BOX E BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY
AMERICAN STOCK TRANSFER & TRUST COMPANY (THE "DEPOSITARY") NAMED BELOW, AT THE
APPROPRIATE ADDRESS SET FORTH BELOW, NO LATER THAN THE ELECTION DEADLINE (AS
DEFINED IN INSTRUCTION A). DELIVERIES MADE TO ADDRESSES OTHER THAN THE ADDRESS
FOR THE DEPOSITARY SET FORTH BELOW DO NOT CONSTITUTE VALID DELIVERIES AND THE
DEPOSITARY WILL NOT BE RESPONSIBLE THEREFOR.
HOLDERS OF PSP12 COMMON STOCK WHO INTEND TO RECEIVE PUBLIC STORAGE,
INC. ("PSI") COMMON STOCK IN THE PSP12 MERGER SHOULD NOT SUBMIT THIS CASH
ELECTION FORM AND SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE FIRST
NATIONAL BANK OF BOSTON (THE "EXCHANGE AGENT") WHICH WILL BE MAILED AFTER THE
CONSUMMATION OF THE PSP12 MERGER.
This Cash Election Form is to be executed and returned to the
Depositary at the following address:
BY MAIL, HAND OR OVERNIGHT COURIER OR
FOR DUPLICATE COPIES OF MATERIAL
American Stock Transfer & Trust Company
Attn: Reorganization Department
40 Wall Street, 46th Floor
New York, NY 10005
(800) 937-5449
(718) 921-8200
FOR INFORMATION
Shareholder Communications Corporation
(800) 733-8481, extension 432
Delivery of this instrument to an address other than as set forth
above will not constitute a valid delivery. The accompanying instructions should
be read carefully before this Cash Election Form is completed.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
Ladies and Gentlemen:
This Cash Election Form is being delivered in connection with the
merger (the "PSP12 Merger") of PSP12 with and into Public Storage, Inc. ("PSI"),
pursuant to the Agreement and Plan of Reorganization dated as of June 20, 1996,
between PSI and PSP12 (the "Merger Agreement").
The undersigned, subject to the Election and Allocation Procedures (as
defined below) and the other terms and conditions set forth in this Cash
Election Form, including the documents incorporated herein by reference, hereby
(a) surrenders the certificate(s) (the "Certificates") representing the shares
of PSP12 Common Stock listed in Box A (Certificate Information) and (b) elects
(an "Election"), as indicated below, upon consummation of the PSP12 Merger to
have each of the shares of PSP12 Common Stock represented by the Certificates
converted into the right to receive $22.34 in cash (subject to adjustment as
described in the Merger Agreement), without interest (a "Cash Election").
If the Depositary has not received your properly completed Cash
Election Form, accompanied by your stock Certificates, by the Election Deadline
(as defined in Instruction A) (unless Box E (Guaranty of Delivery) has been
properly completed and such Certificates are received by the Depositary by the
Guaranteed Delivery Deadline), you will receive PSI Common Stock in the PSP12
Merger.
The undersigned hereby certifies that this Election covers all of the
shares of PSP12 Common Stock registered in the name of the undersigned and
either (i) beneficially owned by the undersigned, or (ii) owned by the
undersigned in a representative or fiduciary capacity for a particular
beneficial owner or for one or more beneficial owners, except as otherwise
permitted pursuant to Instruction F(4). A PSP12 Shareholder may not make a cash
election as to less than all of the shares of PSP12 Common Stock beneficially
owned by such shareholder.
This Election is subject to the terms and conditions set forth in the
Merger Agreement and the Proxy Statement and Prospectus, dated July ___, 1996
(the "Proxy Statement and Prospectus"), furnished to shareholders of PSP12, in
connection with the PSP12 Merger, all of which are incorporated herein by
reference. Receipt of the Proxy Statement and Prospectus, including the Merger
Agreement attached as Appendix A thereto, is hereby acknowledged. Copies of the
Proxy Statement and Prospectus are available from the Depositary upon request
(see Instruction G(10)).
It is understood that because pursuant to the Merger Agreement the
number of shares of PSP12 Common Stock to be converted into the right to receive
cash in the PSP12 Merger are subject to limitations, no assurance can be given
that an Election by any given shareholder, including this Election by the
undersigned, can be accommodated. Rather, the Election by each holder of PSP12
Common Stock, including this Election by the undersigned, will be subject to the
results of the election and allocation procedures set forth in the Merger
Agreement and described in the Proxy Statement and Prospectus (the "Election and
Allocation Procedures").
1
<PAGE>
INSTRUCTIONS
The Execution Section of this Cash Election Form should be properly
filled in, dated and signed, torn off and delivered, together with all stock
Certificates representing PSP12 Common Stock currently held by you (unless
delivery is guaranteed in Box E in accordance with Instruction A), to the
Depositary at the appropriate address set forth on the front of this Cash
Election Form. Please read and follow carefully the instructions regarding
completion of this Cash Election Form set forth below. If you have any questions
concerning this Cash Election Form or require any information or assistance, see
Instruction G(1).
HOLDERS OF PSP12 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP12 MERGER SHOULD NOT SUBMIT THIS CASH ELECTION FORM AND SHOULD NOT
SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT WHICH WILL BE MAILED
AFTER THE CONSUMMATION OF THE PSP12 MERGER.
A. TIME IN WHICH TO ELECT
In order for an Election to be effective, the Depositary must receive
a properly completed Cash Election Form, accompanied by all stock Certificates
representing PSP12 Common Stock currently held by you, NO LATER THAN 5:00 P.M.,
NEW YORK CITY TIME, ON THE LAST BUSINESS DAY BEFORE THE DAY OF THE MEETING OF
SHAREHOLDERS OF PSP12 (the "Election Deadline"). If all other conditions set
forth in the Merger Agreement have been met or, if permissible, waived, the
effective time of the PSP12 Merger (the "Effective Time") could occur on the
same day approval of the PSP12 Merger by shareholders of PSP12 is obtained.
THUS, SHAREHOLDERS ARE URGED TO DELIVER A PROPERLY COMPLETED CASH ELECTION FORM,
ACCOMPANIED BY STOCK CERTIFICATES (OR A PROPER GUARANTY OF DELIVERY, AS
DESCRIBED BELOW), NO LATER THAN 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 10,
1996, IN ORDER TO ASSURE THAT THEIR CASH ELECTION FORM WILL BE RECEIVED BY THE
ELECTION DEADLINE. As soon as the date on which the effective time of the PSP12
Merger is anticipated to occur is determined, PSP12 and PSI will publicly
announce such date, although no assurance can be given that the Effective Time
will occur on such date. Persons whose stock Certificates are not immediately
available may also make an Election by completing this Cash Election Form and
having Box E (Guaranty of Delivery) properly completed and duly executed by a
member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (subject to the condition
that the Certificates, the delivery of which is thereby guaranteed, are in fact
delivered to the Depositary no later than 5:00 p.m., New York City Time, on the
third business day after the Election Deadline (the "Guaranteed Delivery
Deadline")).
IF THE DEPOSITARY HAS NOT RECEIVED YOUR PROPERLY COMPLETED CASH
ELECTION FORM, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DEADLINE
(UNLESS BOX E (GUARANTY OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH
CERTIFICATES ARE RECEIVED BY THE DEPOSITARY BY THE GUARANTEED DELIVERY
DEADLINE), YOU WILL RECEIVE PSI COMMON STOCK IN THE PSP12 MERGER.
For instructions regarding changes or revocations of Elections and the
time in which such changes or revocations can be made, see Instructions F(1) and
F(2) below.
B. ELECTIONS
This Cash Election Form provides for your Election, subject to the
Election and Allocation Procedures and the other terms and conditions set forth
hereunder and in the documents incorporated herein by reference, upon
consummation of the PSP12 Merger to have each of the shares of PSP12 Common
Stock covered by this Cash Election Form converted into the right to receive
$22.34 in cash (subject to adjustment as described in the Merger Agreement),
without interest (a "Cash Election").
You should understand that your Election is subject to certain terms
and conditions that are set forth in the Merger Agreement and described in the
Proxy Statement and Prospectus. The Merger Agreement is included as Appendix A
to the Proxy Statement and Prospectus. Copies of the Proxy Statement and
Prospectus may be requested from the Depositary at the address and telephone
number set forth on the first page of this Cash Election Form (see Instruction
G(10)). The delivery of this Cash Election Form to the Depositary constitutes
acknowledgement of the receipt of the Proxy Statement and Prospectus. EACH
HOLDER OF PSP12 COMMON STOCK IS STRONGLY ENCOURAGED TO READ THE PROXY STATEMENT
AND PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF, THE PSP12
MERGER AND THIS CASH ELECTION FORM WITH HIS OR HER PERSONAL FINANCIAL AND TAX
ADVISORS PRIOR TO DECIDING WHETHER TO ELECT CASH. THE TAX CONSEQUENCES TO A
HOLDER OF PSP12 COMMON STOCK WILL VARY DEPENDING UPON A NUMBER OF FACTORS. FOR
CERTAIN INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF AN
ELECTION, SEE "CERTAIN FEDERAL INCOME TAX MATTERS -- THE MERGERS" IN THE PROXY
STATEMENT AND PROSPECTUS.
C. CASH ELECTION
By completing and submitting the Cash Election Form, you are electing,
subject to the Election and Allocation Procedures and the other terms and
conditions set forth in this Cash Election Form, including the documents
incorporated herein by reference, to receive cash for all of the shares of PSP12
Common Stock covered by this Cash Election Form.
D. RECEIPT OF PSI COMMON STOCK
HOLDERS OF PSP12 COMMON STOCK WHO INTEND TO RECEIVE PSI COMMON STOCK
IN THE PSP12 MERGER SHOULD NOT SUBMIT THIS CASH ELECTION FORM AND SHOULD NOT
SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT WHICH WILL BE MAILED
AFTER THE CONSUMMATION OF THE PSP12 MERGER.
E. FAILURE TO MAKE EFFECTIVE CASH ELECTION
If you have failed to make an effective Cash Election, or if your
Election is deemed by the Depositary or PSI to be defective in any way, or if
your Cash Election Form is not accompanied by your Certificates (unless Box E
(Guaranty of Delivery) has been properly completed and such Certificates are
received by the Depositary by the Guaranteed Delivery Deadline), you will
receive PSI Common Stock in the PSP12 Merger.
F. SPECIAL CONDITIONS
(1) REVOCATION OF ELECTION. An election may be revoked by the person or
persons making such election by a written notice signed and dated by such person
or persons and received by the Depositary prior to the Election Deadline,
identifying the name of the registered holder of the PSP12 Common Stock subject
to such Election and the serial numbers shown on the Certificates representing
such PSP12 Common Stock. Any person or persons who have effectively revoked an
Election may, by a signed and dated written
2
<PAGE>
notice to the Depositary, request the return of the stock Certificates submitted
to the Depositary and such Certificates will be returned to such person or
persons (at the shareholder's risk) within five business days of receipt of such
request.
(2) NULLIFICATION OF ELECTION. All Cash Election Forms will be void and of
no effect if the PSP12 Merger is not consummated, and Certificates submitted
therewith shall be promptly returned to the persons submitting the same.
(3) ELECTIONS SUBJECT TO ALLOCATION. All Elections are subject to the
Election and Allocation Procedures set forth in the Merger Agreement and
described in the Proxy Statement and Prospectus under the caption "The Mergers -
- - General" and to the other terms and conditions set forth thereunder and
hereunder, including the documents incorporated herein by reference.
(4) SHARES HELD BY NOMINEES, TRUSTEES OR OTHER REPRESENTATIVES. Holders
of record of shares of PSP12 Common Stock who hold such shares as nominees,
trustees or in other representative or fiduciary capacities (a "Representative")
may submit one or more Cash Election Forms covering the aggregate number of
shares of PSP12 Common Stock held by such Representative for the beneficial
owners for whom the Representative is making an Election, provided, that such
Representative certifies that each such Cash Election Form covers all the shares
of PSP12 Common Stock held by such Representative for a particular beneficial
owner. Any Representative who makes an Election or a Non-Election may be
required to provide the Depositary with such documents and/or additional
certifications, if requested, in order to satisfy the Depositary that such
Representative holds such shares of PSP12 Common Stock for a particular
beneficial owner of such shares. If any shares held by a Representative are not
covered by an effective Cash Election Form, they will be exchanged for PSI
Common Stock.
G. GENERAL
(1) EXECUTION AND DELIVERY. In order to make an effective Election, you
must correctly fill in the Execution Section of this Cash Election Form. After
dating and signing it, you are responsible for its delivery, accompanied by all
stock Certificates representing PSP12 Common Stock currently held by you or a
proper Guaranty of Delivery of such stock Certificates pursuant to Instruction
A, to the Depositary at the address set forth on the front of this Cash Election
Form by the Election Deadline. YOU MAY CHOOSE ANY METHOD TO DELIVER THIS CASH
ELECTION FORM; HOWEVER, YOU ASSUME ALL RISK OF NON-DELIVERY. IF YOU CHOOSE TO
USE THE MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AND THAT YOU PROPERLY INSURE ALL STOCK CERTIFICATES. DELIVERY OF
STOCK CERTIFICATES WILL BE DEEMED EFFECTIVE AND RISK OF LOSS WITH RESPECT TO
SUCH CERTIFICATES SHALL PASS ONLY WHEN SUCH CERTIFICATES ARE ACTUALLY RECEIVED
BY THE DEPOSITARY.
(2) SIGNATURES. Except as otherwise permitted below, you must sign this
Cash Election Form exactly the way your name appears on the face of your
Certificates. If the shares are owned by two or more persons, each must sign
exactly as his or her name appears on the face of the Certificates. If shares of
PSP12 Common Stock have been assigned by the registered owner, this Cash
Election Form should be signed in exactly the same way as the name of the
assignee appearing on the Certificates or transfer documents. See Instructions
G(5)(a) and G(5)(b).
(3) NOTICE OF DEFECTS; RESOLUTION OF DISPUTES. None of PSP12, PSI and the
Depositary will be under any obligation to notify you or anyone else that the
Depositary has not received a properly completed Cash Election Form or that any
Cash Election Form submitted is defective in any way.
Any and all disputes with respect to Cash Election Forms or to
Elections made in respect of PSP12 Common Stock (including but not limited to
matters relating to the Election Deadline, time limits, defects or
irregularities in the surrender of any stock Certificate, effectiveness of any
Elections and computations of allocations) will be resolved by PSI and its
decision will be conclusive and binding on all concerned. PSI may delegate this
function to the Depositary in whole or in part. PSI or the Depositary shall have
the absolute right in its sole discretion to reject any and all Cash Election
Forms and surrenders of stock Certificates which are deemed by either of them to
be not in proper form or to waive any immaterial irregularities in any Cash
Election Form or in the surrender of any stock Certificate. Surrenders of stock
Certificates will not be deemed to have been made until all defects or
irregularities that have not been waived have been cured.
(4) ISSUANCE OF PAYMENT CHECK(S). If the Payment Check(s) are to be
issued in the name of the registered holder(s) as inscribed on the surrendered
Certificate(s), no guarantee of the signature on the Cash Election Form is
required. For corrections in name and change in name not involving changes in
ownership, see Instruction G(5)(c).
(5) ISSUANCE OF PAYMENT CHECK(S) IN DIFFERENT NAMES. If the Payment
Check(s) are to be issued in the name of someone other than the registered
holder(s) of the surrendered Certificate(s), you must follow the guidelines
below. Note that in each circumstance listed below, shareholder(s) must have
signature(s) guaranteed in Box C and complete Box F.
(a) ENDORSEMENT AND GUARANTEE. The Certificate(s) surrendered must
be properly endorsed (or accompanied by appropriate stock powers properly
executed) by the registered holder(s) of such Certificate(s) to the person
who is to receive the Payment Check(s). The signature(s) of the registered
holder(s) on the endorsement or stock powers must correspond with the
name(s) written upon the face of the Certificate(s) in every particular and
must be medallion guaranteed by an eligible guarantor institution as
defined below.
DEFINITION OF ELIGIBLE GUARANTOR INSTITUTION
Generally an eligible guarantor institution, as defined in Rule
17Ad-15 of the regulations of the Securities and Exchange Commission,
means:
(i) Banks (as that term is defined in Section 3(a) of the
Federal Deposit Insurance Act);
(ii) Brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, and government
securities brokers, as those terms are defined under the Securities
Exchange Act of 1934;
(iii) Credit unions (as that term is defined in Section
19(b)(1)(A) of the Federal Reserve Act);
(iv) National securities exchanges, registered securities
associations, clearing agencies, as those terms are used under the
Securities Exchange Act of 1934; and
(v) Savings associations (as that term is defined in Section
3(b) of the Federal Deposit Insurance Act).
3
<PAGE>
(b) TRANSFEREE'S SIGNATURE. The Cash Election Form must be signed by
the transferee or assignee or his or her agent, and should not be signed by
the transferor or assignor. See Box B (Sign Here). The signature of such
transferee or assignee must be medallion guaranteed by an eligible
guarantor institution as provided in Instruction G(5)(a).
(c) CORRECTION OF OR CHANGE IN NAME. For a correction of name or for
a change in name which does not involve a change in ownership, proceed as
follows. For a change in name by marriage, etc., the Cash Election Form
should be signed, e.g., "Mary Doe, now by marriage Mary Jones." For a
correction in name, the Cash Election Form should be signed, e.g., "James
E. Brown, incorrectly inscribed as J.E. Brown." The signature in each case
should be guaranteed in the manner described in Instruction G(5)(a) above
and Box F should be completed.
You should consult your own tax advisor as to any possible tax
consequences resulting from the issuance of Payment Check(s) in a name
different from that of the registered holder(s) of the surrendered
Certificate(s).
(6) SUPPORTING EVIDENCE. In case any Cash Election Form, certificate
endorsement or stock power is executed by an agent, attorney, administrator,
executor, guardian, trustee or any person in any other fiduciary or
representative capacity, or by an officer of a corporation on behalf of the
corporation, there must be submitted (with the Cash Election Form, surrendered
Certificate(s), and/or stock powers) documentary evidence of appointment and
authority to act in such capacity (including court orders and corporate
resolutions when necessary), as well as evidence of the authority of the person
making such execution to assign, sell or transfer the Certificate(s). Such
documentary evidence of authority must be in form satisfactory to the
Depositary.
(7) SPECIAL MAILING INSTRUCTIONS. The Payment Check(s) will be mailed to
the address of the registered holder(s) as indicated in Box A (Certificate
Information), unless instructions to the contrary are given in Box G (Special
Mailing Instructions).
(8) LOST CERTIFICATES. If you are not able to locate your Certificate(s)
representing PSP12 Common Stock, you should contact American Stock Transfer &
Trust Company, PSP12's transfer agent, at (800) 937-5449 or (718) 921-8200. In
such event, the transfer agent will forward additional documentation which the
shareholder must complete in order to effectively surrender such lost or
destroyed Certificate(s). There will be a cost to replace lost Certificates.
(9) FEDERAL INCOME TAX WITHHOLDING. Under Federal income tax law, the
Depositary is required to file a report with the Internal Revenue Service
disclosing any payments of cash being made to each holder of Certificates
formerly representing shares of PSP12 Common Stock pursuant to the Merger
Agreement. In order to avoid backup withholding of Federal income tax on any
cash received upon the surrender of Certificate(s), a holder thereof must,
unless an exemption applies, provide the Depositary with his or her correct
taxpayer identification number ("TIN") on Substitute Form W-9, which is part of
this Cash Election Form (Box D), and certify, under penalties of perjury, that
such number is correct and that such holder is not otherwise subject to backup
withholding. If the correct TIN and certifications are not provided, a $50
penalty may be imposed by the Internal Revenue Service and payments made for
surrender of Certificate(s) may be subject to backup withholding of 31%. In
addition, if a holder makes a false statement that results in no imposition of
backup withholding, and there was no reasonable basis for making such a
statement, a $500 penalty may also be imposed by the Internal Revenue Service.
Backup withholding is not an additional Federal income tax. Rather,
the Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of such tax withheld. If backup withholding results in
an overpayment of income taxes, a refund may be obtained from the Internal
Revenue Service.
The TIN that must be provided on the Substitute Form W-9 is that of
the registered holder(s) of the Certificate(s) at the effective time of the
PSP12 Merger. The TIN for an individual is his or her social security number.
The box in Part II of the Substitute Form W-9 may be checked if the person
surrendering the Certificates has not been issued a TIN and has applied for a
TIN or intends to apply for a TIN in the near future. If the box in Part II has
been checked, the person surrendering the Certificate(s) must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding. Notwithstanding that the box in Part II is checked (and the
Certificate of Awaiting Taxpayer Identification Number is completed), the
Depositary will withhold 31% on all cash payments with respect to surrendered
Certificate(s) made prior to the time it is provided with a properly certified
TIN.
Exempt persons (including, among others, corporations) are not subject
to backup withholding. A foreign individual may qualify as an exempt person by
submitting Form W-8 or a substitute Form W-8, signed under penalties of perjury,
certifying to such person's exempt status. A form of such statement can be
obtained from the Depositary. A Certificate holder should consult his or her tax
advisor as to such holder's qualification for an exemption from backup
withholding and the procedure for obtaining such exemption.
The signature and date provided on the Substitute Form W-9 will serve
to certify that the TIN and withholding information provided in this Cash
Election Form are true, correct and complete.
(10) QUESTIONS AND REQUESTS FOR INFORMATION OR ASSISTANCE. If you have any
questions or need assistance to complete this Cash Election Form, please contact
Shareholder Communications Corporation at (800) 733-8481, extension 432
(individual holders), or (212) 805-7000 (banks and brokers). You may also
obtain additional copies of the Cash Election Form and the Proxy Statement and
Prospectus from the Depositary at the addresses and telephone numbers set forth
on the first page of this Cash Election Form.
H. DELIVERY OF PAYMENT CHECKS
As soon as practicable after the PSP12 Merger becomes effective, the
Depositary will make the allocations of cash to be received by holders of PSP12
Common Stock or their designees in accordance with the Election and Allocation
Procedures. The Depositary will thereafter issue and mail to you a check for
any cash to which you are entitled, provided you have delivered the required
Certificates for your PSP12 Common Stock in accordance with the terms and
conditions hereof, including the documents incorporated herein by reference.
If you do not submit an effective Cash Election Form, the Exchange
Agent will forward to you, as soon as practicable after the PSP12 Merger becomes
effective, a Letter of Transmittal for you to use to send in your stock
Certificates for shares of PSP12 Common Stock, containing appropriate
instructions for surrendering such Certificates at that time. After the Exchange
Agent receives your stock Certificates with a properly completed Letter of
Transmittal, it will issue and mail to you a certificate or certificates for PSI
Common Stock to which you are entitled (and, if applicable, a check in lieu of a
fractional share), provided you have delivered the required Certificates for
your PSP12 Common Stock in accordance with the terms and conditions of the
Letter of Transmittal, including the documents incorporated therein by
reference.
DO NOT ENCLOSE YOUR PROXY CARD RELATING TO THE SPECIAL MEETING WITH
THIS CASH ELECTION FORM, YOUR PROXY CARD SHOULD BE RETURNED IN THE POSTAGE-PAID
ENVELOPE ENCLOSED WITH THE PROXY STATEMENT AND PROSPECTUS FOR THAT PURPOSE.
4
<PAGE>
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XII, INC.
EXECUTION SECTION
<TABLE>
BOX A
____________________________________________________________________________________________________________________________________
CERTIFICATE INFORMATION
List below the certificates to which this Cash Election Form relates. (Attach additional sheets if necessary.)
Number of Shares
Name and Address of Registered Holder(s) as Shown on the Share Records Represented by
(Fill in, if Blank) Certificate Number Each Certificate
- ------------------------------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
__________________ ________________
__________________ ________________
__________________ ________________
__________________ ________________
Total Shares: ================
____________________________________________________________________________________________________________________________________
</TABLE>
CERTIFICATE HOLDER(S) SIGN HERE
The undersigned hereby represents and warrants that the undersigned has full
power and authority to complete and deliver this Cash Election Form and to
deliver for surrender and cancellation the above-described Certificate(s)
delivered herewith and that the rights represented by the Certificate(s) are
free and clear of all liens, restrictions, charges and encumbrances and are not
subject to any adverse claim. The undersigned will, upon request, execute any
additional documents necessary or desirable to complete the surrender of the
Certificate(s) surrendered herewith. All authority herein conferred shall
survive the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Delivery of the Certificate(s) for
surrender and cancellation may be revoked only in accordance with Instruction
F(2).
<TABLE>
BOX B
____________________________________________________________________________________________________________________________________
SIGN HERE
To be completed by all person(s) surrendering certificates and executing this Cash Election Form.
<S> <C>
Signature(s): ____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
Date: ________________________________________ Telephone Number: ______________________________________________
<CAPTION>
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock Certificate(s) or by person(s) authorized to become
registered holders by documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or in any other fiduciary or representative capacity, please provide the following
information. (See Instruction G(6)).
<S> <C>
Name(s): ____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
Capacity (Full Title): ____________________________________________________________________________________________________________
Address: ____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
BOX C
____________________________________________________________________________________________________________________________________
<S> <C>
SIGNATURE GUARANTEE
To be completed only if required by Instruction G(5). Your signature must be MEDALLION GUARANTEED by an eligible financial
institution. Note: a notarization by a notary public is not acceptable.
FOR USE BY FINANCIAL INSTITUTION ONLY. PLACE MEDALLION GUARANTEE IN SPACE BELOW.
____________________________________________________________________________________________________________________________________
</TABLE>
E-1
<PAGE>
CASH ELECTION FORM
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK SERIES A OF
PUBLIC STORAGE PROPERTIES XII, INC.
EXECUTION SECTION (CONTINUED)
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER ON
THIS SUBSTITUTE FORM W-9 AND CERTIFY THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE PSP12
MERGER. IF THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9 IS CHECKED, THE
"CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER" BELOW MUST BE
COMPLETED.
<TABLE>
BOX D
____________________________________________________________________________________________________________________________________
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN IN Social Security Number or
THE BOX AT RIGHT AND CERTIFY BY Employer Identification Number
SUBSTITUTE SIGNING AND DATING BELOW. __________________________________
_______________________________________________________________________________________________
Form W-9 PART 2 - Check the box if you are not subject to backup withholding because (1) you have
not been notified that you are subject to backup withholding as a result of failure to
Department of the Treasury report all interest or dividends or (2) the Internal Revenue Service has notified you that
Internal Revenue Service you are no longer subject to backup withholding. [_]
_______________________________________________________________________________________________
Payer's Request for Taxpayer Certification - Under penalties of perjury, I certify that the PART 3 -
Identification Number (TIN) information provided on this form is true, correct and complete.
Awaiting TIN [_]
______________________
Signature:_________________________________________________ Date:_______________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed
or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I
do not provide a taxpayer identification number by the time of payment, 31% of any cash payment made to me will be withheld, but
that such amount will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days.
Signature:____________________________________________________________ Date:__________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
BOX E
____________________________________________________________________________________________________________________________________
GUARANTY OF DELIVERY
To be used only if Certificates are not surrendered herewith. (See instruction A.) The undersigned (check appropriate boxes below)
guarantees to deliver to the Depositary at the appropriate address set forth above the Certificates for shares of PSP12 Common
Stock submitted with this Cash Election Form no later than 5:00 p.m., New York City Time, on the third business day after the
Election Deadline (as defined in Instruction A).
<S> <C> <C>
[_] A member of a registered national Firm: ______________________________________________________
securities exchange
Authorized Signature: ______________________________________________________
[_] A member of the National Association Address: ______________________________________________________
of Securities Dealers, Inc.
______________________________________________________
[_] A commercial bank or trust company Telephone Number: ______________________________________________________
in the United States
____________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL PAYMENT AND MAILING INSTRUCTIONS
The undersigned understands that the check issued as payment in cash (such
checks being referred to herein as "Payment Checks") with respect to the PSP12
Common Stock surrendered will be issued in the same name(s) as the
Certificate(s) surrendered and will be mailed to the address of the registered
holder(s) indicated above, unless otherwise indicated in Box F or Box G below.
If Box F is completed, the signature of the undersigned must be guaranteed as
set forth in Instruction G(5).
<TABLE>
BOX F
____________________________________________________________________________________________________________________________________
SPECIAL PAYMENT INSTRUCTIONS
To be completed only if the Payment Check(s) is (are) to be issued in the name(s) of someone other than the registered holder(s)
set forth above. Signature must be guaranteed. (See Instruction G(5).)
<S> <C>
Name: ______________________________________________________________________________________
Address: ______________________________________________________________________________________
______________________________________________________________________________________
Social Security Number or
Employer Identification Number: ______________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
BOX G
____________________________________________________________________________________________________________________________________
SPECIAL MAILING INSTRUCTIONS
To be completed only if the Payment Check(s) is (are) to be issued to the registered holder(s) and mailed to an address other than
that of the registered holder(s) set forth above. (See Instruction G(7).)
<S> <C>
Address: __________________________________________________________________________________________________
__________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
E-2
